Activity 3

WHAT ROLE SHOULD THE GOVERNMENT PLAY IN THE ECONOMY?

Name______________________________________

Although it is generally agreed there is a role for the government to redistribute income in favor of the poor, provide public goods and services, and deal with externalities, there is considerable dis-agreement over how far the government should go in these areas, and what additional areas the gov-ernment should be responsible for. Some people feel that "big government" is already a problem, that government is doing too much. Others believe that the government sector of the economy is being starved and that government should be allowed to do more. What is the appropriate role for government is a basic question, and one that involves a great deal more than economics.

Conservative View

On the one hand, conservatives believe that the government's role should be severely limited. They feel that economic and political freedom is likely to be undermined by excessive reliance on government. Moreover, they tend to question the government's ability to solve social and economic problems. They believe that faith in the govern-ment's power to solve these problems is unreason-able. They call for more and better information about what government can reasonably be expect-ed to do­and do well. They point to the slowness of the government bureaucracy, the difficulty in controlling huge government organizations, the problems political considerations can breed, and the difficulties in telling whether government programs are successful or not. On the basis of these considerations, they argue that the government's role should be carefully limited.

Liberal View

Conservatives tend to question the government's ability to solve important social and economic problems, but liberals tend to question the market's ability to solve these problems. They point to the important limitations of the market system, and they claim that the government can do a great deal to overcome these limitations. Government can regulate private economic activity. It can also provide goods and services that the private businesses produce too little of. Liberals tend to be less concerned than conservatives about the effects on personal freedom of greater governmental intervention in the economy. They point out that the price system also involves a form of coercion by awarding goods and services to those who can pay the price. In their view, people who are awarded only a small amount of goods and services by the market are forced into discomfort and malnutrition.

© Council for Economic Education, New York, NY
Civics and Government: Focus on Economics, Unit II, Lesson 4

The Functions of Government in the Economy: Economics Lesson