Relation Between Government and Economics

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Table of Contents

Introduction
Why the Government should Intervene in the Market Through Economic Policies
Conditions Under Which the Fundamental Theorems of Welfare may Fail
Paris Climate Agreement
Conclusion
Reference List

Introduction

Market regulation is essential in any country, and governments around the world have enacted various policies to ensure fairness in the economy. For example, regimes primarily use two practical approaches such as monetary and fiscal strategies, to control multiple economic forces from causing damage to financial systems. The Paris Agreement is an international initiative that engages the economies of various countries around the world (Han, 2017, p. 337). The international community entered an accord that intends to solve some of the challenges associated with climate change globally. This paper explores the role of government intervention in the market, the Paris Agreement and proposes various solutions to barriers preventing the transnational society from achieving the targets of the accord.

Why the Government should Intervene in the Market Through Economic Policies

The primary reason why the government gets involved in the marketplace is to ensure proper allocation of resources to what is deemed as a more appropriate distribution. Moreover, it also intervenes to address the problem of inefficiency. Economists note that an efficient market has an exceptional allocation of resources, whereas inefficient marketplaces may have an uneven distribution of resources (Moon and Pino, 2018, p. 119).

In essence, the government formulates various policies in an attempt to combat these imbalances through taxation, regulation, and subsidies (Gunawong and Gao, 2017, p. 153). Therefore, multiple regimes participate in the growth and development of numerous markets due to several reasons.

Maximizing Social Welfare

The social welfare of consumers in a market is often a significant factor the government tries to protect. Various market structures such as oligopolies and monopolies may have specific characteristics that may limit the growth and development of the market. For example, in a poorly regulated market, cartels and other categories of firms can exercise monopolistic influence, thereby increasing the cost of entry and undermining infrastructure development (Dawid and Gatti, 2018, p. 63). The absence of regulatory oversight can lead to adverse externalities without ramifications.

As a result, it leads to diminished resources, suppressed innovation, and reduced trade and corresponding advantages. Moreover, the government also boosts social welfare through the management of public goods. For example, public parks are depletable assets that do not have the ownership of an individual. It suggests that no price is allocated to the utilization of this commodity, and everyone can use it (Fu, 2020). In essence, these resources are quickly depleted, and the government intervenes to prevent them from being exhausted.

Macro-Economic Reasons

The economic landscape of a country is vital for its development of the Gross Domestic Product (GDP). Therefore, various administrations get involved in the economy to address the damages caused by naturally occurring economic events, as illustrated in figure 1 below. Downturns and inflation are components of the business cycle, but they can have detrimental consequences on the consumers (Dawid and Gatti, 2018, p. 63).

As such, administrations manipulate the supply of money to lower the adverse effects of economic drivers on their constituents. In recessions, there is often a quick fall in private sector expenditure and investment, resulting in reduced economic growth. If regimes counter by lowering spending simultaneously, it will be followed by a considerable fall in economic development and a decline in confidence (Jia et al., 2021). In an intense recession, authorities can borrow funds from the private segment and use them to recruit unemployed people. If the supply of money declines, the Central Bank will be summoned to print money (Fu, 2020). Likewise, regimes need to prevent an economic expansion and credit explosion. Therefore, Keynesian economists note that the government can progressively impact the economy through fiscal approaches.

*Figure 1. A Model Illustrating how the Government Intervenes in the Market.*

Socio-Economic Factors

Economic fairness is also crucial in the marketplace, and as such, governments intervene to uphold financial equality. Administrations primarily use taxation and welfare programs to redistribute economic resources from high-income groups to the less fortunate (Friedman, 2021). For example, governments utilize employment laws to safeguard various sections of the population and regulate the production of specific products to ensure the health and wellness of customers.

Apart from this, the government can also get involved in businesses to promote national unity and progression. Most citizens have reached a consensus and believe that governments should allow the military to protect them, which can also be deemed a form of intervention. Therefore, expanding a large and impressive armed force not only enhances a countrys stability but also acts as a source of pride.

Conditions Under Which the Fundamental Theorems of Welfare may Fail

Government intervention in the marketplace may be void in various conditions. Administrative failure is a phrase used to outline how regime intervention can cause its problems. For example, directorial authorities can make decisions based on immediate political considerations that result in unproductive outcomes. In particular, tariffs imposed by the governments to safeguard local industries may trigger a trade war, causing the economy to decline.

Moreover, lack of incentives is also considered a situation where government intervention may fail. In particular, people have a profit impetus to develop and lower costs in a free market; however, this motivation is not present in the public segment. As a result, it can lead to unproductive output, as seen in state-owned enterprises, which are mostly overstaffed and manufacture commodities that customers do not want.

Government intervention may also fail as a result of political pressure groups. Milton Friedman argued that a short-term government bailout comes with permanent consequences (Friedman, 2021). He mainly commented on the farming subsidies introduced in the 1930s during the Great Depression to lessen an agricultural downturn (Friedman, 2021). Administrative authorities dared to withdraw grants for cultivation following the Second World War since agronomists were an influential lobbying community that wanted to retain the subsidies. In essence, government intervention may be rendered a failure when there is pressure from specific political groups.

Paris Climate Agreement

The Paris Accord is an agreement that was stipulated to address some of the challenges associated with climate change in the world. The intensely negotiated consensus was incorporated on 12^th December 2015 by the participants of the United Nations Framework Convention (UNFC) (Dovie and Lwasa, 2017, p. 1). As such, the treaty laid the foundation for a more aspiring and long-term temperature target than many had expected, suggesting more stringent emissions reductions that have been inadequately studied by the researchers.

However, the United States withdrew from the Paris Agreement in June 2017, following an announcement by the former president Donald Trump creasing all participation in the accord (Han, 2017, p. 337). The former president argued that the agreement would destabilize the economy of the US, accompanied by long-term consequences. Therefore, the Paris Climate Agreement has several challenges that may prevent its course.

Difficulties of Global Coordination to Achieve the Targets of Paris Agreement

The first challenge facing the Paris Agreement is the division that exists in the international community. The transnational society is currently disconnected, making it hard for the parties involved to coordinate the process of achieving the targets of the Paris Agreement (Hein et al., 2018, p. 7). The total amount of pledged emissions cutbacks stipulated in the current Nationally Determined Contributions (NDCs) is insufficient for the completion of the Paris Agreements alleviation objectives.

The participants effort to complete the Paris Agreements directory, including the implementation of modalities, processes, and procedures for the Accords accountability process, are imperative to the potential success of global efforts and are not a minor technical practice (Adenle et al., 2017, p. 190). In essence, the international community should find appropriate solutions to the challenges highlighted above.

The second barrier to the targets of the Paris Agreement is the ongoing exercise to enhance transparency and comprehension of global support. This challenge comes with a new quantified objective for developed country climate finance to reinforce climate action in emerging economies to be determined before 2025 (Dovie and Lwasa, 2017, p. 1). Currently, the United Nations Framework Convention Climate Change (UNFCCC) is negotiating for the modalities for reporting climate finance (Hein et al., 2018, p. 7). Therefore, these paradigms need to be reliable, prevent double-counting and provide an impetus for the best use of climate finance. Thus, the global society should develop ways of addressing the above challenges.

The third challenge facing the coordination of the Paris Agreement is that the low-emissions trials which are consistent with the Accord require international emissions to climax as soon as possible. The nature, scale, and rate of actions are expected to vary across industrialized and emerging economies, but the strictness of the Paris temperature objective is such that all nations will require to grow and follow low-emissions development trails (Dovie and Lwasa, 2017, p. 1).

Irrespective of the recent declines in the price of some significant renewable technologies such as wind and solar photovoltaic, most of these solutions lag what is required to meet the Paris objectives (Han, 2017, p. 337). Moreover, the worlds economies are inherently established to use fossil fuels, suggesting that a switch to low-emissions and climate-resilient trails will need a comprehensive and transformative change. Therefore, policy enactment needs to delve deeper into fundamental climate processes to solve the mismatches and social and distributional problems (Han, 2017, p. 337). Moreover, it should also involve incorporating the structural changes required to enable economies to adjust to the developmental transformations.

Solutions

The international society can reach an agreement and develop various ways of addressing the problems associated with the Paris Agreement. In essence, it is essential to verify that the Accords transparency and review processes are comprehensive and reliable. Participants will have to ensure that other parties are committed to improving the goal of emissions reductions over time and surpassing immediate national perspectives (Dovie and Lwasa, 2017, p. 1).

Therefore, when faced with the urgency and intensity of the objectives ahead, the review process should incorporate a reality check on the sufficiency of collective efforts. Moreover, carbon pricing policies should be enhanced and developed to reduce emissions effectively and on a large scale (Dovie and Lwasa, 2017, p. 1). Due to the diverse existence and aspiration of NDCs submitted by participants, the minimal and median reduction costs significantly vary across various nations. Therefore, the economic effectiveness of the Paris Accord could be extensively strengthened if the global community could initiate convergence of actual or specific carbon prices across countries (Hein et al., 2018, p. 7).

For example, this strategy could be achieved through adaptable market processes or coordination of tax levels. Moreover, governments around the world will have to increase climate action in forestry, agriculture, and other land-use segments. In particular, these activities involve priority activities such as nature-based alternatives for mitigation, such as safeguarding existing carbon reserves in tropical plains, woodlands, and other habitats (Hein et al., 2018, p. 7). In addition, these processes also include enhancing ecosystems abilities to act as carbon sinks whenever possible such as reforestation. In essence, the strategies mentioned above can play a vital role in helping the international community in reaching the targets of the Paris Agreement.

Conclusion

This paper has explored the reasons why government intervention is essential for maintaining the economic welfare of an economy. In addition, it has also critically analyzed the conditions under which regime involvement in the market may fail. Therefore, while administrative participation in regulating the markets for the exclusive benefit of the economy is feasible, there are times when governments find it hard to execute these strategies.

The paper has also explored the contents of the Paris Agreement created to address some of the challenges associated with climate change. However, the United States withdrew its involvement in the accord citing reasons of undermining the economy of the country. As such, reaching the targets stipulated in the Paris Agreement comes with several difficulties, as explained in the paper. Although these challenges prevent the international community from achieving these objectives, some solutions may help them to complete them in a timely manner.

Reference List

Adenle, A. A. et al. (2017) Managing climate change risks in Africa-A global perspective, Ecological Economics, 141, pp. 190201. Web.

Dawid, H. and Gatti, D. D. (2018) Agent-based macroeconomics, Handbook of Computational Economics, 4, pp. 63156. Web.

Dovie, D. B. K., and Lwasa, S. (2017) Correlating negotiation hotspot issues, Paris climate agreement, and the international climate policy regime, Environmental Science & Policy, 77, pp. 18. Web.

Friedman, M. (2021) 1. The Invisible Hand in Economics and Politics. ISEAS Publishing.

Fu, T. (2020) The dilemma of government intervention in a firms financing: Evidence from China, International Review of Financial Analysis, 71, p. 101525. Web.

Gunawong, P. and Gao, P. (2017) Understanding e-government failure in the developing country context: a process-oriented study, Information Technology for Development, 23(1), pp. 153178. Web.

Han, V. (2017) Trumps Promise: Withdrawing from the Paris Climate Agreement, Environmental Claims Journal, 29(4), pp. 337349. Web.

Hein, J. et al. (2018) Deforestation and the Paris climate agreement: An assessment of REDD+ in the national climate action plans, Forest Policy and Economics, 90, pp. 711. Web.

Jia, R., Lan, X. and Miquel, G. P. (2021) Doing business in China: Parental background and government intervention determine who owns business, Journal of Development Economics, p. 102670. Web.

Moon, W. and Pino, G. (2018) Do US citizens support government intervention in agriculture? Implications for the political economy of agricultural protection, Agricultural Economics, 49(1), pp. 119129. Web.

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