Government and the
Economy
What is the Government’s job
in our Economy?
Era’s
First 100 years our country left the economy up
to the states.
– States built up and regulated private practices
– Built Canals, rail roads, and roads
– This worked just fine in a rural lifestyle
Industrial Revolution comes along and we have
lots of industrial accidents, disease, outbreaks,
labor conflicts, and unemployment was a
problem
– The federal government thought these issues were to
big for the states to handle alone
Interstate Commerce Act and Sherman Anti-Trust Act
The Progressive Era
Middle class reform movement
– Wanted to reign in corporate power and make
it more responsive to society and the
democratically elected government
– Lots of legislation was passed which made
consumer protection an important government
mandate
This led to many government companies like the
FDA, FTC, Federal Reserve…
1895 the Supreme Court ruled that the Our Income
tax was unconstitutional
– What happened?
16th Amendment
The Great Depression and New
Deal
WWI ended the Progressive Era and
Laissez Faire Returned
Stock Market Collapse
“New Deal”
– Established the National Government as a
major regulator of private businesses, a
provider of Social Security, and is responsible
for maintaining a stable economy
Post WWII Era
Employment Act and Taft-Hartley act
– Employment Act was a liberal demand on the
government to become involved in
employment policy
– Taft-Hartley- was a conservative demand on
the government to become involved in
employment policy
Obviously the government was now firmly
entrenched in the economic life of our country
Social Regulation
Policies of the 1960 and 1970 dealt with
the quality and safety of our products
– Consumer Product Safety Commission,
Occupational Safety and Health
Administration, EPA, and others were created
to protect us from a variety of threats
Upton Sinclair’s book
the Jungle helped form
the FDA
Deregulation
What is Deregulation?
– A reduction of market controls ( price fixing,
subsidies, or controls on who can enter the
field) in favor of market based competition
Airline Deregulation Act of 1978
Stabilizing the Economy
Monetary Policy
– Involves the regulation of the country’s money
supply and interest rates in order to stabilize
the economy
The Federal Reserve System
– Created in 1913 and is a mixture of private
interests and public authority
Federal Reserve Board
Federal Open Market Committee
12 Federal Reserve Banks
Federal Reserve Board
Made up of 7 members appointed by the
President serving 14 year overlapping
terms with the approval of the Senate
In order to control the money supply the
Fed has a number of tools at its disposal
– Manipulating the reserve requirement
– Changing the discount rate
– Open Market operations (buying or selling
securities)
Fiscal Policy
The government’s use of taxing and
spending policies to influence the overall
operation of the economy
– This is formulated by Congress and the
President through the budget process
– JFK was the first president to actively use
Fiscal policy by deliberately running a deficit
in order to fuel economic growth.
The Budget Process
The budget is primarily funded through
individual income taxes and social
insurance/retirement receipts
– Most government spending goes to National
Defense and Human Resources (health,
income security, and social security)
–
Congress and the Budget Process
The Budget and Accounting Act of 1921
gave the President Authority to prepare an
annual budget and submit it to congress
– The OMB (Office of Management and Budget)
was created to assist the President in
preparing the budget for the fiscal year
Provides bureaucracy with instructions and
guidance on presidential priorities to prepare the
budget requests nine months before Congress
sends it to the president
Problems
Divided Government
– Many of the President’s request may not be
adopted and this would cause a voting
imbalance in the Congress
Leads to a delay in the Budget being passed and
sometimes there is no budget when a new fiscal
year begins so congress must pass continuing
resolutions to keep programs running on the
government will shut down
In 1995 and 1996 the government shut down
because the budget was not passed
– Republican Congress was to blame
The Budget Deficit and Debt
Since the 1980s the US has run large
budget deficits and has had a rapidly
growing national debt
– Is this a good or a bad thing?
– Congress has tried to pass balanced budget
amendments to the Constitution but they have
not worked
– One that did pass was the Gramm-RudmanHollings Act.
Created in 1985 and created a procedure for a
balanced budget. This act would automatically cut
procedures. (Did not work)