Sometimes, economies enter crises as a result of the combination of various circumstances. Governments may try to address these situations by implementing laws, which become known as stabilization policies. The advantages of such an approach are apparent when the efforts to rescue the nation from its issues come to fruition. Baumol and Blinder note that advocates of such actions generally see the probability of success as high and doubt the economy’s ability to grow without regulation. Overall, governmental controls tend to make the economy trend toward predictability, reducing the likelihood of unusual events and trying to maintain steady growth.
However, such initiatives can also constrain the market, particularly when they are misguided and address the wrong issues. Baumol and Blinder describe critics’ concerns over lags, uncertainties, and the impossibility of accurate future predictions. If a policy fails, it can take the government too long to notice the effects and move to address them, and the negative influence will be severe as a result. In the worst-case scenario, the policies can create a recession instead of preventing it as intended. As such, opponents of stabilization policy tend to propose fixed and passive policies that let the economy overcome its issues without interference.
I am on the side of the non-activists, as they are concerned about the government’s ability to formulate appropriate intervention policies. With the ongoing globalization of business worldwide, it is more challenging to predict the economy’s direction than ever. People who are heavily involved in these processes are the most likely to have productive ideas, but they most likely work for various multinational businesses. As such, the maintenance of a healthy economy should be left to its members, who are interested in keeping up its condition. The economy moves too fast for a removed and slow agent, such as the government, to oversee it.