Market Efficiency and Government Intervention
Government intervention in market activities happens in response to certain circumstances. Government can intervene in market operation during cases of market failure, in limiting abuse of market power and to increase market efficiency. Government intervention usually includes policy changes and implementation of different market rules which may limit competition between markets and/or calibrate efficiency of the market to favor public interest (“Govermment Intervention”).
Accordingly, John Maynard Keynes supported the idea of government intervention to bring in market efficiency. Keynes believed that the market cannot stand on its own, and is highly susceptible to instability due to deflation. Consequently, government intervention in the market activities can be of relevant help in stabilizing the economy. The government should actively participate in economic activities by controlling interest rates at a stable rate to make sure that economic prosperity will be achieved and the industry will be stabilized (Francis).
Consequently, a stable economic condition with low inflation level can help in generating jobs for the public. Thus, government intervention in the market processes can be of great help in responding to the employment problems of the state. Stabilizing the wage rate for the workers through government intervention can lead to an increase in the employment rate.
Thus, in contrast to the laissez faire economics, which proposed that the economy alone can regulate itself, Keynesian economics argue that government intervention is a necessary must in ensuring market efficiency. As market cannot operate on its own while provding benefits for the majority of the citizens, the government can and must intervene in implementing rules and policies that shall make the economy less vulnerable to deflation, hence, creating a more efficient market process that will stabilize the economy and benefit the majority of the people.
Francis, Robert. John Maynard Keynes. (n.d.) 19 February 2008 <http://elmo.shore.ctc.edu/economics/newpage13.htm>
Government Intervention and Market Failure. (n.d) 19 February 2008 <http://cbdd.wsu.edu/kewlcontent/cdoutput/TR503/page12.htm>