The Role of Government in Environmental Protection

The final controlling authority in most of the issues related to environment is the government itself. For example, most of the thermal power plants are owned by the government and also only the government can build dams, roads, railways, etc. Industrial or any other related activity cannot start without the approval of the government. Therefore, the government has to apply various checks and controls so that the environment is managed properly.

How can the government establish incentives that would lead industries to choose the efficient amount of pollution control in their own best interest, even if they do not face all the social costs of residual emissions?

1. Direct Regulation

Direct regulation of polluting activity (i.e., setting a legal limit for pollution) frequently comes to mind. The government could, for example, simply limit the industry’s pollution to R units by decree. Direct regulation of this sort was popular in the United States shortly after the setting up of Environmental Protection Agency, a government organization tasked to regulate any practice that may have an adverse effect on the environment. Created in 1970, the EPA became the US government’s answer to increasing qualms about the wanton disregard of some industries and their unsafe practices that pose hazards to human health and the environment in general.  Aside from safeguarding human and environmental health, the EPA is also empowered to craft and enforce regulations under existing environmental laws. It is also responsible for researching various methods to protect the environment.  Since its creation, the EPA took the lead in implementing changes to make the United States a better place to live in.… Read the rest

The Economists View of Environmental Pollution

Why do people use resources like the environment? This is because, pollution is a byproduct of activities that add to their welfare. These activities bring economic gain to producers and utility gain to consumers. We do not pollute the planet just for fun; we do it as part of activities that improve our welfare. The economists view of environmental pollution is that pollution creates another trade-off of cost and benefit that must be weighed on a case by case basis.

Many of our streams and lakes have historically served as depositories of chemical waste generated by industrial plants and mines. Some are cleaner now, but many still suffer damage form earlier discharges of chemicals, like PCBs whose “half-lives” are measured in hundreds of years. Many pesticides, fertilizers, and detergents used by farms and homes find their way into our lakes and waterways, where they have damaged commercial and recreational fishing. Automobiles are primary source of many air pollutants. The residue of their emission can foul both the air that we breathe and the land located close to the road that we drive on. Factories generate particles of various kinds, often through the combustion of fossil fuels; these pollute the air and fall onto the ground-both near and far. Some of our pollution has even been shown to cause damage on a global scale. The production and emission of chlorofluorocarbons has damaged the ozone layer and exposed much of the planet to increased ultraviolet (UV-B) radiation from the sun; the emission of carbon dioxide and other greenhouse gases has begun to warm the planet at rates that many find alarming.… Read the rest

Poverty Trap

Poverty trap is a situation where an unemployed person receiving social security benefits not encouraged to seek work because his or her after‐tax earnings potential in work is less than the benefits currently obtained by not working. The poverty trap occurs due to benefits such as income support, housing benefit, single parent allowance and family tax credit. Given that social security benefits represent the ‘bottom line’ (that is, the provision of some socially and politically ‘acceptable’ minimum standard of living), the problem is how to reconcile this with the ‘work ethic’.

For example, consider the case of a low-skilled person in the UK. He is unable to get a high-paid job because he doesn’t have the right skills, training or experience. He has two options. First one is to get a low-paid job or second option is to claim unemployment benefits. If he gets a low paid job he will have to pay taxes and national insurance so he decides he is actually financially better-off just claiming benefits for being unemployed. As time goes by he carries on claiming benefits and continues to lose his ability and confidence in himself. This makes it more difficult for him to get a decent-wage job and more appealing to continue living on benefits. We can say that he is in the poverty trap.

One suggested way to release people from poverty trap is for government to provide employers with employment subsidies that allow them to pay wages higher than the minimum level of social security, even though the marginal revenue product of the work undertaken does not warrant it.… Read the rest

Objectives of Fiscal Policy

By fiscal policy we mean, the government’s tax efforts, public expenditure and public borrowing. Through these the government can effectively encourage consumption, investment and savings habits and also restrict them. For example, suppose there is inflation in a country. Inflation implies that the people have high purchasing power and so they demand goods. To curb this, the government may raise the personal tax and also the corporate tax. Similarly, by altering its expenditure on various public projects, the government would be able to influence the prevailing economic condition. Public borrowing  involves government issuing bonds and encouraging common public and other institutions to buy them. By this, the government would be able to bring down the level of purchasing power in the economy and control the inflation.

The following are the objectives of fiscal policy:

  1. Maximization of the aggregate saving is the first objective. Tins are achieved by encouraging people to reduce the current and future consumption. Specifically the attempt is to bring down and control the conspicuous consumption of the rich people. The government can impose taxes on them and can provide the basic necessities of life to the poor class on low rate. In this way by providing incentives, savings can be increased.
  2. Maximization of capital formation is the second objective. Through this objective the country can try to achieve an accelerated economic growth. This will help the country to overcome the stagnation and achieve a higher rate of economic growth.
  3. The third objective is to divert the available resources from the less productive to most productive purposes. 
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Economic Policies to Control Inflation

Inflation has to be controlled, otherwise the extent of damage done to the economy will be something substantial and the economy would take a long time to recover from the effects of inflation. In this direction of control of inflation, the following are the theoretical measures available. These measures could be classified into three groups viz. Monetary measures, Fiscal measures and Other measures.

1. Monetary Measures

Monetary measures are steps taken by the Central bank of a country as the head of the monetary system. These measures are usually refereed to as the, quantitative credit controls and qualitative credit controls. The former include bank rate, open market operations and the variable reserve ratio. The, latter include margin requirements, moral suasion, direct action, control through directives, consumer credit regulation or rationing, publicity, etc.

  1. Quantitative Credit Controls: Bank rate is the first, measure to curb credit creation activity of the commercial banks, as during inflationary period the volume of money supply has to be reduced. Bank rate is the rate at which the central bank of a country re-discounts the bills already discounted by the commercial banks. When the central bank wants to control credit creation by commercial banks, it would simply increase the bank rate. Correspondingly the commercial banks would increase the discount rate which acts as a disincentive for the businessmen and others to approach the commercial banks for discounting their bills. However, the success of this policy depends on the co-operation of the commercial banks. Open market operations are another quantitative credit control measure. 
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Types of Unemployment

The population of an economy is divided into two categories, the economically active and the economically inactive. The economically active population (labor force) or working population refers to the population that is willing and able to work, including those actively engaged in the production of goods and services (employed) and those who are unemployed. Whereas, unemployed refers to people who are willing and a capable of work but are unable to find suitable paid employment. The next category, the economically inactive population refers to people who are neither working nor looking for jobs. Examples include housewives, full time students, invalids,those below the legal age for work, old and retired persons.

Unemployment is of different types. The important types of unemployment are:

  1. Structural unemployment: This is a type of unemployment caused mainly by the change in the development strategy adopted by an economy. For example, suppose a country basically agricultural in nature, plans to adopt industrialization as a strategy. This will result in displacement of labor in agriculture and not all of them can be accommodated in the industries. This type of unemployment caused is called Structural unemployment. This type of unemployment is also known as the chronic unemployment or the Marxian or long-term unemployment. It is mostly to be found in the underdeveloped countries. This type of unemployment is due to the deficiency of capital resource sin relation to their demand. The problem in the underdeveloped countries is to get rid of this age-old chronic unemployment by accelerating the process of economic growth.
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