Topic 12: Role of the Government

When the term liberalism first introduced to Western economics, many Western countries adopted this idea and became what they are now--strong countries. I think government indeed should believe in market, putting their hands out of the economy. Their role is only limited to keeping people safe, defending the country's borders, and providing a fertile environment for markets. With the hand of government interference “removed from markets, the invisible force of supply and demand can work out the most efficient patterns of production, exchange, and consumption” (Goldstein & Pevehouse 286), prosperity would be brought to people. One recent example of government interference causing inefficiency is the Taiwanese taxation of capital gains on securities. The government put tax onto the stocks, so when stock increase its value to certain points, stockholder have to pay the tax. The government set this system is primarily for “social justice”, which wealthier people have to afford more tax. Yet, it turns out that people are discouraged to participate in economic activities (since they have to pay more money) and the government can’t earn the revenue from this system because everyone will sell their stock before it cross over the set point. As a result, the best way for government to deal with economy is leave it along.