Common Problems Linked with Government Intervention

BureaucracyRegulatory reflex.
Heavy administrative burden (compliance).
Slow to respond, adapt and change.
IrresponsibilityLimited accountability for wrong policies.
Using administrative complexity to diffuse responsibility.
MisallocationsAccumulation (diversion) of scarce capital in non-productive assets.
“Pork barrel” politics.
Parasitical stance on the productive economy.
CorruptionUsing public power to regulate, coerce and confiscate.
Privileging politically connected firms.

Government policy is often the object of criticism over several type of issues associated with a level of dysfunction and burden it imposes. For instance, bureaucracies may impose administrative burdens and have a regulatory reflex with the perception that most problems can be fixed by an appropriate policy. When policies lead to unintended consequences, governments tend to avoid taking responsibility or blame and use administrative complexity to diffuse responsibility. Policies tend to create market distortions and misallocations that divert capital into non-productive assets such as regulatory and compliance mechanisms.

Corruption can also be an issue with the abuse of public power to coerce and confiscate. An emerging form of corruption concerns the relations between governments and large politically connected firms that are using these relations to gain benefits such as large government contracts or the control of the regulatory process to prevent or undermine competition. The outcome can be large rent seeking schemes with the purpose of extracting as much revenue as possible while limiting innovation and quality improvements. The relations between large financial firms, central banks and governments is reflective of this form of corruption.