Having read the chapter, the students should be able to do each of the following:
Trace the historical development of the system of government regulation in the United States, and discuss efficiency and equity as these concepts apply to regulation.
Discuss the precise ways that government promotes the interests of business, labor, and agriculture.
Discuss fiscal policy as a means of maintaining a stable economy and distinguish between supply-side and demand-side.
Explain monetary policy as a means of maintaining a stable economy and describe how the Federal Reserve influences the economy.
Trace the development of environmental policy at the federal level.
Describe the federal public policy making process, from problem recognition to policy implementation.
Although private enterprise is the main force in the American economic system, the federal government plays a significant role through its policies to regulate, promote, and stimulate the economy. Regulatory policy is designed to achieve efficiency and equity, which require government to intervene, for example, to maintain competitive trade practices (an efficiency goal) and to protect vulnerable parties in economic transactions (an equity goal). Many of the regulatory decisions of the federal government, particularly those of older agencies (such as the Food and Drug Administration), are made largely in the context of group politics. Business lobbies have an especially strong influence on the regulatory policies that affect them. In general, newer regulatory agencies (such as the Environmental Protection Agency) have policy responsibilities that are broader in scope and apply to a larger number of firms than those of the older agencies. As a result, the policy decisions of newer agencies are more often made in the context of party politics. Republican administrations are less vigorous in their regulation of business than are Democratic administrations.
Business is the major beneficiary of the federal government's efforts to promote economic interests. A large number of programs, including those that provide loans and research grants, are designed to assist businesses, which are also protected from failure through measures such as tariffs and favorable tax laws. Labor, for its part, obtains government assistance through laws concerning matters such as worker safety, the minimum wage, and collective bargaining. Yet America's individualistic culture tends to put labor at a disadvantage, keeping it less powerful than business in its dealings with the government. Agriculture is another economic sector that depends substantially on government's help, particularly in the form of income stabilization programs such as those that provide crop subsidies.
The U.S. government pursues policies that are designed to protect and conserve the environment. A few decades ago, the environment was not a policy priority. Today, there are many programs in this area, and the public has become an active participant in efforts to conserve resources and prevent exploitation of the environment. The continuing challenge is finding a proper balance between the nation's natural environment, its economic growth, and its energy needs.
Through its fiscal and monetary policies, Washington attempts to maintain a strong and stable economy—one characterized by high productivity, high employment, and low inflation. Fiscal policy is based on government decisions in regard to spending and taxing, which are aimed at either stimulating a weak economy or dampening an overheated (inflationary) economy. Fiscal policy is worked out through Congress and the president, and consequently is responsive to political pressures. However, because it is difficult to raise taxes or cut programs, the government's ability to apply fiscal policy as an economic remedy is limited. Monetary policy is based on the money supply and works through the Federal Reserve System, which is headed by a board whose members hold office for fixed terms. The Fed is a relatively independent body, a fact that has given rise to questions as to whether it should have such a large role in influencing national economic policy.
