Manipulation of Economic Landscapes by Government Agencies
Free markets, supposedly untouched by government, are a thing of myth. Truth is, governments act as puppet masters, stepping in to keep markets stable, regulate transactions, and establish institutional infrastructure. They also enforce contract laws and property rights, and when markets malfunction, they intervene with bailouts and emergency measures.
Governments wield significant influence over the market through monetary and fiscal policies. For instance, by raising or lowering interest rates, they can impact businesses significantly. Inflating currency might offer a short-term boost to companies as they hike product prices, but it weakens currency values and spikes interest rates, undermining savings and bond values in the long run.
When industries or segments of the economy are faltering or threatening to collapse, governments might offer bailouts to save the day. Remember the Great Recession and the bank bailout of 2008? The U.S. government had a history of bailing out non-financial companies, too, like Chrysler (1980), Penn Central Railroad (1970), and Lockheed (1971), albeit in the form of loan guarantees.
Governments can affect markets through subsidies and tariffs as well. In the case of a subsidy, the government confiscates tax money from the public and redirects it to favored industries, making them more lucrative. Tariffs, on the other hand, slap taxes onto foreign goods, making them more expensive and allowing domestic suppliers to charge a premium.
Higher taxes, fees, and regulations can create obstacles for businesses, either stifling entire industries or causing resource drain in other sectors. During his tenure as Chrysler's CEO, Lee Iacocca pointed to the heavy cost of increasing safety regulations as one of the reasons Chrysler needed a bailout. Such trends can lead to industries with few large players, as smaller providers struggle to cope with the burden of regulations.
In a libertarian view, the government's role in markets is limited to protecting and enforcing private property rights, maintaining a domestic police force, maintaining a standing army, and building public works that society benefits from.
However, governments often impose regulations due to information asymmetries in the market, where some sellers are fraudsters or companies cut corners to produce subpar products. Regulations help rectify this imbalance and safeguard consumers.
In conclusion, governments play a substantial role in the financial world. They regulate, change interest rates, issue currency, and offer bailouts. These actions can have immediate and lasting effects on companies, industries, and markets at large.
- Governments can indirectly influence trading by implementing regulations that ensure market transparency and protect consumers from fraudsters or subpar products.
- The liquidity of token trading may be impacted by governmental actions, such as imposing taxes or fees, which could potentially stifle certain sectors of the finance market.
- In the realm of business, government intervention through the issuance of ICO regulations can shape the landscape of investing and the distribution of capital.
- In extreme cases, government intervention in the form of bailouts may save businesses from collapsing during periods of economic decline, as stated during the Great Recession and the bank bailout of 2008.
