Thursday, March 20, 2014

Government Intervention Ensures Freedom And Equality

I reject Alan Ng Zhi Yang’s suggestion that the government should be less involved in the market. (“In Defence Of The Free Market” last Wednesday) I believe that there is a need for the government to be judiciously involved in the market.

The writer argued that it would be incorrect to attribute the cause of the 2008 financial crisis to the market alone because the detrimental decisions made by mortgage agencies such as Freddie Mac and Fanny May, were dictated “by law to meet a quota of home loans.” It is difficult to isolate the responsibility of the government in the financial crisis given the innumerable factors at play. However, even if government intervention in the hosing markets was the primary cause of the financial crisis, it would erroneous to conclude that governments should refrain from regulating the markets. 
Some government intervention has been widely recognised to be beneficial to the market. One example would be capital requirements for banks. These regulations protect depositors by ensuring the ability of banks to operate under stress conditions. While, banks could have independently met capital requirements, there would have been no guarantee that all banks would have done so. Given that no company is in isolation, the reckless behaviour of one could have serious implication on others. Hence, through government regulations it would be possible to engender a safe climate suitable for greater economic cooperation. 

In addition, the writer contended that inequality isn’t a serious problem in the free market. He reasoned that the free market has broadly improved material standards and that inequality was higher in societies that had less “free” markets. The problem of income inequality can’t be just brushed aside. If left unmitigated, different economic classes could calcify into more insulated social groupings undermining solidarity. 

Also, the set of laws- from tax rates to property rights- in a modern state are coercive in nature and affect one’s economic condition significantly. If individual autonomy is valued then it follows that these laws must lead to equitable outcomes even for the least-well-off for them to consent to it. Hence, the government is morally obligated to intervene to ensure that a level of inequality beneficial for the least well off ,as per John Rawls' “Difference Principle”. 

It is not a society which places freedom above equality which achieves both as Milton Friedman suggested. Rather it is a society which sees both these goals as intrinsically valuable and inextricably linked, with prudent government market intervention which achieves both. 

*An edited version of this article was published in The Strait Times on 24th March 2014. 

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