Government policies are laws, regulations, court decisions, and local ordinances that dictate how we live our lives at the national, state, and local level. These policies shape everything from your ability to get a driver’s license to the quality of your schooling and medical care.
Policymakers face a host of challenges when crafting public policy. Politicians must balance the influence of political parties, consider national interests, prioritize issues, and embrace collaboration to craft effective policy solutions. The purpose of policy is to protect citizens from violence and from the worst vicissitudes of life while providing them with the goods and services they need to succeed in a rapidly changing world.
Many economic arguments for government intervention stem from the fact that the marketplace cannot provide certain goods and services, namely “public goods”—goods and services like health and welfare programs, roads, education, research and development, national and domestic security, a clean environment, and so on. These goods have the property of nonexcludability, i.e., they can’t be charged for and therefore can’t be consumed by only some members of society.
As a result, governments must take responsibility for these public goods and manage externalities. Governments can do this by spending on these goods and services or by taxing them to generate revenue. In either case, the exact response depends on the fiscal space available—that is, how much additional funding a country can obtain at a reasonable cost or whether it will have to crowd out other domestic priorities.