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-Rudman-Hollings Act. Created in 1985 and created a procedure for a balanced budget. This act would automatically cut procedures. (Did not work)