In standard democratic societies, the role of the government in the economy is to ensure equitable distributions of resources without explicitly favoring any particular group. Some of the economic roles that the government plays include ensuring low-income earners are not marginalized, facilitating the adequate flow of goods and services, and streamlining shocks in the economy. There is an ongoing debate as to how much influence a government should have in the United States economy. One school of thought is of the view that the government already has too much influence on the economy. On the other hand, some feel that the government has neglected its economic-regulation roles. Nevertheless, the role of government in the economy often gains prominence in times of economic turmoil. For instance, during the Great Depression and the Housing Crisis of 2008, a lot of economic involvement was expected from the sitting US Presidents. This essay delves into the expected government’s role in the US economy.
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One approach when exploring the role of the government in the economy is to look back at the events surrounding the Great Depression of the 1930s. The Great Depression is shrouded in mystery with most of the blame for this historical event going to an overdrive of capitalism. Furthermore, government interference in the form of President Roosevelt’s influence is credited with saving the day. Further analysis of the issue indicates that the government was the cause of the depression in the first place. Furthermore, it has been argued that additional government policies prevented the situation from normalizing for the next decade after 1930. Some of the contributing factors in this crisis include policies of the Federal Reserve, Presidents, and Congress. Therefore, it would be prudent to argue that the US government should have a minimal influence on the economy. This approach eliminates the chance of the government instituting policies that worsen the situation in times of crisis. By nature, markets are flexible and they can easily adjust to shocks when the government does not interrupt this process.
Another contentious view on the government’s role in the economy involves the 2008 housing crash. During this event, lenders found themselves with thousands of bad mortgages resulting in massive foreclosures. Like in the case of the Great Depression, popular opinion blames this crisis on human greed. However, the government hand is evident in the course of this crisis. First, the government is the central figure in this crisis because it encouraged non-creditworthy borrowers to seek risky mortgages. The two government agencies at the center of the crisis, Freddie Mac and Fannie Mae ignored glaring financial risks in the belief that they were too big to fail. As in the case of the Great Depression, further government influence only made the situation worse. Therefore, it is clear that if the government cannot prevent economic crises from happening, then it should not be expected to clean up its mess. The role of the government should be to police existing guidelines and not to formulate new ones or blatantly ignore the prevailing ones.
The role of the government in the US economy is a quagmire to many observers because it seems contradictory. However, the two examples of financial crises indicate that undue government influence is already a proven problem. The recurring theme is that the government can get away with overriding its policies at will. Also, the government constantly ignores a market’s ability to ‘fix’ itself in times of turmoil.