Government Economic Policy Importance

Government Economic Importance

20% of Economy. US Federal Government Economic Activity

US Federal Government Economic Activity

The federal government footprint is 20% of the US GDP. That’s a significant fraction. The fraction of the US economy outside the free market shrinks even more when we consider that state, local, municipal, and non-profits each remove further economic activity from market forces.

Although the United States has huge free markets, they do not encompass the entire national economy. The US federal government is by far the largest economic enterprise in the country.

Activities Beyond Market Forces

Market forces do not lead to sensible decisions in certain types of economic activities, as when the good benefits everyone only a small amount, while the aggregate worth to the society is large and is costly. No one person can afford it, but together the citizens can. Examples are clean water, bridges, airports, safe food and drugs, etc.

Numerous, desirable activities require coordinated effort to bring together the money required and the energy expended to benefit the nation’s citizens.

Keeping Markets Free

Market forces can be subverted by unethical restraint of information as when a business enterprise withholds information about problems with its product. Market forces only produce good decisions when all information is available to both sides of a transaction.

Also since modern life is so complex, no person is able to keep current on all the facts and information required for informed purchases. There is the need for independent, responsible oversight. We have invested that power in agencies like FDA, which still need further independence from the enterprises they oversee.

The federal government must sensibly handle its huge budget. Its selection of projects of national interest is immensely important. Lastly, but not least, it must regulate some economic activities to ensure that free markets are not distorted by hidden information.

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