Government Intervention Analysis

Government Intervention Analysis

Arguments for Government Interventions

Correct Market Failures

Economists may disagree on when the government needs to intervene to correct market failures, but there is a general agreement that there is a need for government interventions from time to time. Government intervention is required when market deviations are large and long-lasting (Belsky & Wachter, 2010). Such intervention becomes necessary, especially in the consumer and mortgage credit markets. Housing is a basic need, hence the need for government intervention when market-based solutions are out of the reach of the very poor in an economy.

Negative Externalities

Government intervention may also be necessitated when the social and economic costs of a transaction are not borne by the parties to a transaction (Belsky & Wachter, 2010). For instance, if a highway passes through an area, property owners may increase prices to compensate for the increased costs of maintaining these properties. That may disadvantage innocent aspiring property buyers, thus the need for the government to intervene.

Promoting Equity and Equal Treatment

Also, intervention is necessary to correct inequalities in an economy. That happens when a few people get resources while others are deprived (Belsky & Wachter, 2010). For instance, the cost of housing may be so high that some people cannot afford it. If creditors overcharge for mortgages, the poor people in society may not be able to afford it. If that is the case, government action is justifiable. Also, some people find themselves in environments where they cannot afford housing because they live alongside affluent individuals. Therefore, a housing voucher will help such households get by.

Losers and Gainers of a Housing Voucher Program

The greatest beneficiaries of housing vouchers are consumers and suppliers. Firstly, these government programs help people who could otherwise not own a home or get one. On the other hand, some housing units that may not have been bought for government intervention can now be purchased. That means that property owners benefit to a greater extent. On the other hand, the overall losers in these subsidy programs are the general population. If housing companies are aware that the government may intervene ultimately, they will raise the prices of their properties. Unfortunately, the government may not afford to intervene for every citizen. That means the cost of catering to expensive housing units triggered by subsidy programs burdens the general public.

Externalities and the Unintended Consequences of the Intervention

One of the unintended outcomes of the issuance of housing vouchers to low-income families is poverty concentration. First, the beneficiaries’ mobility is restricted such that they cannot move out of certain geographical locations (Semuels, 2015). Besides, households’ income is monitored, so they may lose the assistance program if the total earnings in a household exceed the ceiling. These factors collectively encourage poverty concentration in specific suburbs. Another externality or unintended impact of offering vouchers to welfare families is lowered employment rate and earnings. If families know they will receive assistance housing, some may break away from generational extended families (Semuels, 2015). Besides, others find it as an opportunity to exit stressful relationships. As families that previously lived together break apart, they will receive reduced government subsidies.

Cost of Intervention Relative to GDP

About 8.7 million households currently receive housing vouchers through the Housing Choice Voucher Program (HCVP) (Congressional Budget Office, 2015). The voucher program was established in 2000 under section 8 of the US Affordable Housing Act. It was intended to fill the gap between those who can afford to pay and rent in specific places. The US Housing Voucher program has played a significant role in uplifting the lives of America’s most poor. Such programs have uplifted one million people above the poverty line. Such housing programs have also enabled people to move to neighbourhoods with more resources. The voucher program has been useful to the elderly and people living with disabilities. With such vouchers, this cohort of individuals is assured of living independently without further assistance. That perhaps explains why the number of the program’s beneficiaries has risen over time. As the number of beneficiaries continue to increase, so does the cost of funding the program. For instance, the government spent $57 billion to fund the program in 2019.

Economists’ Views on Success or Failure of the Housing Choice Voucher Program

Most economists opine that the Housing Choice Voucher Program has significantly reduced concentrated poverty and overcrowding. Studies show that the program’s beneficiaries are likely to move to high-quality neighbourhoods compared to non-beneficiaries. Better neighbourhoods referred to here are characterized by better education levels, fewer people living below the poverty, low unemployment rates, and reduced government assistance programs.

Another benefit borders on emotional and psychological well-being. For instance, girls who move to better neighbourhoods are less likely to engage in risky behaviours such as binge drinking and drug abuse. The Housing Choice Voucher Program also has positive outcomes for older adults and parents. That is because adults who move to better neighbourhoods are less likely to get lifestyle conditions such as obesity and diabetes. However, the outcomes for boys who moved to low-income areas are negative. That is because there is a high likelihood that they could engage in crime and binge drinking due to stress. Nonetheless, the psychological benefits for families who move to better environments are phenomenal.

Recommendations

The Housing Choice Voucher Program has proved to be effective. However, a few modifications are necessary to enhance its effectiveness. One of the recommended strategies is allocating more funds to cater to renovations. Some landlords have tended to neglect some units since they know they will get their rent at the end of the day. Allocating some funds strictly for renovation will motivate landlords to maintain these units. Moreover, there is a need for an improved Section 8 conversion option. Housing authorities should give agencies the right to convert public housing units to long-term Section 8 housing units. Accordingly, this move will ensure sufficient housing and affordability among needy households. Another positive move is enabling agencies to eliminate housing programs that do not ensure long-term protection of tenants’ rights. Also, there is a need to implement policies that favour small agencies. Most of the funding and policies target large-scale agencies, leaving out small agencies that could be serving a significant population. Sufficient funding and favourable policies will provide much-needed technical support and coordination among agencies.

References

Belsky, E. S., & Wachter, S. (2010). The need for government intervention to protect and advance the public interest in consumer and mortgage credit markets. In a National Symposium (Vol. 18, pp. 2010-19).

Congressional Budget Office. (2015). Federal Housing Assistance for Low-Income Households. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/50782-lowincomehousing-onecolumn.pdf

Semuels, A. (2015). Section 8 Is Failing Poor Americans. The Atlantic; The Atlantic. https://www.theatlantic.com/business/archive/2015/06/section-8-is-failing/396650/

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Analyze 1 of the following government intervention programs:

Assistance for families with lower incomes (choose 1)

Housing vouchers

Write a 700- to 1,050-word summary of your analysis. Identify the intervention and the market failure leading up to the intervention. Complete the following in your paper:

Government Intervention Analysis

Analyze the arguments for government intervention as opposed to arguments for market-based solutions. Hint: See the information about market failures.
Examine who has been helped and who has been hurt by the selected government intervention.
Examine externalities and unintended consequences of such intervention. For example, consider whether the SNAP program and health coverage for families with lower incomes result in higher future tax revenues because children from families with lower incomes grow up healthier and produce higher incomes over their lifetimes.
Analyze whether the cost of the intervention you selected as a share of GDP or the number of participants is increasing, decreasing, or varies with the state of the economy based on the cost trend(or number of participants) since its inception or since 2000.
Analyze credible economists’ opinions on the success or failure of the intervention that you chose in achieving its objectives.
Recommend whether the program should be continued as is, discontinued, or modified based on your conclusions. Defend your recommendation.

Note: Use of charts and graphs with appropriate citations is encouraged. Any charts or graphs retrieved from the Federal Reserve Bank of St. Louis FRED website may only be included when the data sources used by FRED are US government sources such as the Bureau of Economic Analysis or the Bureau of Labor Statistics.

Cite at least 2 academically credible sources.