This is one of the great questions of our time. Since coming out of the recession five year ago we’ve been wondering what exactly government is supposed to do. Few argue a role in keeping us out of a depression, even if the “how” is a major source of pain. But the job of government in a more stable economic environment is more difficult to nail down.

While to debate is more of a spectrum than polarized viewpoints, there are roughly two sides. One side wants the government to stay out of the economy. Keep the rules and taxes simple, and don’t mettle. Just let things play out. The other side prefers more regulation and more involvement to either help push us forward or keep things stable. The first camp would opine that when government gets involved they usually aren’t helpful. There are plenty of examples both sides can cite to support their case.

How this plays out can be well illustrated in an LA Times article about hydrogen fuel cell powered cars. Hydrogen fuel cells were supposed to be the next big thing. They run on hydrogen and the only emission is water. It’s pretty impressive stuff. But while the fuel cells were getting off the ground hybrids and full electric cars came to town. And so the hydrogen fuel cell business has stalled for years.

Unlike electric cars, fuel cells and refuel as quickly as gasoline cars, making long trips easier. But there aren’t many hydrogen fueling stations in the US. Entrepreneurs are reluctant to build more stations until more of these cars are on the road, of which there are very few. But automakers won’t make more until there are more fueling stations available. Two supply problems result in very low customer demand.

Now what does this have to do with government and economics? Assume for a minute that we all support more hydrogen fuel cell cars but still face this supply issue of cars and stations. The market may struggle to sort this out on its own. But the government could help. By subsidizing fueling stations, fuel cell vehicles, or both, government can create a market that might not otherwise have existed.

Government can create markets and manipulate them. Creating a market for fuel cell vehicles might help with our fossil fuel problem. A tax on carbon emissions could too. The risk is always in the implementation. Who will this manipulation hurt? Who will it help? Can we execute this policy fairly and achieve the desired result? These are often unknowns with policy. Few will argue that well-meaning, and well-executed policy is a good thing. Your faith in government’s ability to do so probably shows how you feel about the role of government in economics.

Image: Mercedes Benz F-Cell

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categories: business, cars, economics, environment, government