Economy of the United States

Third, there is manufacturing and investment. In the United States, the corporation has emerged as an association of owners, known as stockholders, who form a business enterprise governed by a complex set of rules and customs. Brought on by the process of mass production, corporations such as General Electric have been instrumental in shaping the United States. Through the stock market, American banks and investors have grown their economy by investing and withdrawing capital from profitable corporations. Today in the era of globalization American investors and corporations have influence all over the world. The American government has also been instrumental in investing in the economy, in areas such as providing cheap electricity (such as the Hoover Dam), and military contracts in times of war.

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. Strong government regulation in the U.S. economy started in the early 1900s with the rise of the progressive movement; prior to this the government promoted economic growth through protective tariffs and subsidies to industry, built infrastructure, and established banking policies, including the gold standard, to encourage savings and investment in productive enterprises.

Stabilization and growth

Perhaps most importantly, the federal government guides the overall pace of economic activity, attempting to maintain steady growth, high levels of employment, and price stability. 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-in the process, affecting the level of prices and employment.

For many years following the Great Depression of the 1930s, recessions - periods of slow economic growth and high unemployment - were viewed as the greatest of economic threats. When the danger of recession appeared most serious, government sought to strengthen the economy by spending heavily itself or cutting taxes so that consumers would spend more, and by fostering rapid growth in the money supply, which also encouraged more spending. In the 1970s, major price increases, particularly for energy, created a strong fear of inflation - increases in the overall level of prices. As a result, government leaders came to concentrate more on controlling inflation than on combating recession by limiting spending, resisting tax cuts, and reining in growth in the money supply.

Ideas about the best tools for stabilizing the economy changed substantially between the 1960s and the 1990s. In the 1960s, government had great faith in fiscal policy-manipulation of government revenues to influence the economy. Since spending and taxes are controlled by the president and the U.S. Congress, these elected officials played a leading role in directing the economy. A period of high inflation, high unemployment, and huge government deficits weakened confidence in fiscal policy as a tool for regulating the overall pace of economic activity. Instead, monetary policy-controlling the nation's money supply through such devices as interest rates-assumed growing prominence. Monetary policy is directed by the nation's central bank, known as the Federal Reserve Board, with considerable independence from the president and the Congress.

Regulation and control

The U.S. federal government regulates private enterprise in numerous ways. Regulation falls into two general categories.

Economic regulation: Seeks, either directly or indirectly, to control prices. Traditionally, the government has sought to prevent monopolies such as electric utilities from raising prices beyond the level that would ensure them reasonable profits. At times, the government has extended economic control to other kinds of industries as well. In the years following the Great Depression, it devised a complex system to stabilize prices for agricultural goods, which tend to fluctuate wildly in response to rapidly changing supply and demand. A number of other industries-trucking and, later, airlines-successfully sought regulation themselves to limit what they considered as 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.

In 1933, 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. This was in response to the widespread bank runs of the early 1930s during the Great Depression.

Social Regulations: Since the 1970s, government has also exercised control over private companies to achieve social goals, such as protecting the public's health and safety or maintaining a clean and healthy environment. The U.S. Food and Drug Administration tightly regulates what drugs may reach the market. For example, the Occupational Safety and Health Administration protects workers from hazards they may encounter at their workplace and the Environmental Protection Agency seeks to control water and air pollution.

Such agencies draw heavy criticism from conservatives, who question the agencies' efficiency and necessity.

American attitudes about regulation changed substantially during the final three decades of the 20th century. Beginning in the 1970s, policy makers grew increasingly concerned that economic regulation protected inefficient companies at the expense of consumers in industries such as airlines and trucking. At the same time, technological changes spawned new competitors in some industries, such as telecommunications, that once were considered natural monopolies. Both developments led to a succession of laws easing regulation.