What role should German government play in business?
As part of her efforts to combat the economic crisis, German Chancellor Angela Merkel is increasing the state's influence in the market, buying holdings in banks and bailing out individual industries and companies. Considering these new course of the government, there arises the question what role should the German government play in business? On the one hand, if done correctly and in a limited way, government intervention can correct negative externalities like pollution, which impose a social cost on society. The German government implement this for example through eco taxes. Eco taxes are one of the most effective measures to speed the crucial transition from finite, climate-changing fuels like oil and coal to renewable, climate-neutral ones. On the other hand, the government can help buffer the economy from demand shocks through stimulus programs and loose monetary policy. They do it for example by lowering interest rates or buying up government treasury bills, so-called open market operations. This can reduce the impact of recessions. Finally government has an important and legitimate role to play in a growing economy. It should enforce contracts, create a level playing field for all businesses, and steadfastly promote the rule of law. On the flip side, there are many ways in which the government patently wrecks the economy. First, their techniques during recessions like stimulus programs, which are often put in place too late to have an impact. This can contribute not only to runaway government deficits, but also over-heating the economy. When the economy is already recovering from a recession and then the stimulus programs and monetary policy kick in with additional stimulus to growth, you risk creating a housing or asset bubble, in which assets are overpriced. Second, most subsidies, tax exemptions and things like that are no longer done to support small industries that need...
Please join StudyMode to read the full document