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BUS 626 Week 2 The Role of Government and the Impact of Politics

The government’s role within the United States economy is a highly debated and controversial topic. Strategic and controlled government intervention is necessary to protect the market and create the foundation for the public sector to flourish. However, government overreach, failed government policies, and poorly operating agencies’ sustained operation create economic inefficiencies that negatively impact the market and severely hinder economic growth. Although inefficiencies within the public sector are inevitable, government intervention is sometimes necessary to cover the free market’s shortfalls.

The U.S. government has established numerous departments and agencies whose influence is intertwined throughout nearly every aspect of the economy. The public sector exists within a non-competitive environment with no incentive to generate profits or minimize costs (Gwartney, Stroup, Sobel, & Macpherson, 2018). The absence of any risk of bankruptcy and no profit motive allows some public-sector agencies to enforce the appropriate regulations that allow the market to operate smoothly and resources to be allocated efficiently. Ultimately, there are examples of government intervention that I agree is helpful and necessary in providing a function to the economy that the free market could not perform. In contrast, other interventions are wasteful and can be more-adequately performed by the free market.

The first government agency whose role is helpful and necessary is the Federal Trade Commission (FTC). The FTC was created in 1914 to protect the U.S. consumer and enforce regulations that promote a healthy, productive marketplace (United States Government, 2021). The FTC seeks out unfair business practices in violation of anticompetitive and antitrust laws and sues the violating party to stop them. The FTC’s primary tools are the Clayton Act of 1914,

which prevents anticompetitive business practices, and the Sherman Antitrust Act of 1890, which prevents business practices that restrict trade and competition (Hovenkamp, 2010). The cons of the FTC and the Sherman Act are that its broad language used to define anticompetitive measures can potentially restrict the free market’s actions and limit trade.

I agree that the FTC’s intervention in the economy is beneficial, as it protects the U.S. consumer from deceptive and unfair business practices, prevents monopolies from controlling a market, and encourages competition. A primary source of market failure is a lack of competition (Gwartney et al., 2018). The Sherman Act’s amendments, enforced by the FTC, minimize the threat of trade restraints and anticompetitive practices allowing the U.S. economy to operate efficiently. A critique of the FTC is that the political process significantly influences it. Corporations and groups heavily lobby the FTC with special-interests. The FTC’s five commissioners rotate on seven-year terms, and the majority party has the controlling vote on enforcement actions (Cowie & Fishkin, 2020).

The second government intervention that I find necessary and helpful within the economy is the Federal Reserve. As the United States central bank, the Federal Reserve is directly responsible for controlling the U.S. monetary policy and financial systems (United States Federal Reserve, 2021). The Federal Reserve’s economic interventions decrease market volatility, ensure stable prices, facilitate the banking industry to protect the consumer, and monitor the financial industry’s functionality and health (United States Federal Reserve, 2021). An essential con of the Federal Reserve is its prior policy errors during the 2008 U.S. financial crisis, in which the Reserve bailed out large financial institutions despite their bad investment practices.

The government intervention in the U.S. economy through the Federal Reserve is necessary because it implements policies that allow the economy to operate efficiently. The actions taken by the Federal Reserve support the economy by controlling interest rates and securities, which stabilizes the market and keeps a healthy balance of inflation and consumption (Martin, McAndrews, Palida, & Skeie, 2013). The political process heavily influences the Federal Reserve. The U.S. President and Senate appoint a new member of the Board every two years, where they serve 14-year terms; this process is prone to the shortsightedness effect, in which members are elected with short-term gains in mind (Gwartney et al., 2018).

Medicaid is health insurance for low-income Americans backed by the Department of Health and Human Services (DHH) (Centers for Medicare & Medicaid Services, 2021). The government-provided health care helps provide a cheap insurance alternative to qualifying adults that cannot otherwise afford health care. The overwhelming cons of Medicaid include inadequate coverage, low medical-provider repayment rates, and massive inefficiencies resulting in wasted tax dollars (GAO, 2018). I cannot entirely agree with the government intervention in health care through Medicaid, as it has shown to be significantly more costly and less efficient than competing private companies (GAO, 2018). The system’s low accuracy and the inadequate coding system have led to billions of wasted tax dollars. Since public-sector insurance is not driven by profit or costs, the abysmal performance is allowed to continue its inefficient operations that could be more economically served by private companies (Gwartney et al., 2018). Medicaid is at the forefront of public issues and special-interest voters, which has made it a highlight of politicians seeking votes during their campaigns.

The Securities and Exchange Commission (SEC) is responsible for overseeing the securities market, investment advisors, and mutual funds to ensure a fair market environment and prevent fraud (United States Government, 2021). The SEC ensures that businesses provide accurate information and adhere to financial regulations that protect the stakeholders and the economy. The SEC’s cons are that it often attempts to replace free-market mechanisms with inefficient government intervention and has failed to identify fraud effectively (Macey, 2010). I cannot entirely agree that the SEC’s intervention is helpful to the economy, as its regulations have shown to be ineffective at serving its purpose and the expansion of its regulations restrict economic growth in capital markets (Macey, 2010). The SEC is driven by the political process, as its number of cases evaluates its performance, and special interests often drive its regulations.

Government intervention is necessary to give an economy the tools and structure to perform at its optimal level. The adequate balance between government intervention and the influences of the free market allows an economy to function in its people’s best interests. Overapplication of government agencies within the economy inevitably creates inefficiencies that restrict growth, but federal regulation’s controlled application can protect the consumer and catalyze economic expansion.

Centers for Medicare & Medicaid Services. (2021). Medicaid. Retrieved from
Cowie, M., & Fishkin, J. (2020, October 4). The FTC Control. Retrieved from JDSupra:
GAO. (2018). Waste and inefficiency in the federal government. House of Representatives.
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Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics:
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Macey, J. (2010). The distorting incentives facing the U.S. securities and exchange commission.
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United States Federal Reserve. (2021, March). About the Fed. Retrieved from Federal Reserve:
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