Economic policy can be defined as the course of action by which behaviour if the economy is influenced, control and administered. Economic policy made by government, and central bank in the form of fiscal policy and monetary policy. Government is an important economic entity in the functioning and administering of the economic aspects of the nation. It plays a huge part to play in the circular flow of income in the economy (Jhinghan, 2017). So according to this it should definitely intervene in the functioning of the country. Here are a few points to support this and back up the argument. In this essay arguments will be presented in depth as to why a state is important in the functioning of the economy.
The government could help counter unemployment and control recession through a number of ways. The best way to reduce unemployment is through fiscal policies. The government could help counter unemployment and control recession through a number of ways. The best way to reduce unemployment is through fiscal policies. The policy will reduce unemployment by assisting in increasing the aggregate demand in an economy and also the growth rate will be increased (Schneider, Pottenger and King, 2016). The better expansionary fiscal policy can be achieved through; lowering of taxes as people will be able to purchase more and increased government spending. For the government to counter a recession, increased money supply should be encouraged in the economy. The government should loosen its monetary policy and this will encourage foreign investment.
The government could also borrow and receive foreign aid to counter recession. Government intervention through borrowing from the private sector will increase the money available for spending. The government also comes in when it is necessary to print more money due to a collapse of the money supply. The government also prevents inflation through implementing various fiscal policies which will help to gain stability in the economy and hence prevent a credit explosion. High unemployment rates are also a sign of recession and reduced recession will lower the rate of unemployment. For instance in such times of a pandemic various governments of the world are creating jobs for their residents in order to give them better living. The recession could also have an advantage as after periods of recession, there could be greater efficiency in the long term. The economy will be productive in the long term also and new firms could emerge (Slepov et al, 2017).
Government helps to overcome market failure by taking into account externalities for example, government can provide subside goods with positive externalities as Indian government in order to remove air pollution and improve the health of women especially in rural areas introduce UJJVALA Yojana by providing households LPG in a subsidised rate. State intervention helps in preventing market failure. Market failure occurs due to existence of factors like externalities (Marciano and Medema, 2015). It is found that many companies during production are likely to cause negative externalities like pollution which affect the environment and the consumers. Through state intervention, the companies responsible are made accountable for the negative externalities that they cause (Holmes, 2016). This is usually through setting limits to which they can cause the externalities and when they exceed the limit set, they are made to pay. Implementation of various taxes for productions that causes a negative externality also helps firms to divert to using other forms which causes less pollution. For instance, the government may implement huge taxes for companies who use charcoal in their production process in order to encourage them to shift and use other forms like solar power. This way there will be a reduction in the pollution into the environment.
The state can also intervene to prevent creation of monopolies that set prices as they which and therefore the customers end up paying higher prices for those products (Grant, 2017). The government hence puts regulations for the monopoles which see that the prices are lowered. This also leads to an increase in the economic efficiency in the market. Due to the increase in the inequality in a free market, the state intervention is important to ensure that wealth distribution and income is equal. For instance through the implementation of a wealth tax, the government ensures that the rich people are taxed more. The revenue which the government makes from this is then used for spending on the poor through things like education. State intervention in economic policies also helps in ensuring fairness in the economy. For instance in cases where there are monopolies who take advantage of their power and charge high prices to customers yet they pay very low wages to their worker, state intervention helps to reduce this. The government steps in and encourages competition in the market which eliminates the monopolies and hence increasing the income equality.
Government should intervene in economic policy as government spreads equality in the society as it redistributes income and wealth to improve equality of opportunity (Schneider, Pottenger and King, 2016).The government plays a vital role in the equal distribution of wealth through various ways: Taxation- the government imposes direct taxes. The taxes are then distributed to less fortunate people in the society through welfare and charity programs, Redistribution-this involves taking some amount of income from those who get high earnings and distribute to those who get low earnings. Moreover, people with higher incomes contribute a higher income tax while those with low earnings contribute a lower percentage of income tax. Public policies- government has come up with policies that grant equal opportunities to those both the class at the highest point of the wealth ladder as well as to those at the lowest point of the wealth ladder. This has promoted equal chances for people to access education, medical care, and even platforms that promote and support talents.
There are various forms of disaster that can hit an economy. For instance, in cases of natural disasters like earthquakes this leaves many displaced and with no means of survival and hunger. The most recent is the current pandemic of coronavirus (COVID-19) which has hit the globe and left many economies suffering and many more with nothing to eat. During such times there are various ways in which the government can provide relief to those in need (Chandra, Moen and Sellers, 2016). These include; financial relief and food assistance. Financial relief is made through direct cash deposits to those hit by the disaster. The cash relief is made to individuals based on the family size and also the income level. An example is where the needy people are receiving cash payments from the government during the coronavirus pandemic to help them in aiding their day to day needs.
Food insecurity is one of the challenges that hits once there is a disaster. The government therefore offers relief food to help those affected. This is done through offering food assistance to the affected families, and investing in nutrition programs and food banks (Mazepus and Leeuwen, 2018). This way, the affected families will have food to sustain them during the times of disaster. An example is during a drought when the government offers relief food to the affected families. Provision of emergency health and hygiene kits is the other way in which the government can provide relief at times of disaster (Feng et. al, 2016). This involves providing medical services to those who are affected by the disaster at no charges. For instance in case of an earthquake that hits a country, the government can offer free medical assistance and emergency services to those affected by the disaster. Giving relief items like blankets, clothing and shelter is the other way that the government can provide relief in cases of a disaster. For instance during floods, many people are displaced as their homes are swept away by the floods.
The state also enables in fuller utilization of the natural resources in the economy by: By creating a resource utilization report can show the resources available to the state and how they are currently performing (Kaur and Sharma, 2014). In most scenarios there is no perfect technique to guarantee the success as every project tends to be different however the common formula that should be employed is full-time equivalent and its used to compute how optimally a resource is being utilized in relations to workable hours. Leveraging on visibility- This can be done by running projects separately but though they affect each other. The state will have to create a resource utilization plan that gives them a complete visibility of resources instead of viewing projects as separate entities. The state should be well prepared in visualizing and running scenarios that helps in circumstances of change in the event of losing a resource or budget. By being aware of the scope creep-This can be done by developing management software that helps in centralizing all active projects undertaken by the state and utilizing resources equally among them.
The state also enables in giving and providing social security to its citizens by:By provision of retirement benefits: These are benefits that older people get who have been working for some years. This benefit amount varies dependent the pre-retirement compensation as well as the age at which one begins to collect the benefits. Provision of disability benefits: These supports people who cannot work because of their disabilities (Sandink et al, 2015). One needs to have worked for a certain number of years for him/her to be eligible for the social security insurance benefits. Provision of survivor’s benefits: This helps in bridging financial gaps for the survivors of workers and the retirees. Those who are eligible are individuals such as widows and widowers, children and divorced spouses. Provision of the supplementary security income benefits: This helps individuals who are unable to generate sufficient wages on their own. The eligible ones are adults with disabilities, disabled children and older people mostly 65+.
The government also ensures that there is increase in the efficiency in production of various goods and services in the economy. The government increases productivity by adopting policies that lead to investments in human capital and improvements in technology (Jhinghan, 2016). By increasing human capital, the government can decide to cut taxes and rebates that are used to return money to consumers and boost their spending. Infrastructure spending is also designed by the government to create construction jobs and increase productivity by enabling businesses to operate more efficiently. In short it can ensure efficiency in the production of goods and services in the following ways: Providing strong and stable economy, ensuring competitive corporate tax rates in the economy, should promote good regulatory environment in the economy, provide strong legal frameworks, have dynamic labour market.
The government ensures elimination of class struggle by guaranteeing the supply of goods which they know consumers should consume, the government also ensure that by helping domestic firms and enterprises to be more competitive in the international market and also provides subsidies in order to lower production costs (Grant, 2017). This helps and assists in reducing and decreasing the class struggle. In simple language the states enable elimination of the class struggle by the following methods: The government should ensure that they don't control the economy because most source of capitalist power, giving it vast resources to ensure the continuation of its rule. The government should try and dominate ideologically than the capital class. Government should take control of the judiciary and the civil service which can be influenced or controlled by outside forces.
Thus, with the help of these measures and efforts the state ensures welfare and prosperity in the economy. It helps the citizens of the state to have a good and decent standard of living. It ensures that all the citizens are entitled to good food, clothing and shelter that are the basic necessities and amenities in life. It also plays a huge part in the functioning of the economy and proper law and order in the state. It also ensures welfare for the individuals and people by implementing schemes, laws and regulations which will help them in uplifting their standards and levels of living the lifestyle.
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Feng, S., Lu, J., Nolen, P., and Wang, L. 2016. The effect of the Wenchuan earthquake and government aid on rural households. China: IPFRI
Grant, W. 2017. Economic policy in Britain. Macmillan International Higher Education.
Holmes, M. 2016. Political pressure and economic policy: British government 1970-1974. New Work: Elsevier.
Jhinghan, M. L. 2016. Micro economic theory. New Delhi: Vrinda Publications.
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Marciano, A., and Medema, S. G. 2015. Market Failure in Context. History of Political Economy, Vol. 47, no.1, pp 1-19.
Mazepus, H., and Van Leeuwen, F. (2020). Fairness matters when responding to disasters: An experimental study of government legitimacy. Governance, Vol. 33, no.3, pp 621-635
Sandink, D., Kovacs, P., Oulahen, G., and Shrubsole, D. (2016). Public relief and insurance for residential flood losses in Canada: Current status and commentary. Canadian Water Resources Journal/Revue canadienne des ressources hydriques, Vol. 6, no. 2, pp 1-21.
Schneider, M., Pottenger, M., & King, J. E. 2016. The distribution of wealth--growing inequality? Melbourne: Edward Elgar Publishing
Slepov, V. A., Burlachkov, V. K., Danko, T. P., Kosov, M. E., Volkov, I. I., Ivolgina, N. V., and Sekerin, V. D. 2017. Model for integrating monetary and fiscal policies to stimulate economic growth and sustainable debt dynamics. European Research Studies Journal, Vol. 4, pp 457-470.
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