Should the government be held responsible for a downturn in the economy and why?

Answer 1

It depends on the cause of the downturn and on the country. Small countries with very open economies for instance are very dependent on the up- and downturns of the countries they do business with and have little influence on those up- and downturns. Generally speaking, Western countries have a 'mixed' economy in which free market forces and private enterprise have a major influence on economic development and where Government sets the ruler and regulations to ensure things like fair competition and decent working conditions. They can stimulate or slow down economic development through things like taxes and Tax treaties, development policies and by acting as a customer for industries, placing orders.

Central banks - strictly speaking not part of Government, but often seen as such - play a major role in overseeing the banking sector and setting short-term and long-term interest levels, thereby either stimulating or slowing down economic growth.

So Governments have a lot of instruments at their disposal. But consumer's trust in the economy and their willingness to buy and invest is at the bottom of any economic development, positive and negative. After the Stock Market crash of 1929 many sensible measures were taken and policies adopted by the US and other Governments, but with public trust at zero they simply didn't work. When Japanese households stopped spending in the late seventies and kept their money in the bank, no Govenment action - not even lowering the interst rate to zero - could for decades induce them to start spending again. And the latest worldwide crisis, that of 2008, was caused not by Government action but by a relatively speaking 'modest' mortgage crisis that spread like wildfire across the whole range of activities of the banking sector.

So Government is often not directly responsible for a specific downturn. It is however responsible for conducting a sound and intelligent economic and monetary policy to react to downturns, to keep consumer's trust at a healthy level and to stimulate industrial and other production; and to regulate industries in such a way that excesses and sudden meltdowns are as far as possible prevented. But the level of politically acceptable regulation varies per country, and the people that blame the Government for a downturn are often the same people that are against any 'meddling' and interference by central/Federal Government as long as things seem to be going relatively well.