Managerial Economics, Essay Example

In the history of the United States, the public administrators have been reluctant to regulate free enterprise (Pettinger 1). In the beginning of the twentieth century, the forming of industrial corporations motivated the government to intervene in their operation in order to provide protection to consumers and the small enterprises. The Sherman Antitrust law was enacted in 1890, as a law which had been directed toward the restoration of free enterprise by disbanding monopolies (Mc Call 97; Northrup 14).

One of the primary challenges in economic policy is the context that the government should have with regards to the authority of intervention in the economic affairs of the private sector. The economists who promote free market policies perceive that the interventions should be restricted due to the aspect of the attribute of the government intervention being the causal attribute of the insufficient allocation of economic resources. Other economists debate that the government should have the right to intervene in the affairs of free enterprise. The arguments for the intervention of the government in the affairs of the private sectors delineate the government intervention enabling an increased equality in the economy. The proponents of government intervention also debate that the government should have the authority to intervene in the event of market dysfunctions (Pettinger 1).

The proponents of government interventions also propose that the government should be able to intervene in order to establish macroeconomic regulation. The arguments against government intervention state that the governments have tendencies of making erroneous decisions. In addition, many proponents of Adam Smith’s economic theories state that the government intervention limits personal liberties. The proponents of free market economics perceive that the market has the best capacity of making the decisions with regards to when and how to produce (Pettinger 1).

The government intervened in 1906 by enacting legislation which required foodstuffs to be labeled correctly. The Federal Reserve System had been established in order to administrate the banking activities and to manage the currency supply of the United States (McCall 127). The most substantial government interventions took place during the Great Depression which inspired the series of government initiatives and legislations which composed the New Deal (McCall 63; Northrup 47). In the 1930s, the United States economy experienced the most severe commercial and financial crisis in its history. The unemployment index reached historical heights during the Great Depression. Most citizens believed that uncontrolled and unregulated capitalism had proven to be a failure (McCall 93).

The citizens looked toward the government for relief and to diminish what had become self – destructive business competition. Consequently, President Roosevelt and the United States Congress enacted a series of laws in the New Dealwhich administrated the stock market transactions, acknowledged the authority of workers to form unions, established regulations for working hours and wages, applied agricultural subsidies to farmers, provided care for the elderly and created massive public works projects (McCall 21; Northrup 171).

Conventionally, the United States government’s perspective toward interfering in the business cycle has been described by the French words laissez faire. These words from French translate to “let it be” (Northrup 171). This is an economic idea which was derived from the Scottish economist Adam Smith. Adam Smith formulated theories and postulates which influenced the development of American capitalism. Smith perceived that the private interests should be given a free hand to do as they pleased in commerce. Considering that the markets of Smith’s time were competitive and free, the activities of private individuals were encouraged by self-interests, which in turn would collaborate for the well-being of the society. Smith preferred certain types of government intervention in the economy (McCall 118).

This intervention from the government was primarily to establish the framework for mercantile exchange. Smith became popular in the United States due to his promotion of laissez faire capitalism. America has conventionally been founded on the confidence of the individual’s capacity of free enterprise and a lack of trust in the government (McCall 118). Many private interests have turned to help from the government in a number of instances. In the nineteenth century, railroad companies had been given land grants and protective subsides in order to compete with the robust foreign competition. Industrial concerns which have been addressed with robust foreign competition have sought government intervention by means of trade policies (McCall 51).

The American agricultural concerns which have been held by private interests have benefited from government intervention (McCall 118). There are many industries which include the United States automobile manufacturing sector that have benefited from government intervention (McCall 37). The regulation of private industrial concerns can be separated into two classifications. These classifications are social regulation and economic regulation. Social regulation has the objective of promoting goals which are not financially motivated. These goals include a healthier environment and less hazardous employment conditions for workers (McCall 93).

Social regulations have the objective of deterring corporate actions which are deemed to be harmful to the greater good or to motivate desired social behavior. An example of this type of government regulation would be the monitoring of the effluent gas and water emissions of industrial facilities (McCall 93). The government provides tax incentives to organizations which provide their workers with retirement and health care benefits that comply with certain criteria. Economic regulations have the objectives of administrating prices. Economic regulations are theoretically planned to provide protection to companies and individuals from more powerful financial concerns (McCall 93).

Economic regulations have their justification on the basis that optimally competitive conditions are absent and consequently, the government must intervene on behalf of the public. In many circumstances, the economic regulations had been planned in order to provide companies with protections that they required from competitors with regard to detrimental business practices (McCall 119). Historically, the business cycles have caused the shifts between the private requests for government intervention and the application of laissez faire concepts by the government in the free market. During the past quester of a century, the conservatives and the liberals have sought to eradicate certain categories of government intervention. The liberals and the conservatives have concurred that there should be a reduction of government intervention in private enterprise (McCall 118).

Conclusion

The business cycles have consisted of periods of high and low business activity. The government has traditionally been reluctant to intervene in private enterprise with the exception of the threats from foreign competition, self-destructive market practices and unfair monopolies. The question of whether the government should intervene in the affairs of private industry continues to be a subject of debate. Many believe that the government has the right to impose free market policies. Others believe that the market is the best decision maker with regard to the amount and the timing of production. History has demonstrated that the best approach is a mixed combination of laissez faire capitalism with limited government intervention.

Works Cited

McCall et al. Outline of the U.S. economy 2012 updated edition. Bureau of International Information Programs U.S. Department of State, 2012. Print.

Northrup, Cynthia Clark. The American economy: essays and primary documents. Santa Barbara, CA: Cynthia Clark Northrup, 2003. Print.

Pettinger, Tejvan R. “Should the government intervene in the economy?” Economics Help, 24 September 2012.Web.5 April 2014.          http://www.economicshelp.org/blog/5735/economics/should-the-government-intervene-in-the-economy