Free Essay

Role of the Government in Recent

In: Business and Management

Submitted By whoru89
Words 1160
Pages 5
Throughout the World War, many countries have experienced the economic depression. It necessitated the need to have an idea of how the economy should run. This gave rising to different types of economy such as socialism, communism, capitalism and mixed economies. These economy types base on the question that who should control the economy: the government or the marketplace? Ideally, the kind of economy adopted by the government should cater for the needs of the inhabitants of a country. Purposely, the analysis will look at various argument on ideas put across on the various types of economies the correctness of the arguments, how the topic is related to the issues in Episode one and Episode two through the theory of John Maynard Keynes and Fried Von Hayek, and also apply it to our current economy to know how it works.
First of all, we must know what the theory of Keynes and Hayek are, and also the different point of view between them. On the Episode 1- “ The Battle of Ideas” of Commanding Heights, Fried Von Hayek, who is a Britain economist, believed that “the government intervention is a threat to the freedom”. He mentions that the market should be “free”. It means that the government does not issues some policies for controlling the market, and the “players” in the marketplace are controlled by other factors in the market, including the price of goods. However, John Maynard Keynes, who is an Austrian economist, thinks that the government should intervene and play an important role on the economy in order to help stabilize the economy. For example, the government intervention can control inflation or bubble on economy. Applying to our contemporary economic conditions, as we know, we are still in a recession of economy. In order to help decreasing the bad affection cause by the economy downturn and also overcome the recession, I strongly believe Keynes’s theory can work well on that. I do not think that the market can fix it by itself. During the recession, people usually want to keep their money than invest in the market or spend their money because of fearing risk. When it happens, the investing and spending deceasing, it makes increasing the unemployment rate. Can the market place help over this problem? The answer is no. The recessions during 1930s and 1970s of U.S, and Germany in 1930s are the good examples for overcome the recession. Moreover, I think that the Obama’s government is following the Keynes’s model recently. Barack Obama has increasing government spending, provide the stimulus, and decrease the tax rate for middle class and so on. How does it work? The economy is getting better even it is still slow way.
Moreover, I want to discuss about what Fed can do in the recession. In chapter 33, the book has mentioned “ the Fed may use expansionary monetary policy if the economy is experiencing a recession and rising rates of unemployment”. How do they use? There are three things: use open market operating, increasing reserves, and put downward pressure on interest rates. These things help us recovery 1990-1991 recession, and decrease inflationary pressure during 1990s. However, everything has its pros and corns. No one can guarantee that expansionary monetary policy can help overcome the recession. For example, the stimulus of Obama is not work well as people expect. As I said, the economy is better, but the way it increasing is too slow. So I think Fed and the government should focus on what they spend in the stimulus in order to avoid wasting money. Let see about China, the fastest growth country today. As we know, China is force on exporting. We can see it easily, most of stuff that we use are from China such as clothing, laptop, cell phone, etc. The recession has strongly effected to China growth rate. From 16% of growth rate, it downs to 8.2%- the lowest in 7 years (during from June to October/2009). What did the government do? The China government has provided a stimulus cost $586 billion U.S. dollar for some main field like: building for low-income people, transportation networks, increased welfare cost and so on. Moreover, China government is continuously decreasing interred rate. They must know that “ today’s stimulus becomes tomorrow’s debt”. If they can make the stimulus work well, I believe that we can overcome the recession soon.
During 1990s, there are a lot of countries have been reform like Russia, Poland, India, Bolivia, Chile and so on (episode 2: The Agony of Reform). With most of countries following the Soviet system, they controlled everything and every aspects of the economy. I think the idea is kind of wrong at first: it does not matter how hard you work, every one will received the same amount? Is that fair? Being honest, I think most of people will not want to work, including me, if I know the result I will receive the same salary with everyone. If all nations’ citizens think like that, what happens to the economy? As the episodes mentions, “they are not threatened by competition, you create very lazy, noncompetitive companies that produce not very good goods at higher prices. In the long term it may create even more poverty”. What happened next? According to Finance, at that time, The DPA of Chile decrease more than 14%, increasing unemployment rate about 23%, “ currency of Chile became more vulnerable to slugging worldwide economy”, and “ the real wages stooped to as low as 10%”. These countries must have to reform. However, adjusting to new system careful implementation is crucial to ensure that the economy does not crumble in the process. In most cases, those countries may face with “ corruption, inflation, and inequality”. For example, inflation was common is some countries like Chile (30%). Moreover, allowing free markets will allow import of products. There is a huge risk of destroying the local industries in a shift to free market, where the local industry is not well established. Like India, they regulated the imports to protect the industries. Besides that, corruption in various cases undermine the governments’’ efforts to transform the economy. Those countries also face with the increasing unemployment rate, the gap between poor and rich people and so on. It is always hard to reform the economy.
The economy of a country is very fragile. It needs taking informed and wise decision. Any decision made should be based on the current situation, the implication of the decision and the target of the governments. In my opinion, I believed we should apply Keynes’ theory in this time in order to overcome the recession. Moreover, the government must provide the necessary information on the changes, educating the investors and creating transitional period for the implement of the policies.

Works Cited
"Commanding Heights: Home | on." PBS. N.p., n.d. Web. 24 August 2010.
.
Finance." Chile Economic Reform. N.p., n.d. Web. 24 Aug 2010. .

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