The Importance Of Economic Policy

For decades, the U.S. economy has remained the world’s largest national economy, constituting roughly 22% of the world’s nominal GDP in 2014 [1]. Its stability and efficiency is paramount to the economies of other countries. For example, as seen from the recent financial crisis of 2007-2009, a slowdown in the U.S. economy can have significant implications and detrimental spillovers to many of the world economies. Hence, to analyze other world economies successfully, it is imperative to have a firm understanding of their economic dependence with the U.S. economy. The U.S. economy is predominately a market economy. Although it allocates most of its resources through the private sector, a substantial percentage of resources are contrarily allocated …show more content…
federal government should play, we must ask ourselves whether the only objective of the government should be to ensure that resources are allocated efficiently. Although most economists would agree on the policies to undertake that would improve the efficiency of an economy, another key characteristic must be taken into account when choosing between policies – equity. While some policies may improve the efficiency of an economy, virtually every policy benefits some people at the expense of others. Hence, a prospective policy’s degree of equity tends to be a normative issue – an argument about how society ought to be, whereas a policy’s degree of efficiency is a positive issue – an argument about the objective effects of policy decisions. The government must protect individual property rights, but another role that most people believe that the government should undertake is to act in the public interest in order to improve the total societal welfare. This responsibility tends to be a balancing act between finding equitable and efficient policies. For example, although the freedom of slaves in the 1800s led to an almost unanimous view of an improvement in societal equity, this also provided the slave owners with an economic loss, which could have potentially led to market inefficiencies. Accordingly, finding equitable policies that also improve the efficiency of an economy can pose an extremely difficult budgetary task for political officials. Although most people would agree that the government should act in the public interest to some degree, how does one define the public interest and how do public officials identify such policies when almost every policy benefits some at the expense of