The Great Recession and Government Failure

 

The article “The Great Recession and Government Failure” by Gary Becker is one that seeks to show the reasons behind market failure. It promotes the idea that market failures tend to take place not because of the actions of individuals in the private sector, but rather those of government. Market failures are considered to be a result of the irresponsible actions of government which promote a situation where there is a failure to ensure that there is the advancement of the adoption of efficient policies aimed at making sure that there is the prevention of market failures in the first place. Becker analyses the Great Recession and the government response to it which made the situation worse (Becker, 2011). The increase in government spending with the aim of stimulating the economy proved to be a massive policy failure because the process had never been tested and proven to work before. Becker proposes that it is necessary for government to undertake measures aimed at cutting spending and reducing the national debt in order to promote stable economic growth and reduce the risk of market failures in future.

The individuals that are often the most affected by market failures are the taxpayers, in addition to those who have a stake in the economy. A result of this situation is that there are not only massive losses in the economy, but there are also instances where the government ends up taking measures aimed at controlling the situation. However, most government actions tend to be undertaken based on considerable pressure to ensure that there are greater regulations over the economy. However, there is a failure to consider that it is necessary to promote the advancement of the market where there is little interference from the government while at the same time ensuring that there is maximal competition between the diverse players in the industry.

Market failures come about because of the policies that have been put in place by government. This creates an environment where players in the private industry undertake actions based on the strength of regulations that have been put in place. Under such circumstances, whenever market failures occur, Becker suggests that it is the fault of government because it is this entity which has the power to facilitate the development of strong markets through a reduction of interference in the markets. Furthermore, policies such as the promotion of the achievement of home ownership through the provision of unsafe mortgages, as seen in the case of Fannie Mae and Freddie Mac, two government institutions, prior to the Great Recession may have been responsible for the events that led to the financial crisis (Becker, 2011).

The considerable increase in government expenditure and debt and the lack of any significant actions to curtail it has the potential of harming the economy in the near future. The massive increase that has been seen in government debt and the failure to reduce spending will end up causing market failure because the government is currently spending more than it has. It is necessary to make sure that within the next five to ten years, actions are taken to reduce government expenditure, especially in those programs that promote entitlement, and cost the government billions to fund every year. Without such initiatives, it is likely that there will be another recession within a decade, which will be extremely difficult to get out of.