Governments Should Limit Their Interference in Market

Governments should limit their interference in market progress. The recent Presidential election was billed as a choice between two visions for America. Unfortunately for voters, there are many other visions that were not presented as viable options. If those options had been presented, voters may have chosen them. One such alternative political philosophy is libertarianism, which makes the case that government should interfere as little as possible in the daily lives of Americans.

This is especially true in the economic realm -- whether it is regulation or tax handouts to powerful donor lobbies, the two big parties are equally culpable for creating needles burden that constricts the growth of the American economic engine. Decentralization of government is a key concept. Manor (1999) notes that there has been a trend towards the decentralization of government worldwide. This trend is occurring because governments realize that decentralization can spur economic growth and alleviate rural poverty by placing more control over resources in the hands of the people.

One of the most significant issues is that governments are inherently prone to corruption. There is little fundamental difference between an official in the developing world asking for a bribe to sign paperwork and an official in Washington writing laws that favor his campaign donors. Corruption lies at the intersection of money and politics. Since politicians have access to and control of critical resources, corruption inevitably colors the governance process, creating barriers to free enterprise (Ehrlich & Lui, 1999).

Qian and Weingast (1997) argue that the state should act to preserve market incentives. This implies that the state should avoid creating regulation that restricts economic success, and should also avoid bailing out failures, as such bailouts skew market signals about behavior. When it is realized that both major political parties are responsible for the 'too big to fail' doctrine, the case for alternate views becomes clearer. Banks no longer have the incentive to manage their money well, and the result is economic stagnation.

When the state allows bad banks to fail, the entire system receives that market feedback and responds according, managing assets more efficiently. A counterargument is that government intervention in markets can guide those markets towards superior results. Joseph Stiglitz (1996) cites East Asia's so-called tiger economies as an example of state intervention that guides economic growth rather than hinders it. However, Krueger (1990) notes that government intervention in development often has the opposite effect. Highly distortive policies are common, examples being neglect of key infrastructure, credit rationing and restrictive trade policies.

Government intervention, then, can only spur economic growth when it is intervention of the right type. That brings us back to the points about corruption and centralization. Most government intervention is unfortunately driven by the desire to control resources, and to allocate those resources to those with access to government figures. This unfortunately reality -- a human failing -- highlights why the market and not government should be relied upon to allocate resources.

It is a shame that voters in America only face a binary choice with respect to the role of government in the economy. Government interventions only distort market signals,.