Wednesday, February 2, 2011

Economic Intervention

There seem to be two justifications given for a government to intervene in a market economy. It's worthwhile to distinguish between them. Before you can consider whether the government should intervene, you need to know the goal of the intervention. The enforcement of contracts and the resolution of fraud don't count as interventions because they are the basis of a market economy.

The first justification is a matter of national survival and well-being. During the Second World War, the U.S. government offered contracts to Detroit-based automakers to produce tanks, airplanes, and armaments. Everyone understood that the reason was national survival. The same could perhaps be said about the Apollo Program, so far as it helped America compete in the Cold War. The same, in fact, is behind monetary policy—which is concerned with stabilizing the money supply—and stimulus packages, which are aimed at accelerating an economic recovery. And the same is the goal of some policies on environmental protection. These efforts are designed to preserve the nation and promote its well-being, so there should be little surprise that mainstream political parties can find common ground on such issues.

Politicians follow party lines much more consistently when the other justification is offered—the justification of fairness. The debate on economic fairness is based much less on practicality and survival, and much more on one's moral sentiments. People can reason with each other as to what economic arrangement will best ensure national prosperity, but there is simply no way to use logic to reconcile different opinions on economic fairness. These moral sentiments stem from our biology, and they manifest themselves differently in different people. For this reason people have debated economic fairness—without success—since time immemorial. It would help elucidate our political discussions if people identified the goal of potential economic intervention.

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