Government and the

Economy

Over time, Americans have become increasingly aware that the free enterprise system did not always serve the common good. The free enterprise system has made the US one of the wealthiest countries. It has also led to problems that cannot be solved by letting the market system work entirely on its own.

Government has become involved in the economy for six reasons:

1) Businesses have sometimes earned profits unfairly.

Some businesses have driven competitors out of business or made secret agreements to fix prices. Some have deceived consumers with false or misleading advertising.

2) Working conditions have sometimes been unsafe and inhumane.

Workers have sometimes been badly treated. Some have been required to work long hours for low pay. Others have had to use dangerous machinery or chemicals without protection.

3) Unsafe products have harmed consumers.

Bacteria in foods have caused diseases. Some medicines have worked incorrectly, and made people more sick. Household products have injured people and damaged property. Toys have hurt children.

4) Not all Americans have had economic security.

People who have lost their jobs or could not get work due to sickness, injury, or old age have faced hunger and homelessness. Discrimination has made it hard for others to get jobs.

5) The economy has been unstable.

Periods of economic slowdown have put many people out of work. Drought and flooding have caused farmers to lose their crops. Periods of inflation, when prices rise faster than incomes, have reduced the buying power of people’s money.

6) The environment has been damaged.

Businesses and consumers have polluted the air, water, and land. Many animals and plants have been threatened.

What can government do to correct or prevent economic problems? There are six actions local, state, and federal governments regularly take to make changes in the way the economy works.

1. Governments regulate business.

They can pass laws that set rules for business conduct. They can also set up regulatory agencies to enforce these laws.

2. Governments make direct payments to individuals.

They can give money to people who need help to pay for food, shelter, medical care, or other basic needs.

3. Governments own resources and produce goods and services.

They can own land, such as national forests. They can also run businesses that promote the common good, such as providing hydroelectric power from a government-built dam.

4. Governments help pay for important economic activities.

They can give money to a private business to help it provide an important product or service. For example, most levels of government have programs that offer loans to small businesses.

5. Governments control the amount of money they spend and the amount they receive in taxes.

Taxes take money from the economy and government spending puts it back. By the controlling the flow of taxes and spending, governments can influence the economy.

6. Governments make tax rules and collect special taxes.

They can change the tax rates on people’s incomes. They can change taxes to reward some economic activities and punish others.