Government's Role in the Economy
While consumers and producers make most decisions that mold the economy, government activities have a powerful effect on the U.S. economy in at least four areas.
Stabilization and
Growth.
The
federal government guides the overall pace of economic activity, attempting to
maintain steady growth, high levels of employment, and price stability. By
adjusting spending and tax rates (fiscal policy) or managing the money supply
and controlling the use of credit (monetary policy), it can slow down or speed
up the economy's rate of growth which affecting the level of prices and
employment.
Recently, the primary economic concerns have centered around high national debt
($9 trillion), high corporate debt ($9 trillion), high mortgage debt (over $10
trillion as of 2005 year-end), high unfunded Medicare liability ($30 trillion),
high unfunded Social Security liability ($12 trillion), and high external debt
(amount owed to foreign lenders), and
high trade deficits.
Regulation and Control.
Economic regulation.
The government has sought to prevent monopolies. Congress created the Federal Deposit Insurance Corporation
(FDIC) which presently guarantees checking and savings deposits in member banks
up to $100,000 per depositor to prevent bank failures.
A number of other industries
including trucking and, later, airlines successfully sought regulation
themselves to limit what they considered harmful price-cutting. Another form of
economic regulation, antitrust law, seeks to strengthen market forces so that
direct regulation is unnecessary. The government -- and, sometimes, private
parties -- have used antitrust law to prohibit practices or mergers that would
unduly limit competition.
Social Regulations.
The Occupational Safety's and Health's
Administration's provides and enforces standards for workplace safety. United
States Environmental Protection Agency provides standards and regulations to
maintain air, water, and land resources. The U.S. Food and Drug Administration
regulate what drugs may reach the market, and also provides standards of
disclosure for food products. The
Occupational Safety and Health Administration protect workers from hazards they
may encounter in their jobs. The Environmental Protection Agency seeks to
control water and air pollution.
Direct Services.
The federal government is responsible for national defense, backs research that
often leads to the development of new products, conducts space exploration, and
runs numerous programs designed to help workers develop workplace skills and
find jobs.
State governments are
responsible for the construction and maintenance of most highways. State,
county, or city governments play the leading role in financing and operating
public schools. Local governments are primarily responsible for police and fire
protection.
Direct Assistance.
It offers low-interest loans and technical assistance to small businesses
and it provides loans to help students attend college. Government-sponsored
enterprises buy home mortgages from lenders and turn them into securities that
can be bought and sold by investors, thereby encouraging home lending.
Government also actively promotes exports and seeks to prevent foreign countries
from maintaining trade barriers that restrict imports. Social Security, which is
financed by a tax on employers and employees, accounts for the largest portion
of Americans' retirement income. The Medicare program pays for many of the
medical costs of the elderly. The Medicaid program finances medical care for
low-income families. In many states, government maintains institutions for the
mentally ill or people with severe disabilities. The federal government provides
Food Stamps to help poor families obtain food, and the federal and state
governments jointly provide welfare grants to support low-income parents with
children.