Transcription of The role of government in a market economy
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The role of government in a market economy
The role of government in a market economy GUEST COLUMNIST SEPTEMBER 27, 2008 The current economic storm did not come out of thin air; it is an accumulation of incorrect policies and sometimes lack of policies by the main entities that manage our economy (the executive branch of the federal government represented by the Treasury Department and the Federal Reserve System). In order to guide the economy out of this dangerous position, and to prevent it from falling into a prolonged period of stagnation, inflation, or stagflation, the Treasury and the Federal Reserve (The Fed) are proposing a new solution that entails pumping over $700 billion into the financial markets. In order to evaluate this new proposal and in an attempt to understand whether this new policy will save the day or add fuel to the fire, I will attempt, in a series of articles, to provide my answers to the following questions: First, what went wrong and why?
The consensus in the economic literature, with regard to the role of the government in a market economy, calls upon the government to perform five functions. These functions are: 1. Providing the economy with a legal structure: This is the first and most important function a government should provide and without it an economy may collapse.
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