Government Economy Government Intervention in Discussion Chapter

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Government managing of the economic using fiscal policy typically amounts to spending more, as governments rarely use fiscal policy to slow an overheated economy, preferring to rely on the more effective monetary policy tools that central banks have at their disposal. An increase in government spending provides a short-term boost to the economy. If the money is spent on investments for future growth such as transportation infrastructure and education, then the impacts will be long-term positive as well. There is the risk that active management of the economy through fiscal policy will be insufficient, or that it will have long-term negative impacts if the government borrows too much to pay for the spending.

Overall, government efforts to manage the economy make things better. Our economy does not even remotely resemble a free market economy, and has not since at least the 1930s.

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The economy has experienced, with few breaks, a decades-long run of growth and a substantial improvement in wealth distribution as well. Free from government restrictions, the economy would face extreme volatility, with no growth save for that associated with technological innovation, as was the case in the 19th century. Active government management of the economy is correlated with strong growth, but perhaps more importantly it is correlated with a reduction in economic volatility, which itself has the long-term benefit of encouraging investment. Volatile economies discourage all but the riskiest investment. All told, despite the occasional imperfections in government policy, the tools that government has to manage the economy are utilized well, both as supports to a market economy and occasionally for direct intervention to stabilize a crisis situation.

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