Government Intervention In Free Markets

790 Words4 Pages
Government intervention typically raises expectations that the public is more secure because government will protect us from risk. Instead, the very act of creating an aura of security leads us to riskier behavior, ensuring that the next bubble will cause more financial distress than the last (Poltenson 2009). Clearly the last few lines are of a highly speculative nature, but they do raise the question of how much government intervention in a free market can be tolerated until the optimistic intentions of policy potentially lead to disastrous economic and social hardships. Policy makers like current Fed chairman Ben Bernanke say the Fed can control the moral hazard by “prudential supervision and regulation to be sure financial institutions manage their liquidity risks effectively in advance of a crisis”(Poltenson 2009). Governments need to make sure that interventionist policies are careful thought out and critiqued. Ineffectively planned policies could lead to a significant negative impact on the government or market. There is a need for policymakers to ensure that the marginal social costs of interventionist policies do not exceed the marginal social benefits (Aikins 2010). In many circumstances government intervention in the market principally emerges from the failure of the private sector to enter into some of the markets. It is this failure that leaves government with no option other than to enter into these markets (Basu 2009). Recently, India initiated a green revolution. Through intervention policy, India was successful in promoting self sufficiency in food production, but was unable to lower their poverty level. It became apparent that the government would find itself forced to intervene in the market in order to lower the high poverty level. Initially, the government wanted to allow the market to correct itself but found itself needing to
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