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Chapter 8
Government Regulation of the
Economy
Political Ideology
Party
Role of Govt.
Size of Govt.
Democrats
To help people who need it
Republicans
Provide opportunities for people Small
to help themselves
Large
Political Ideology
Large Government = > $$$$$$$$$$$$ = > Regulation and Taxes
Small Government = < $$$$ = < Regulation and Taxes
Need a Job?
Currently > 18 million Americans working for government - that’s
more than the population of all northwest states combined
(Idaho, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and Nevada)
Federal govt. is largest owner of buildings in US - >500,000
Growth of government = growth of lawyers! America has more
lawyers than the rest of the industrialized world combined!
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Social Spending:
Defense Spending:
Death Penalty:
Government Size:
World Peace:
Same-sex Marriage:
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
W.W.(they).D.
Liberal (i.e. Left)
Pro-choice
Abortion:
Social Spending:
Defense Spending:
Death Penalty:
Government Size:
World Peace:
Same-sex Marriage:
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
W.W.(they).D.
Liberal (i.e. Left)
Pro-choice
Increase
Abortion:
Social Spending:
Defense Spending:
Death Penalty:
Government Size:
World Peace:
Same-sex Marriage:
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Government Size:
World Peace:
Same-sex Marriage:
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
World Peace:
Same-sex Marriage:
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Same-sex Marriage:
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
No
Kyoto Treaty:
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
Yes
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
No
Kyoto Treaty:
Sign
Crime:
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
Yes
Don't sign
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
No
Kyoto Treaty:
Sign
Crime:
rights of the accused/rehab
Doctor-Assisted Suicide:
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
Yes
Don't sign
rights of the victim/punishment
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
No
Kyoto Treaty:
Sign
Crime:
rights of the accused/rehab
Doctor-Assisted Suicide:
Allow
Minimum Wage:
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
Yes
Don't sign
rights of the victim/punishment
Prevent
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
No
Kyoto Treaty:
Sign
Crime:
rights of the accused/rehab
Doctor-Assisted Suicide:
Allow
Minimum Wage:
Increase
Social Security:
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
Yes
Don't sign
rights of the victim/punishment
Prevent
Lower/Eliminate
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
No
Kyoto Treaty:
Sign
Crime:
rights of the accused/rehab
Doctor-Assisted Suicide:
Allow
Minimum Wage:
Increase
Social Security:
Increase age of eligibility
Health Care:
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
Yes
Don't sign
rights of the victim/punishment
Prevent
Lower/Eliminate
Privatize
W.W.(they).D.
Liberal (i.e. Left)
Abortion:
Pro-choice
Social Spending:
Increase
Defense Spending:
Decrease or maintain
Death Penalty:
Ban
Government Size:
Increase/more socialistic
World Peace:
Negotiate
Same-sex Marriage:
Legalize
ANWR Drilling:
No
Kyoto Treaty:
Sign
Crime:
rights of the accused/rehab
Doctor-Assisted Suicide:
Allow
Minimum Wage:
Increase
Social Security:
Increase age of eligibility
Health Care:
government controlled
Conservative (i.e. Right)
Pro-life
Decrease or maintain
Increase
Maintain
Reduce/ more capitalistic
Unilateral pre-emptive action
Illegal
Yes
Don't sign
rights of the victim/punishment
Prevent
Lower/Eliminate
Privatize
De-regulate
Growth of Government
Two ways government grows:
- Size (# employees, $$$)
-Scope (intrusiveness in lives, depriving people the right to
decide for themselves)
-1900 - 1986 - population of US >x3, size of govt. > x5!
-Why does the growth of government in the US outpace the growth
of the population it is designed to serve?
-5 Reasons . . .
5 Reasons for Government
Growth
1. Increase in population
US - 300 million x1%/yr
World - 6.5 billion
Louisiana - 4.4 million
Shreveport - 200,000
5 Reasons for Government
Growth
1. Increase in population
2. Increase in disadvantaged sub-groups, the heaviest users of
government services (poor, elderly, uninsured, illiterate, sick)
US Population
Sub-Group
5 Reasons for Government
Growth
1. Increase in population
2. Increase in disadvantaged sub-groups
3. Changing Attitudes - Great Depression (1929 Stock Market
crash until WWII), 1/3 lost jobs, due to absence of financial
regulations leading to wild speculation in stocks.
NEVER AGAIN!
5 Reasons for Government
Growth
1. Increase in population
2. Increase in disadvantaged sub-groups
3. Changing Attitudes
4. Citizen Expectations - Standard of Living, the meaning of
“life in America” - people expect more
Personal effort = “Real” improvement
Non-personal effort (Transfer payments, govt. services, and subsidies) =
“Nominal” improvement (in name only) - not sustainable and
not appreciated - leads to dependency
5 Reasons for Government
Growth
1. Increase in population
2. Increase in disadvantaged sub-groups
3. Changing Attitudes
4. Citizen Expectations
5. National Emergencies - war, natural or economic disaster
Government expands to accommodate but seldom shrinks
back to pre-war size. Human tendency to preserve jobs.
What Americans Expect to Receive from
Government Regulation
1. Regulation of Economic Activity:
rules and procedures that protect consumers (anti-fraud), preserve
the environment (pollution, externalities), protect competition
(benefits future producers), protect workers (FLSA)
Examples:
Food and Drug Administration (FDA) - regulates Food,
Drugs, Medical Devices (pacemakers, contact lenses, hearing aids) Biologics,
(vaccines, blood products) Animal Feed and Drugs, Cosmetics, Radiation-Emitting
Products (cell phones, microwaves, industrial lasers)
Consumer Product Safety Commission (CPSC)protecting consumers and families from products that pose a fire,
electrical, chemical, or mechanical hazard or can injure children.
NO CONFLICT OF INTEREST!
Common Federal Agencies That
Regulate The Economy
VHA - Veterans Healthcare Administration- Provides services nationwide to veterans of all wars.
SEC - Securities and Exchange Commission - Supervises the sale of stock in public corporations.
SBA - Small Business Administration - Works to promote the creation of small businesses.
FHA - Federal Housing Authority - Regulates and administers federal housing programs.
OSHA - Occupational Health and Safety Administration - Enforces federal law promoting safe workplaces.
NRC - Nuclear Regulatory Commission - Regulates nuclear power industries.
NLRB - National Labor Relations Board - Supervises and enforces federal labor law.
NASA - National Aeronautics and Space Administration - Implements the nation’s space program.
FERC - Federal Energy Regulatory Commission - Enforces federal policies regarding energy producers.
FDIC - Federal Deposit Insurance Corporation - Manages the federal bank insurance program.
FCC - Federal Communications Commission - Enforces federal guidelines for the broadcasting industry.
FAA - Federal Aviation Administration - Regulates commercial airline traffic.
EEOC - Equal Employment Opportunity Commission - Enforces federal civil rights laws in employment.
EPA - Environmental Protection Agency - Enforces federal environmental regulations.
CPSC - Consumer Product Safety Commission -Tests the safety of consumer products.
FDA - Food and Drug Administration - Test safety of food, drugs, cosmetics
What Americans Expect to Receive from
Government Regulation
1. Regulation of Economic Activity
2.
Public Goods (services) - to improve the quality of life, not
provided by private businesses. Examples: public education, roads,
police and fire protection, national parks, libraries, … etc.
Privatization - allows government to provide public goods at a
cheaper cost.
Pros: ?????
Cons: ?????
What Americans Expect to Receive from
Government Regulation
1. Regulation of Economic Activity
2.
Public Goods (services) - to improve the quality of life, not
provided by private businesses. Examples: public education, roads,
police and fire protection, national parks, libraries, … etc.
Privatization - allows government to provide public goods at a
cheaper cost.
Pros: preserves public goods, cheap
Cons: loss of accountability, inferior service
What Americans Expect to Receive from
Government Regulation
1. Regulation of Economic Activity
2.
Public Goods
3.
Promote Economic Well Being: redistribution of tax revenue
$ TAXES $
SUBSIDIES
BUSINESSES
TRANSFER PAYMENTS
INDIVIDUALS
SUBSIDIES:
ENTITLEMENT PROGRAMS
Pros: needed products, cheaper, jobs
Social Security, Medicare, Medicaid, VA
Programs, unemployment compensation, food
stamps, agricultural price support programs
Cons: hurt competition, lack of innovation
What Americans Expect to Receive from
Government Regulation
1. Regulation of Economic Activity
2.
Public Goods
3.
Promote Economic Well Being
4.
Stabilizing the Economy: from recession and inflation
CONGRESS - FISCAL POLICY
(TAXES AND SPENDING)
FEDERAL RESERVE- MONETARY
POLICY (PRIME LENDING RATE)
WAGE AND PRICE CONTROLS
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
CONGRESS - FISCAL POLICY (TAXING AND SPENDING)- When Congress raises
taxes consumers and producers have less money to spend in the economy
because they have to pay more in taxes. And the opposite effect is true. When
Congress spends more on social programs that means consumers and producers
don’t have to spend as much of their own money to receive the benefit of those
services. And the opposite effect is true.
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
FEDERAL RESERVE- MONETARY POLICY (PRIME LENDING RATE - PLR)
The Federal Reserve loans
money to large commercial
banks at the PLR
LOAN
F
FEDERAL
RESERVE
(principle x PLR)
$$$
Large commercial
banks loan it to
smaller banks for a
profit
LOAN
B
Small commercial
banks loan it to
consumers for a
profit
(principle x rate)
LARGE
COMMERCIAL
BANK
$$$
LOAN
(principle x rate)
B
$$$
SMALL
COMMERCIAL
BANK
YOU
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
US Pop. +3mil/yr
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
Normal Business Cycle
- roughly parallels the
increase in population
Peak
(Expressed in GDP)
US Pop. +3mil/yr
Trough
GDP - Gross Domestic Product - the total monetary
value of all G&S produced in US in 1 yr.
2006 GDP- $13-Trillion
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
Hyperinflation
Inflation: (lack of fear/uncertainty)
-high prices
- high wages
INFLATED BUSINESS CYCLE
- high employment
-Consumers TOO willing to spend
- much borrowing
US Pop. +3mil/yr
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
Hyperinflation
Inflation: (lack of fear/uncertainty)
-high prices
- high wages
INFLATED BUSINESS CYCLE
- high employment
-Consumers TOO willing to spend
- much borrowing
US Pop. +3mil/yr
Fiscal Policy (Congress)
Monetary Policy (Federal Reserve)
-raises taxes
-raise Prime Lending Rate, increasing the
“price” of borrowed money, thus
discouraging borrowing and spending
- reduce social spending
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
RECESSION: (fear or uncertainty in marketplace, 2 or
more consecutive quarters of negative GDP growth)
-high unemployment
- low wages
DEFLATED BUSINESS CYCLE
- low prices
-too LITTLE spending - low productivity
-- little borrowing
US Pop. +3mil/yr
Depression
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
RECESSION: (fear or uncertainty in marketplace, 2 or
more consecutive quarters of negative GDP growth)
-high unemployment
- low wages
DEFLATED BUSINESS CYCLE
- low prices
-too LITTLE spending - low productivity
-- little borrowing
US Pop. +3mil/yr
Fiscal Policy (Congress)
Monetary Policy (Federal Reserve)
-lower taxes
- lower the Prime Lending Rate, thus
encouraging borrowing
-- raise social spending
Depression
What Americans Expect to Receive from
Government Regulation
4. Stabilizing the Economy: from recession and inflation
WAGE AND PRICE CONTROLS
-Most drastic step government can take because direct violation of free
market principles. Usually reserved for times of war or depression.
- Laws to establish “Ceilings” (preventing prices from rising too high) and
“Floors” to stop wages and prices from falling too low which market forces
(Demand and Supply) would force them to do if the law didn’t stop it.
-EXAMPLES: agricultural price supports during the Great Depression and
the current Minimum Wage (FLSA)
How Voters Influence Economic
Policy
- Vote - for candidates who reflect shared economic beliefs about government regulation of
the economy - Democrats vs Republicans
How Voters Influence Economic
Policy
-Vote - for candidates who reflect shared economic beliefs about government regulation of the
economy - Democrats vs Republicans
- Interest Groups - economic power used to hire lobbyists to influence legislators’ votes on
bills affecting government regulation of the economy.
Fastest- growing and largest Interest Group in America?
How Voters Influence Economic
Policy
-Vote - for candidates who reflect shared economic beliefs about government regulation of the
economy - Democrats vs Republicans
- Interest Groups - economic power used to hire lobbyists to influence legislators’ votes on
bills affecting government regulation of the economy.
Fastest- growing and largest Interest Group in America?
A.A.R.P. - American Association of Retired Persons
How Voters Influence Economic
Policy
-Vote - for candidates who reflect shared economic beliefs about government regulation of the
economy - Democrats vs Republicans
- Interest Groups - economic power used to hire lobbyists to influence legislators’ votes on
bills affecting government regulation of the economy.
Fastest- growing and largest Interest Group in America?
A.A.R.P. - American Association of Retired Persons
(which Mr, Knox will all too soon be eligible to join!)
5 Market Failures of Capitalism:
1.
Inadequate Business Competition
2.
Externalities
3.
Inability to Produce Public Goods
4.
Inadequate Knowledge of Market Conditions
5.
Immobility of the Factors of Production
5 Market Failures of Capitalism:
1. Inadequate Business Competition - Anti-trust legislation
2. Externalities - government passes laws prohibiting
3. Inability to Produce Public Goods - Government provides
4. Inadequate Knowledge of Market Conditions - again laws and info
5. Immobility of the Factors of Production - when the factors are
harmed, the govt. helps out