In some instances

Posted on: February 14, 2019 at 11:42:59 CT

All economies have limited resources. One function of economic systems is to allocate the available resources between potential uses in such a way that the economy produces the mix of goods and services most desired by consumers.

Freely functioning markets are the most efficient method of allocating limited resources to produce the most desired mix of goods and services.


Government guaranteeing returns on investments constitutes interference with the functioning of markets and the result is a loss of market efficiency (i.e. fewer of the goods and services desired by consumers are produced). Therefore, there's a strong argument for no government interference, i.e. no guaranteed returns.

However, there are human and social reasons for interfering in markets. I.e. market discipline can be ruthlessly efficient and when firm's fail there can be human and social consequences that a society may find unacceptable. I.e. unemployment, etc. In these instances some government interference in markets may be acceptable, i.e. there are instances where government guaranteeing a return on investment, can be acceptable.