Government and the Economy

In the contemporary political and economic system people around the world question:  what should be the role of the government in the economy of the country and how much should it influence the economy? There are different answers to this question. One may support the public enterprise system, while others may support the private enterprise system. However, the most economically stable and successful countries in the world follow the mixed economic system. The successful government regulates the policies in manner so that the negativities would be minimized. In short, the government’s role is to uphold freedom of the economy providing safety and stability only for essentials. When policies that influence the economy, especially the production of goods and services, work well, people will have employment opportunities, housing, healthcare facilities and other amenities; otherwise, unemployment will increase and demand for government and charitable assistance will grow.

The main objective of this essay is to discuss the influence of government policies on market and the recession of 2008 that demonstrates the significance of economic policies.


The recession of 2008 has been distressing for Americans as percentage of GDP and the value of goods and services in the USA have given rise to the common belief that the government is too big. However, compared to the other prosperous democracies, it was noticed that the US governed expenditures and revenues constituted relatively small percent of GDP and the public sector of employment had small ration in total employment. After the recession of 2008, the US government became more active interventionist, directly involving itself into the management of the firms and strategies.

In this way, the US introduced new fiscal policy to fine tune the economy; it used the budget to stimulate the running deficit and to promote employment. In addition, it helped running surpluses to slow down and reduced inflation. Budget plays a significant role in economy, because it demonstrates which group should pay the higher taxes and which should get the maximum benefits.

The taxation policy also plays a significant role. As the revenues increased, so did the government responsibilities, hence government introduced the taxation policies. This policy is not only used to raise the revenues; however, it is also used to make the further enhancement in the policies. The government favors certain trends and discourages other by treating them differently using the tax code. Finally, tax policy is not simply about how much money to rise and by whom, it is also used in creating incentives for certain type of behaviors, e.g. by offering tax exemptions, rebates and deductions.

Taxes are one of the sides of the government’s budget; the second side is composed of spending. The percentage of the federal budget dedicated to the welfare state spending includes education, social support and healthcare. Hence, government now spends more money as a proportion of GNP, because it helps more compared to the past.

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Another support for financial crisis is Federal Reserve. The independence and authority of the Federal Reserve has elevated its chair to what some regard as the second most powerful position in the government. The fed has become more active, stretching its authority into new realms. It has gone beyond its traditional tools of influencing money supply chain. Moreover, it becomes more involved in picking winners by deciding which industry to support and which one not; in other way, it has jeopardized its independence. However, many believe that fed independence should be accountable.

The most significant of the above all mentioned supports for the economy is regulation; it can make the economy reach the sky or drag its back to the earth. Regulations take the form of either economic regulations that apply to certain industries, or social regulations that apply to all firms in all industries.


While looking at the difference in the amount of the government involvement and the economically successful nations, it is clear that limited government control is the most beneficial. In the United States, the production of the goods and services is largely determined by the market. This pervasiveness and dependence on markets in the US is due to the political power of the business sector. However, government is much more aggressive and interventionist. The government, which was previously regarded as the problem, is now relied upon to provide the solution. The US government is less involved in planning and monitoring the economic policy, and the trench warfare of economic policies between those who advocate free markets, those who want to give more power to government and those who want government to support business is never silent and never still.

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