Government Intervention in the Economy: Issues & Factors

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  • 0:01 Too Much or Too Little…
  • 0:36 When to Intervene
  • 1:53 Weighing Benefits and Costs
  • 2:54 National Deficit and Debt
  • 4:28 Lesson Summary
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Lesson Transcript
Instructor: Christine Serva

Christine has an M.A. in American Studies. She is an instructional designer, educator, and writer with a particular interest in the social sciences and American studies.

In this lesson, you'll consider the question of when it's worthwhile for the government to take action related to the economy. We'll use concrete examples to help you understand these hotly debated issues.

Too Much or Too Little Government?

Two students are arguing about the economy. One student, Trisha, argues that the government needs to stay out of the economy completely and just let people do as they please. She argues that things will work out in the end.

The other student, Ben, takes an opposite viewpoint. He thinks the government should be much more involved in the economy than it is already and should not hesitate to intervene whenever possible.

Their teacher, Nigel, chimes in and disagrees with them both. He argues that the need for government intervention depends a great deal on the situation at hand. This lesson considers Nigel's point of view as he makes his case to Trisha and Ben.

When to Intervene

Trisha asks, 'Why have the government involved in the economy at all?' Nigel gives several examples of when government involvement is considered warranted. He asks Ben and Trisha to imagine what it would be like if there was only one cell phone company who had bought out all of the competition.

'They'd be able to charge as much as they'd want,' Ben says unhappily. 'With no competition, they'd have too much control over the sales of cell phones, and consumers and businesses would suffer.'

'Right,' Nigel says and explains that preventing a monopoly of this type is just one time when most people would agree that the government ought to intervene and create regulations that limit the power that one entity can have.

There are also a number of approaches the government can use in a poor economy to try to improve conditions. For example, the government could aim to lower interest rates in times of economic trouble. Trisha recalls that a decrease in interest rates a few years back made it possible for her to afford a car loan.

The government may also play a role in reducing the gap between being very rich and being very poor in our society. For instance, Ben's family lives in a town in which many students do not graduate from high school and a very high percentage of people are unemployed. The government may implement programs to cope with the cycle of poverty and lack of education in Ben's hometown.

Weighing Benefits and Costs

Trisha says, 'I know government involvement isn't always a good thing, though, right?' Nigel agrees and points out that, in particular, government intervention is not a good idea in cases where the costs of this involvement outweigh the benefits.

For instance, let's say that it's possible for the government to save a particular industry that is failing. For this example, we'll say that it's the imaginary widget industry that is at risk of going bankrupt and laying off many people. The failure of the widget industry could affect many other industries, sending the economy into a slump.

In some cases, it may turn out that the costs of intervention are too high or the risks of failure too great to warrant government action. Sometimes, the outcome of these actions can be hard to predict.

When the government should intervene in the economy is a huge topic in political debates, covering a wide range of industries. For instance, some argue, like Ben does, that the government's involvement in the healthcare field is extremely beneficial to many people in our society, while others like Trisha view it very negatively.

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