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Macroeconomics In a modern society there are a lot of economic problems that should be discussed. Many of them concern privatization and the role of the government in economic processes. The decisions are always based on the political philosophy of privatization. From this point of view it becomes clear that the privatization of some structures (such as Social Security privatization) makes the economics neutral. It causes happier life for people then with a public program. Nowadays there is a "big government" economic approach in highly developed countries.
But does it mean that "ownership society" should replace the previous model? It should be mentioned that the both approaches can be found in the World History. The problem should be regarded from two points of view: psychological and economic. It goes without saying that people always wanted to be owner of their lives. They wanted to have freedom to make their choice. At present life gives such opportunity.
But it should be pointed that "ownership" or freedom in making own decisions can be stressful. Freedom and choice stimulate us to use our human potential, but they are often risky. The other question is that we have no time for some things which are not the most important for us. For example, we can organize a wedding at a restaurant and there will not be necessity to think about cleaning or preparation. Thats why people often prefer somebody else to solve some problems. As to the market, people want to be insured against the uncertainty of the market.
Thats why they prefer to support government solutions to private ones, though they may be less profitable. Like in many other advanced societies American economic system has a lot of features of risk and inequality. Thats why people wanted to diminish individualistic risk and involved their capital into the governments programs. Up to the 1930 American economy was regulated with the help of the Classical Model in macroeconomic policy. But after the World War I the country faced the great problems on the market. Banks were closed.
It caused the decline in output and prices and the growth of unemployment. It was a period of The Great Depression in America. The situation demanded a new approach to the solution of the problem. The problem was that the government was guided by the prevailing views as to the macro economy (the Classical Model). According to the model economic recession is always caused by non-economic events (war or crop failures) and that the market has the self-adjusting nature. So, taking into account all those features it became clear that economic activity would be easy restored without any intervention of the government.
But the prevailing ideological preference for the Invisible, rather than Visible Hand of government, aggressive government intervention was not in the cards (Sims, ch. 10). President Hoover emphasized that American economic model had been developed without the intervention of a political and social systems the greatness of America has grown out of a political and social system (Sims, ch. 10). But as longer the process of Depression lasted as sharper the need in aggressive measures was. Policy makers faced the problem if the market system could correct the situation itself or with the help of government intervention. But the classical economists believed that the market system could create balance. Nowadays we know that it always reasonable to increase government spending when the economy declines.
Hoover and Roosevelt tried to increase the money supply with the help of raising taxes and cutting spending but it led to budget deficits. The deficit is always occurs when the government spends more than it brings in. But at that time there was a strong belief that the government should not take part in the business of managing the economy. America needed strong fiscal and monetary policy provided by the government but all that was regarded as ineffective. The President and Congress refused to cut taxes and increase spending. Instead of it they increased private spending.
It is clear that there was not guidance for policy makers at that time. Later the problem became the basis for John Maynard Keynes new theory. The great economist developed a new approach to economics. His works examined recessions and depressions in economy of the society and showed the ways out from the situation. It was the beginning of economic policy. The Classical Model proposed the existence of logic time.
From this point of view it did not stress the role of uncertainty in economic life. Keynes proved that the human being move from one short run to another. He regarded the whole economic processes as to real time. It is the time when real economic problems happened and should be solved.
The problem of uncertainty was developed by the economist. Classical theoretics pointed that the future could be known. Though a person does not know the final result of the investment, but there is a chance to calculate probable returns and spending. But if it was true it would be easy to calculate all possible "odds." But Keynes was sure that the outcome of investment activity cannot be calculated or known. It is for sure that a great amount of our positive profitable activity is in our human nature and is based on our spontaneous optimism It is the most important features than any mathematical expectation, apart from the instability due to speculation, there is the instability due to the characteristic of human nature (Sims, ch. 11) This feature was called the animal spirits by Keynes. It should be mentioned that individual responsibility very often awakes spontaneous optimism and increases the hopes of profit, though at the same time it increases fears of loss.
Keynes thought that Public investment in infrastructure or housing would diminish the fear of losses in private investment spending. With the purpose to maintain full employment the total amount of private investments and public investments should be kept in high level. Keynes pointed that private investment is changeable, they are driven from subjective evaluation of future profits. Taking into account that process the economist concluded "that the duty of ordering the current volume of investment cannot safely be left in private hands... " (Sims, ch. 11). Thats why public or publicly-guided investment should coordinate the market stability and offset the fluctuations of full employment. It meant socialization of investment.
Keynes proposed that there was another way to expand the economy. He thought that it was not necessary to cut government spending but cut only taxes. The customers in their turn would be able to purchase more goods and it would increase their spending. There would be a source for regulation of employment situation. (Though when the economy returns to full employment the taxes should be increased again. It is for sure that government should manage and stimulate the economy through providing right monetary and fiscal policy. Thats why private business with personal responsibility cannot satisfy and regulate all the problems with economy (taking into account unpredictable economic changes on the market).
Because of this after the World War II more people wanted to transfer more money and power from the private sector to government. But can government economic programs always insure the individuals freedom and can be more beneficial for them? For last years a government support mainly such payments that have a neutral or beneficial effect such as Social Security, Medicare, Medicaid. But the government economic policy was not prepared for widely predicted natural disasters. It could not react quickly that caused great losses for the economy. An awful example is the tragedy that was caused by Hurricane Katrina.
By the way, the government stood in the way of many individuals, businesses, and charities and kept from responding as quickly as they wanted. People of our generation are used to consider that the government is responsible for many political and economic crisis. It seems that such approach influenced peoples consciousness and destroyed their wealth and self-reliance. The people of New Orleans did not know what to do. The poorest residents of New Orleans suffered most from Hurricane Katrina... As many journalists reported " In fact, the suffering visible in the poorest parts of the city is a perfect example of the failure of the "non-ownership society. " (Boaz, 2) The government taught them to treat for everything -- housing, food, money.
They lost their sense of responsibility and self reliance. They became dependant of the state. When the government was unable to help them quickly they seemed to lose everything. It was the most powerful example of the failure of the "non-ownership society. " People was trapped in dependency. They had no financial and moral opportunities to rely on.
As it was said private companies and churches and charities made much more for regulation of the catastrophe then the government. May be it happened so because governmental and private institutions have different approach to their responsibilities. Private companies as a rule are Profit-seeking companies. They always have to innovate their technologies, improve them, cut costs and deliver better service for less money.
In other case they can loose their customers and even go out of business. If government has to decide some difficult economic problems it can raise taxes or print money. When some of the policies provided by government fail the usual response is to assign more money next year. Before and after Hurricane Katrina, businesses and charities responded effectively though government failed even in its attempts to protect lives and property from criminals. But it spite of last events many people prefer to combine private and governmental investments. May be it happens because the modern economy threatens Americans with choice overload, so it also piles more risk on the shoulders of the average citizens (Mallaby, 10).
When it is time to retire many Americans want to have some government safety net as well as have an opportunity to accumulate their own savings. In Britain water distribution system is privatized. People are satisfied though they still think it should be run by the government. So, the main idea concerning individual responsibility and governmental one is that these two systems must coordinate their actions and work together to regulate market stability. The triumph of freedom in the 20 th century does not mean that people want all freedom, all the time. Though nowadays free-market reforms give an opportunity to expand individual choice.
government activists are willing to spend more and increase the size of government in the process (Barnes, 23). The government broadens the programs for individuals and increase spending. Bibliography: David, Boaz. Catastrophe in Big Easy Demonstrates Big Government's Failure. web Kit Sims, Taylor. Human Society and the Global Economy.
Survey of Economics Introductory Page web Fred, Barnes. A 'Big Government Conservatism'. The wall Street Journal, Aug. , 2003 Sebastian, Mallaby. Trouble With Choices.
The Washington Post, Dec. , 2004. web
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