companies, and investment houses, may indulge in risky activities that
threaten the health of the entire economic system. These market failures
explain why governments sometimes intervene to alter the allocation of
resources.
Also, important issues of equity arise from letting free markets determine
people’s incomes. Some people lose their jobs because firms are
reorganizing to become more efficient in the face of new technologies.
Others keep their jobs, but the market places so little value on their
services that they face economic deprivation. The old and the chronically
ill may suffer if their past circumstances did not allow them to save
enough to support themselves. For many reasons of this sort, almost
everyone accepts some government intervention to redistribute income
toward individuals or families with fewer resources.
These are some of the reasons all modern economies are mixed
economies. Throughout most of the twentieth century in advanced
industrial societies, the mix had been shifting toward more and more
government participation in decisions about the allocation of resources
and the distribution of income. Starting in the early 1980s, a worldwide
movement began to reduce the degree of government participation in
economies. Following the global financial crisis in 2008, however, there
was movement back toward a greater involvement of government in the
economy. These shifts in the market/government mix, and the reasons
for them, are some of the major issues that will be studied in this book.