Why does government get involved in the economy

Skip to main content. Search SpringerLink Search. Abstract This study explores the effect of government involvement in the economy, as measured by central government expenditures as a percent of Gross Domestic Product GDP , on the distribution of income. References Alker, H. Google Scholar Belsley, D. Google Scholar Bollen, K. Article Google Scholar Bollen, K. Google Scholar Bronfenbenner, M. Google Scholar Cutright, P. Article Google Scholar Cutright, P. Article Google Scholar Firebaugh, G.

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They do not engage voluntarily but rather use taxes, regulations, police, and military to pursue objectives that are free of the considerations of capitalism. Nearly every proponent of capitalism supports some level of government influence in the economy. The only exceptions are anarcho-capitalists, who believe that all of the functions of the state can and should be privatized and exposed to market forces.

Classical liberals, libertarians, and minarchists argue that capitalism is the best system of distributing resources, but that the government must exist to protect private property rights through the military, police, and courts.

In the United States, most economists are identified as Keynesian, Chicago-school, or classical liberal. Keynesian economists believe that capitalism largely works, but macroeconomic forces within the business cycle require government intervention to help smooth it out. They support fiscal and monetary policy , as well as other regulations on certain business activities. Chicago-school economists tend to support a mild use of monetary policy and a lower level of regulation.

In terms of political economy , capitalism is often pitted against socialism. Under socialism, the state owns the means of production and attempts to direct economic activity towards politically identified goals. Project Gutenberg. Social Security. Monetary Policy. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

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