Government Intervention in an Economy

• Protect Property Rights
• Minimal tax collection for other 3 points purely
• Law enforcement
• Military defense

Early America

Let's look at history for a guide. In the beginning of America's history, America had a predominantly Laissez-Faire economy, besides the National bank, tariffs, and the government arming the military with private sector weapons. [1]

Keynesian Theory

With government intervention in an economy, the government can smoothen out the bumbs in the business cycle that are inevitable. The government can use government spending and/ or tax cuts to stimulate the economy, reducing unemployment. The government can also buy/ sell bonds to lower or raise interest rates (respectably). Later, when inflation threatens, the government can raise interest rates and/ or raise taxes moderately to curb inflation. [2] [3] Plus, government spending creates a multiplier effect, which is when funds are directed to consumers with a high propensity to consume, the $1 spent by the government results in $1.50 in economic activity. [4]

Now let's take a look at an example in which government intervention didn't exist but then came in. The Panic of 1907 is an example. The stock market fell about 50% in about a year. Many local businesses entered bankruptcy. The crash was caused by less liquidty and more unregulated derivatives. [5] Private banker J.P. Morgan organized a swift response to the crisis, and the Treasury also injected cash to shore up the banking system. A national crisis was averted. Now, if there was no response from the government, the crisis would of gotten worse, despite the efforts from J.P. Morgan. Still, the cooperation worked the best. [6]


The Great Recession: The Case for Federal Regulation

-----------Background----------

The Great Recession resulted from a lack of regulation and subprime mortgages, which could of been limited from federal regulation. Subprime loans are risky loans are have usually variable rates. The beginning of the massive use of Subprime mortgages made it more likely that more homeowners would default. However, subprime mortgage usage was regulated well before 1980. Strict laws controlled who could get mortgages, and if you couldn't get a mortgage, you don't get one. [6] When deregulation occurred, although more citizens got homes, risk was high. When these people failed to pay for their homes because of the variable rates, the mortgage went bad. This information will be important soon.

When DEREGULATION occurred in the 1980s and 1990s, it sometimes had pretty bad consequences. When the Gramm–Leach–Bliley Act was passed in 1999, larger banks were allowed to merge, creating less competition, and more risk if one was to fail. [7]

Between the mid 1980s and 1999 increased securitization laws were passed. These extremely complex laws encouraged the usage of subprime loans. These devices are called derivatives. With derivatives, investors couldn't accurately assess what the risks of their investments were. These were basically bets, bets that betted on people's ability to pay back questionable loans. When many Americans defaulted in 2006-2009 (subprime mortgage crisis), the values of these derivatives dropped hugely, and sending the FEW LARGE banks in a tailspin. [6] These derivatives also allowed investors to bet on other things as well, such as the weather. An investor could also bet on, well, just about anything, including a person putting an insurance policy on your house. [9] Also, the banks got much of their income from buying and selling these derivatives and CDO's, which resulted in massive bank failures as seen in 2008. [6], [10] When CDO's went bad, so did some derivatives, which was huge for Wall Street.

CDO: Collateralized Debt Obligation; a security that is a combination of several unpaid loans such as student debts, credit card debts, mortgages, etc.

However, people who wanted investments on Wall Street such as us couldn't assess the risk of these CDO securities. We would look towards what ratings given by the ratings agencies such as Standard and Poor's, Moodys, etc. However, because OF A LACK OF FEDERAL REGULATIONS, the big banks paid the ratings agencies to change the rating to AAA, the highest rating possible. So, in affect, they gave these risky debts a HIGHER CREDIT RATING THAN THE U.S.A. [10] That is totally absurd, and a great case for regulation. Also, all of these deregulations complicated the banking system in the U.S. because instead of local banks controlling the mortgage payments, loans, etc., they sold them to one of the top big financial sector businesses, which sold them around the world, complicating the process. Also, the people who took out the risky loans were usually enticed by the banks through Predatory Lending. With federal regulation, these consumers (who some were gullible) would not of been taken advantage of. [6]

Conclusions

As you can see, federal regulations could of made sure that derivatives were transparent and rated accurately for consumers. Predatory lending could of been made illegal. Plus, less bank merges would allow less threat to the economy. With less government regulation in the economy, the process can very well happen again and be MUCH WORSE. Why is that? Well, the total derivatives market is over $700 TRILLION dollars in value. [8] However, many don't complain about that and instead complain of government food stamps. Other businesses have to be regulated as well to make sure their employees get safe working conditions and such. However, the most MASSIVE case for federal regulation is on Wall Street. True, the S.E.C. and a few other institutions regulate Wall Street already, but many have been very lenient on this task, and let the banks get away and just charge fines and then the case is settled.

Sources:

[1] http://economics.about.com...

[2] http://www.wisegeek.com...

[3] http://www.investopedia.com...

[7] http://www.symtrex.com...

"Barrier to Further Growth"

Partially true. Yes, heavy regulations can be burdensome. However, they are necessary to level to social equality of a nation. Do we need deregulation? Not really. I am not supporting useless regulation that is unenforced. I am supporting Gov't intervention that is smartly implemented. However, deregulation leads to eventually monoplies. When only libertarian economic intervention is approved, the largest businesses will consolidate or eliminate the small businesses of a community, and this will happen:

• Only a few large companies remain
• Instead of to prosper, companies cut as many costs as possible to maximize profits
• Consumer and worker safeguards are eliminated
• Workers laid off by the thousands
• Wages are reduced
• Production and workloads pushed to the limit
• A monopoly or oligopoly will dominate the market, but hundreds of nickel-and-dime operations may work around the edges
• In the final stages, a monopoly or oligopoly emerges, after which prices are raised, services dropped, quality reduced, and corruption and abuses of power become commonplace. [2]

You can see that deregulation in the short term will seem well. However, later companies will get aggressive in their efforts to downsize and become the most competitive. Since small business cannot effectively compete with large business' because of economies of scale, less profits, less market share, and the threat of predator pricing, it is nearly impossible for small businesses to thrive, because they cannot grow larger.

EXAMPLE: The Airlines Industry

We have already described how deregulation affected the airline industry. After a brief period in which new airlines formed to compete for customers, there was a shake-out. To cut costs, airlines began paring back their maintenance and safety crews, which outraged the flying public. Since 1978, a dozen airlines have merged or gone out of business. Some 50,000 employees lost their jobs. Now that a few majors exist, air service is being dropped to 130 smaller communities, many others are served by only one airline, and air fares are climbing faster than the planes themselves. [3]


Regulation is Needed [1] (this whole Paragraph)

Regulation is necessary for the best economic prosperity in society when regulation is implemented in a smart way. Here are the reasons why regulation is needed:

• Creates a level playing field and ensures competition (no predatory pricing against small businesses)
• Maintain quality standards for services (ex: specifying qualification requirements for service providers)
• Protects consumers (from false advertising, fraud, financial abuse, etc.)
• Ensures sufficient information in sales (no false or lying advertisements, which distorts the marketplace)
• Prevent enviornmental degradation (make sure companies don't dump waste in lakes, etc.)
• Guarantee wide access to services
• Preventing financial instability and protecting consumer savings from risk taking by financial institutions

The Stimulus didn't fail. Did it work? For its goal, it was really just to prevent the free falling of the U.S. economy. Before the stimulus, job losses exceeded 700,000 a month. Now, after much of the stimulus has taken place, job growth is about 125,000 roughly. The stimulus injected $800 billion in the economy. The Great Recession, created a gap of about $3 TRILLION. So, the Stimulus was not meant to bridge the gap, but make the economy stabilize. The stimulus needed to be larger and more effective to improve the economy more. [4] [5]

Okay, before you stick catch names to someting and call it that, read up on the facts. This is not Socialism. I am not saying "Capture the Executives! Execute the bastards!" No, I am just defending the idea of a Capitalist Mixed Economy, one that is a mixture of private and public enterprises. [6]

I am supporting government intervention in an economy. This doesn't mean I support all government intervention. I support the Capitalist Mixed Economy. I do not support some gov't interventions, such as the case of farm subsidies, because the way it is currently sturctured subsidies obesity (corn syrup), I don't support protectionism, and I don't support subsidies (besides case of possibly renewable energy to speed up this national need). So, this refutes many of your points.

The years 1937-1939 were not as bad as 1932, because the former was a recession due to the money supply. The source shows you a graph of GDP that PROVES that the recession was not as bad (although both were serious setbacks) as the early 1930s. [7]

Public Health Care Option and Cap and Trade

These two ideas, if instituted by the government, would save much money. A Public H. Care Option would save billions for consumers, and would create revenue for the gov't, and would introduce more competition in the health care sector. Cap and Trade is a great idea. It is relatively cost effective and flexible. It rewards success by companies reducing their carbon output, and can share the "credits" exceeding the cap to help other businesses get theirs. It creates a whole new market as well of carbon credits. Also, we need to protect our natural resources for later generations to protect the planet. Purchasing renewable energy for companies, which could be encouraged by the government, would help the environment, help the economy, and hurt NOBODY, unless you are an oil executive not wanting to adapt to more efficient methods to compete. [8] - for paragraph

CONCLUSION

Competition is necessary in our economy to improve qualities of goods, reduce price, and improve other facets of business. However, when a tidal wave of deregulation is released, at first the effects may seem good like in the 1980s. However, after time, monopolies, or other disastrous affects occur. Just look at the Great Recession, which I talked about in Round 2 (read my argument if you missed it). If you want customers to be fooled, cheated, abused, and have a weaker economy overall, take a "free" market system. Plus, with no smart government intervention in an economy, you will miss out on the benefits at the top of my argument (Para. 2). Plus, some things frowned upon would be sold in the economy for the pleasure of the few and dismay of many. For example, child pornography would be legal. Do you really want that? My opponent doesn't say no, because that is government regulation in the economy.

Plus, many small businesses WELCOME gov't regulation, while larger businesses don't want small government, but the SMART GOVERNMENT that Bill Clinton and I and many others embrace such as Drew Liveris, CEO of Dow Chemical [9] --- An economy that prospers due to the private and public sectors working together. An economy that doesn't favor others over others. A government that promotes positive policies and that helps the populace. It is not another gov't bashing. Politics such as my opponent's are good politics, but produces poor policies. And Americans need victories in real life. [10] [9] [11] [12]

Vote Pro - Unless you want another recession, a worse economy, and don't currently stand into reality.

Sources

[1] http://www.aliveness.com...

[2] http://www.odi.org.uk...

[3] Donald Barlett and James Steele, America: What Went Wrong? (Kansas City: Andrews and McMeel, 1992), pp. 106-112.

[4] http://www.nytimes.com...

[5] http://www.facebook.com...

[6] http://dictionary.reference.com...

[7] http://www.voxeu.org...

[8] "What You Should Know About Politics... But Don't" By Jessamyn Conrad - A nonpartisan guide to the issues

[9] Restoring the American Dream, CNN, Fareed Zakaria, Sept. 2011

[10] "Back To Work - Why We Need Smart Government for a Strong Economy", By Bill Clinton (Nov. 2011)

[11] Capitalism: A Love Story (documentary)

[12] Inside Job (documentary)

• Self-regulation can arise as a result of market forces; however, the failure of such a system to arise does not mean there has been a "market failure."
• Government-driven self-regulation for innovative industries is not desirable, for it mimics many of the costs of command and control regulation without constitutional or other safeguards. [1]

(directly from source)

So in free markets they regulate themselves.

Is deregulation the answer?

In earlier research, Mr. Winston, an economist at the Brookings Institution, measured savings from the deregulation of the airline industry. A combination of more efficient 'hub and spoke' route structures and more flexible pricing, he argued, saved the public some $8 billion annually. [2]

also exaclty as said in the source.

So deregulaiton of this buissness would save 8 billion dollars. This is from a liberal source.

" regulation is needed"

You say there it smart regulaiton, false this doesn't exist:

Government is not productive. It is not creative. It does not bring blessings. Government spending drains resources from society, taking from those in whose hands it has the highest value and putting into the hands of people who serve the state. Regulation forestalls choice. Taxation loots from people the reward of work and productive endeavor. [1]

so directly from my 1st source.

Trains and trucks, sometime rivals in the freight business, suffered from very different regulatory maladies. [2]

They hurt indistry they do not help it. Also I have proven the free market regulates itself.

Self regulation creates a level playing feild.

self regulaiton creates quality.

You also say false advertizing, but the funny thing is who cares people should mistake it isn't mr cleans fault you bought his product, it is you. You are arguing a nanny state which is bad.

basically you say regulation is needed, we agree, but you claim goverment regulation not self:

In the absence of regulatory institutions, people would demand safer products and better working conditions, without the state.

And, businesses do what is demanded in a free market, private review organizations will pop up to rate various businesses on health issues and the like. Regulatory agencies are not necessary for regulation, because markets regulate themselves.

"Now, after much of the stimulus has taken place, job growth is about 125,000 roughly. "

You say it worked, no it didn't it said it would make unemployment under 8%, it is 8.5% now. and underemployment is really high.

Also lets look directly after the bill:

Conservatives have correctly declared President Obama’s $787 billion “stimulus” a flop. In a January report, White House economists predicted the bill would create (not merely save) 3.3 million jobs. Since then, 2.8 million jobs have been lost, pushing unemployment toward 10 percent. [3]

directly from 3rd source.

You say it worked, bt its been 2 years. Right after its pasage it didn't work.

Understanding why the stimulus failed is an important step in understanding how the government can—and cannot—goose economic recovery. [4]

also word for word.

So this relates to this debate as a whole and the stimulus, it says the goverment can't fix it, the stimulus also proved this.

"Okay, before you stick catch names to someting and call it that, read up on the facts. This is not Socialism."

Yes but socialism = a lot of goverment control, so therefore it is safe to say your policies that you recomend are socialistic. Not socialist but it is a step towards it. So it is a valid argument.

"I am supporting government intervention in an economy. This doesn't mean I support all government intervention."

In the remainder of the paragraph you say things that come with the mixed economy by definition but don't support it. Most of thsubsidies you mentioned are in place (or are trying to come in place) from people that advocate what you are saying. So eing against it means you are pretty well away from the establishment mixeeconomic politicians.

"The years 1937-1939 were not as bad as 1932, because the former was a recession due to the money supply. The source shows you a graph of GDP that PROVES that the recession was not as bad"

My source also disproves the new deal. Also can you read graphs? BEFORE the new deal GDP was IMPROVING, so the new deal happened after the improvement got better. SO th ene deal had little to do with the GDP. The source also disroves everything you have said, let me add on to this:

The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. [5]

Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office. [5]

all from the source.

"A Public H. Care Option would save billions for consumers, and would create revenue for the gov't, and would introduce more competition in the health care sector."

False:

The first, and by far the largest excess cost, is due to the current overuse of medical resources by patients. Overuse is the rational response of consumers who do not have to pay the entire cost of the medical services they use. The causes of those excess costs are Medicaid, Medicare [6]

basically saying those 2 goverment insurance plans have raised cost. if they raised cost how would a National H. system lower costs?

Debt from a National healthcare system:

Lets use obama care as an example:

The health care law includes an estimated $105 billion in mandatory spending [7]

Lets look at another guess:

the CBO says that the bill’s ten-year costs would be $1.2 trillion. [8]

So how would a national healthcare system save money if a semi-national system like obama care costs money? It wouldn't.

Cap and trade raises costs:

Mr. Obama's biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers [9]

c/p from 9

How does raising cost and taxes help the economy, now let's proce higher taxes worse economy:

Raising taxes ALWAYS hurts the economy [10]

1. A tax increase leaves customers with less money to spend.

2. A tax increase forces companies to scale back or cancel planned expansions.

3. A tax increase starves successful companies of cash needed to fund growth.

4. A tax increase causes pessimism to increase. [10]

c/p from 10.

==conclusion==

I have proved my case, he has ignored much of mine. I have refuted hsi case proven self regulation works , and goverment reglation is bad. Proved self regulaiton actually happens so there is no need for goverment nanny state policy. I urge you to vote con. I have fufilled my BOP.

sources:

http://www.cato.org... [1]