Negative effects of government intervention

MANAGING an economy is different from managing a business enterprise. What is beneficial to businesses may not be necessarily good for the economy.

Economic management is about managing the trade-off among conflicting demands. It is the job of the government to keep the economy on an even keel.

In classical economics, Say’s law, or the law of markets, states that “Supply creates its own demand”. This law of markets implies that a general glut (widespread excess of supply over demand) cannot occur.

Say’s law has been one of the principal doctrines used to support the laissez-faire belief that a capitalist economy will naturally tend toward full employment and prosperity without government intervention.

Of course, successive global economic depressions have changed all this, and Say’s law is now more or less defunct.

Keynesian interventionist policy and, later, monetarist economics (pioneered by Milton Friedman) have since become the mainstay of economic thought.

Essentially, the idea is to intervene in the workings of the economy by manipulating government spending and controlling money supply and varying interest rates to influence the level of economic activities. But have we ever wondered why most governments, including Malaysia, have “over-practised” Keynesian and monetarist economics?

Governments intervene to correct imbalances in the economy but those interventions have themselves caused distortions and imbalances.

They always favour the businessmen, speculators and the highly geared while the savers and the prudent are sidelined and disadvantaged.

T. K. CHUA Kuala Lumpur