Government and the economy

Date posted: September 30, 2010

The role of government in the economy is subject of much debate in the United States. Some say it is only because of the actions of the government that the recession didn’t turn into a depression, and others take the opposite view — that all the spending and borrowing by the government has actually hurt the economy. In today’s Economic Perspective, economist Mike Walden of N.C. Cooperative Extension is asked, Who’s right?

“This is an age0-old debate. I think it is just renewed today; it is dressed up perhaps in different clothes. And it really comes down to a debate between what economists call efficiency and equity.

“There is probably a majority view among economists that our economy grows best if it is left to private decision makers, without government interference, to decide what to invest in, what to produce, etc. We can look historically at those kinds of so-called free market economies do grow faster.

“But free market economies do have their issues. They have perhaps rough edges. They have perhaps people who for whatever reason haven’t got adequate training or left behind.  And so therein lies what we call the equity issue. And so some say we need government to step in and perhaps set the rules of the game and also to help those who haven’t done well in the economy, perhaps by redistributing some income and again taking off those so-called rough edges.

“And this is the classic debate as I said between efficiency in terms of growth and equity in terms of who benefits from that growth. This is the debate that we are seeing today, but it is an age old debate that will probably go on forever.”

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