Criterion 5: The Role of Government

Why and how the government intervenes in economic affairs—and the impact of such intervention—is a very important subject for any economics text. A good treatment will describe the common arguments for and against government action.

Public Goods. A public good is a product that, when it is produced, gives automatic benefits to many. National defense and interstate highways, for example, are usually considered public goods. Once they are in place, everyone can benefit from them whether or not they paid for them. But a textbook should not make the error of assuming that everything the government provides is a public good.

Externalities. The market does not function well when the actions of one person or group negatively impact others, particularly where unwanted or undeserved costs are incurred—pollution is one example. A text should explore the advantages and disadvantages of different options for dealing with externalities.

Economic Stability. The economy will not maximize prosperity if it suffers from inflation, high unemployment, or both. Whether economic instability is an inherent feature of a market economy, or is induced by government policy, is a question on which there is much expert disagreement; at the least, the student should be made aware of the debate. From there, the text should discuss the kinds of government policies contending experts recommend.

Regulation. The question of whether government regulation benefits or harms the welfare of citizens is an important subject for any economics textbook. The pitfall to avoid is assuming that regulations a) yield results that are in line with the intentions of their framers, or b) are necessarily aimed at the public good. Regulations often are promoted (and even drawn) by those who would be regulated. It is often easier to co-opt the regulators and get them to write the rules in your favor than it is to win victory on the battlefield of a truly competitive marketplace.