Economic Crisis

The recent economic crisis continues to spread, the world economy is immersed in trough. Market economy's malpractice appears day by day, people pay more and more attention to government regulation, and governments also actively take measures and hope that economy recovers as soon as possible.

As we all know, the market economy has three main flaws. First, market regulation has spontaneity. Producers and operators will blindly pursue the interests, they may not pay attention to professional ethics, disrupt the market order, or produce and sell fake and shoddy products. Second, market regulation has blindness. Single commodity producers and operators can not master all aspects of society, they can not control the trend of changes in the economy, therefore, they make operating decisions with a certain blindness. Such blindness would cause price fluctuations and the waste of resources. Third, market regulation has a lag. The participants of economic activities consider the balance of supply and demand; all of their decisions are made according to the existing conditions. This time lag will lead to fluctuations in the economy and a waste of resources. Because the market regulation has these drawbacks, so, government regulation becomes very necessary.

There are some limitation exist in market economy. Due to pursuit the maximum profits, the expansion of market could cause unintended consequences. And because of this, the government regulation could play an important role to regulate the market economy. The word "Visible hand" is come from a book The General Theory of Employment, Interest, and Money, which was written by a famous economist Keynes. He pointed out the government should intervene economy directly. An example of government regulation is Roosevelt's New Deal.

Its core is three R: Recovery, Relief, and Reform. In the premise of maintenance the capitalist system, make local adjustment of capitalist production relations, enhance the state intervention in the economy. Through the government administrative power, dispersion the centralized social wealth to those people who at the bottom of society. So that the economy will gradually restore balance, promote economic recovery. The New Deal made the U.S. economy has recovered, unemployment dropped substantially. The capitalist countries were strengthened to control and management to the macro economic. The capitalist system has been adjusted, consolidation and development. Bold reference socialist strengths; use the method of reform to save the capitalist crisis, to avoid the fascist on stage.

But, government regulation also has several negative problems. One is government over-regulate market could cause the labor costs and transaction costs increase. To reduce these costs and evade higher taxes, some of the market activities had to transfer to the underground or black market. It can lead gray economy increase. As we known that gray economy is illegal,