Possible debates that might branch out from Economics motion
1. Whether market failure or government failure exist?
2. Role of government in economy (government’s interest in changing/manipulating market)
3. Whether government should intervene market and whether intervention is the solution.
– Government will say that the policy is the exclusive measure to solve the market failure.
– Government should prove there is a significant impact of the policy.
– opposition will say there will be market mechanism that will self-correct the problem on their own.
– opposition will argue there is another way to solve the issues.
– even if market doesn’t possess solution, opposition can argue that government intervention suffers from bigger downside
Who do you want to impact >> specifically address on target you wanted to impact.
What needs to be taken into consideration is who is the target of the policy and why targeting them is important. Impact of economics policy is not black and white, it doesn’t impact everyone and it will only affect some people. Marginal analysis can be quite powerful in debates – it means that you don’t prove as wide a benefit, but you end up proving a relatively smaller benefit much more effectively.
WHAT IS MARKET FAILURE
Market failure occurs due to inefficiency in the allocation of goods and services. Market failure can happen because free markets fail to reallocate resources efficiently OR when governments are also failed to allocate the resources and provide essential services.
WHY THE FAILURE HAPPENS?
Monopoly Power
Excessive control from small amount of economic actor). In simple explanation monopoly and oligopoly is market control from small group of economic actor. It can be done in many ways like merging, predatory pricing, limit pricing, exclusive contracts and many more. Monopoly creates barrier to entry market that end up providing less choice to consumers, consumer exploitation, productively inefficient (no competition to reduce cost to minimum level)
Example of government control(s):
– Existence of antitrust law or competition law to disallow market monopoly
– For the purpose of controlling mergers, the UK regulators consider that if two firms combine to create a market share of 25% or more of a specific market, the merger may be ‘referred’ to the Competition Commission, and may be prohibited.
Further reading :
http://www.economicsonline.co.uk/Market_failures/Monopoly_power.html
Incomplete market
Markets may fail to produce enough merit goods, such as education and healthcare. In the case of incomplete markets, some entrepreneurs may enter the market because profits are possible. It can be resulted in expensive services of education and health care by private entities.
Government can intervene by providing access to the services by giving welfare package or to giving incentives to private supplement the supply (tax exemption for CSR)
De-merit goods
Markets may also fail to control the manufacture and sale of goods like cigarettes and alcohol, which have less merit than consumers perceive.
Government intervention : high tax on cigarettes, explicit disclaimer on cigarettes harm, limit ads, etc
Information failure
Firstly, information failure exists when some, or all, of the participants in an economic exchange do not have perfect knowledge. Secondly, information failure exists when one participant in an economic exchange knows more than the other, a situation referred to as the problem of asymmetric, or unbalanced, information. It results to decision-making bias by consumers and makes them favor short term decision.
Example of intervention : consumer protection law >> expose composition of product, label product etc.
Inequality
Unequal income distribution branches to huge social problems like poverty, unable to access welfare, low education, crime, etc.
Government attempts to remedy inequalities: Progressive tax,
Welfare benefits (i.e. unemployment benefit, child benefit, old pension, disability benefit)
Government responsibility in Economy >> these are also reason why government intervene markets.
Maximizing social welfare
In unregulated market, economics organization often wield monopolistic power to dictate economic decision that can produce negative consequences of welfare (e.g. price setting, low wage, inadequate labor protection).
Government usually intervenes to ensure market practices are not exploitative. Protection comes in form of coercive measure like ban of child labor, minimum wage, employment law to protect worker.
Other example is to ensure public goods and essential goods like water, electricity, etc. can be universally and equally accessed by every individual regardless. Government ensures these public goods aren’t owned by individual
Minimize damage caused by economics event
We are talking about economics event (e.g. Recession and Inflation) that impact macroeconomy. In this case government intervene through giving subsidies, manipulation the money supply to minimize the economic impact, or the most extreme cases bailing out companies and countries.
Promote economics fairness
Economic fairness is an ideal condition where every individual have equal opportunity and capacity to compete in economy. However, in reality, individual doesn’t have the same resources (genes, wealth, upbringings, education etc.) A lot of intervention in form of taxation and welfare programs (free education, food stamps, etc.) aim to reallocate/ redistribute resources from wealthy to those who in needs. It aims to minimize the social gap and to equal playing level of economic competition.
Further reading :
https://www.psychologytoday.com/blog/cui-bono/201108/economic-fairness-what-is-it
Other political interest
Political interest can be unilateral reason to government intervention. This political reason might be economic development, promoting value, geopolitical interest, etc.
Example : reallocation of taxpayer money to invest more on military, embargo sanctions.
Government failure
Government intervention to resolve market failure can also fail to achieve its goal or at worse will result to bigger downside effect. Government failure is a situation where government intervention in the economy to correct a market failure creates inefficiency and leads to a misallocation of scarce resources.
– Governments are notoriously inefficient: Excessive bureaucracy result to long decision-making, complex process.
– Government can award subsidies to wrong target (firms) instead of those who needed. In the case of bailout, opponent of bailout may say that government should no bailout companies for their risky decision on markets.
– Governments suffer heavily from lobbying, where relatively small interest groups seek to gain advantage through pressuring Governments to bias legislation in their favor.
Moral Hazard : If individual or company knows that government will always compensate their failure then they will not self-correct their behavior.
Several Key Terms
– Macroeconomics: the part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.
– Microeconomics: Microeconomics is considered the starting point of Macroeconomics, and deals with individual and small business economic decisions.
– Fiscal Policy: deals with where do government spends its money
– Monetary Policy: deals with money supply