An Outline of the American Economy (1991)

1/12 Introduction

2/4 Theme one: the role of government

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Ever since colonial times, the government has been involved, to some extent, in economic decision-making. The federal government, for example, has made huge investments in infrastructure -- from canals and post roads in the 19th century, to interstate highways and orbiting Earth satellites in the 20th century. The government has provided social welfare programs that the private sector was unable or unwilling to provide. In a myriad of ways and over many decades, it has supported and promoted the development of agriculture.

The "New Deal" programs of the 1930s brought the greatest expansion of the government's role. New laws were passed regulating many economic activities -- from sales of stock to the right of workers to form unions. Moreover, the government began to provide workers with a measure of economic security in their old age. The Social Security program, enacted in 1935, still ensures that retired people have a regular income each month, and has been expanded to help them meet their medical costs.

But the pendulum has also swung the other way. In the 1970s and 1980s, with taxes steadily rising and the U.S. economy stagnating, new national leaders spearheaded a drive to cut government spending and levels of taxation, and in other ways to reduce government influence over the private sector. Their goal was to stimulate the private-sector initiative and investment which is the engine that drives free-market economies.

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