Many liberals (and all libertarians) believe that the only role of government is to provide basic services that only governments can provide well (like national security or streetlights). Supporters of “free markets” are against the idea that government should redistribute wealth in order to achieve equality of outcome. They claim that economic restrictions (such as taxes and regulation) prevent people from achieving their goals and are very unhealthy for the economy and society.

Liberals say that free market systems make people work harder. Liberals believe that if the government does not try to control the economy or society, then people will do it themselves by setting up businesses or civil society organisations. They argue that these will be much more efficient because the people who run them will benefit directly from their success. Liberals say that when the government controls the economy it is unproductive because public sector workers get the same salary whether they work hard or not. They claim that public sector workers will be lazy and unenthusiastic because they do not get rewarded for working harder (e.g., by making profit). Liberals also argue that when governments try to control prices (e.g., minimum wage, subsidised rice prices, etc,) this causes a big fall in efficiency and production.

Liberals also claim that having a large welfare state makes people work less. They say that if the government provides all these services, then people will not have any reason to work for them. They also claim that it is unfair to tax people who do work hard to pay for these services.

Liberals say that free market systems increase wealth in society. Liberals often support “Trickle-down economics”, also referred to as “trickle-down theory”. This is the idea that economic benefits provided to businesses and richer people will indirectly benefit poorer members of society when the resources inevitably “trickle down” to them. For example, making it easier for (richer) people to start successful businesses (by lowering corporate taxes for example), will mean that there are more higher paid jobs for (poorer) people.

What is Regulation? Regulation refers to laws and policies that limit or control an economic activity. Regulation might control prices for certain goods or services, such as food or energy. It may also control what companies are (and are not) allowed to work in an industry.

Liberals say that large welfare states that try to redistribute wealth in society are expensive and inefficient. They claim that when governments try to redistribute wealth, this causes the whole of society to be poorer. They say that taxes and regulation should be very low so that businesses will be able to create enough wealth that poverty will not be a problem. This economic view is sometimes called “laissez faire” (“allow to do”) and is a very important part of the idea of liberal capitalism. Liberal capitalists argue that if people are free to follow their own desire to make money through business, then the whole of society will be richer.