Government Regulation: Crash Course Government and Politics #47 - YouTube

Hello, I’m Craig and this is Crash Course Government and Politics and today I’m going

to talk a bit more about economic policy. Ran into the table there a little bit. Whoo!

Economic policy can be dangerous.

Specifically, we’re going to look at some of the broad goals of economic policy and

some of the things that the government does to try to accomplish those goals.

And we may even provide some examples of times when the government DID accomplish them, so

take that, skeptics. But, I have to admit, a lot of the time the goals are just goals.

[Theme Music]

So all people have goals and aspirations (except me) and the government, since it’s made

up of people is no different. Well I do have one goal: to punch the eagle again. And I did it. Accomplished.

Well, actually the government's different because it’s economic goals are much bigger

and more important than, say my goal of punching the eagle again. Although I would argue my

goal is pretty important. So what are these, goals of economic policy?

The first goal is promoting stable markets. We talked about how the government structures

the market system in the last episode, so I probably don’t need to repeat it.

At least I hope I don’t. You should’ve been paying attention.

But since nobody wants a malfunctioning market, most of the things the government does to

create a market system also work to make the system stable and predictable.

Maintaining law and order and minimizing monopolies are examples of government actions that make

the market system stable. I didn’t know the government maintained Law and Order – oh not the tv show, OK.

One of the more interesting ways – ok interesting to me – that the government keeps markets

predictable is through national regulations of things like automobile fuel efficiency standards.

If there were no national regulations, and states were allowed to set the rules, then

it might be possible for car makers in Detroit to build cars that live up to the mileage

standards in Michigan, but not in California, and that would be anarchy.

Well, maybe not anarchy exactly, but it wouldn’t be good, and it’d make it much more difficult

for manufacturers to know what kind of cars to make. Also, do you really want California,

the state with the biggest population, making rules for the rest of us? Of course you don’t.

The second major goal of economic policy is promoting economic prosperity. Here’s another

example of a situation where many people will tell you that the best way for the government to promote

prosperity is to get out of the way, and they may have a point, but the government doesn’t stop trying.

So what does the government do to promote prosperity? For one thing, it tries to keep

a positive investment climate and build confidence in the economy.

One way the federal government can accomplish this is through regulating financial markets

through the Securities and Exchange Commission since people won’t want to invest in the

securities markets if they think the game's fixed.

Another thing the government can do, if it’s feeling particularly Keynesian, is to spend

money on public investment in things like highways and the internet. While not actually

built by Al Gore, it did begin with a government program out of the Defense Department.

The government also pays for research through the National Institutes of Health and the

National Science Foundation, and enhances the workforce through education policy and

immigration policy, all of which contribute to national prosperity.

Another, and by no means the last, way that the government can try to make the country

more prosperous is by keeping inflation low. You can find out more about inflation from

Crash Course: Economics, but the main tool the government uses to control inflation is

the Federal Reserve, which is so complicated that it gets it’s own episode.

A third goal of government economic policy, one closely related to the first two, is promoting business development.

Many people would probably argue that promoting business development and promoting prosperity

are the same thing but policies aimed at helping businesses are slightly different and more

focused than those targeting the broader goal of promoting prosperity.

The main ways that the federal government promotes business development are through

tariffs and subsidies. Since the Great Depression, the U.S. has pretty much pursued a policy

of free trade, which means lowering tariffs on most things, which by forcing them to compete

can hurt businesses, at least in the short run.

In the past, however, high tariffs allowed American businesses to develop free from foreign

competition and this helped to make the U.S. the most powerful industrial nation in the world!

Can we use that Libertage from US History? I think Yes!

[Libertage]

Subsidies are very controversial and they come in two forms. Grants in aid for things

like transportation – building those superhighways again – provide an indirect subsidy to businesses

who don’t have to pay for the roads they use to ship the goods they make.

Most people don’t complain about this type of subsidy, because they can also be looked at as a public good.

Direct subsidies are another issue. These include direct assistance to businesses through

the Small Business Administration and government investment in firms like Sematech and, more

recently and more controversially, Solyndra.

Many people don’t think that the government should be in the business of investing in

business and that these subsidies provide the businesses that receive them with an unfair advantage.

Farm subsidies are probably just as controversial. They were put in place to help farmers during

The Great Depression, but these days, critics worry that most of the subsidies go to corporate farms.

The fourth goal of government economic policy is to protect consumers and employees. A lot

of people will tell you that the federal government doesn’t do much to protect employees these

days, and those people are probably right, but in the past it certainly did.

The government made unionization easier with the National Labor Relations Act and setting

labor standards, especially overtime rules with the Fair Labor Standards Act.

Both of these were passed in the 1930s, by the way.

Probably the most notable thing that the government does to protect workers these days is set

the federal minimum wage, but since that topic is being hotly debated as this episode is

being produced in 2015, I can’t really comment on how it’s going to turn out.

On the other hand the Occupational Safety and Health Administration does set up regulations

to prevent workers from breathing in hazardous fumes and protect them from other potentially

life threatening workplace conditions, and that’s a good thing.

As far as consumers are concerned, there are thousands of regulations that protect us to

make sure that the things we buy don’t kill or maim us. The Food and Drug Administration

makes sure that our medicines aren’t poison, and the Department of Agriculture inspects

meat, which I think is really good a idea, actually.

The National Traffic and Motor Vehicle Safety Act of 1966 made cars safer, and the Consumer

Products Safety Commission helps keep lead paint out of our toys and saves us from exploding

toasters. I like explosions as much as the next guy, but not with breakfast.

All of these goals of economic policy, promoting stable markets, promoting economic prosperity, fostering

business development and protecting employees and consumers are interrelated and important.

I’ll leave it up to you to decide if one is more important than the other three, because

that makes for excellent dinner conversation. If your dinner parties are mostly about the

role the government plays in our economy. Please invite me to those dinner parties.

I’m hungry, for roast beef and political debate.

So, to shift gears a little, let’s talk history, and how the government’s role in

regulating the economy has changed in the last 240 years or so.

So you probably remember from back when we talked about the transition from congressional

to presidential government that began with Teddy Roosevelt and really came into its own

with Franklin Roosevelt, that before the 20th century the federal government didn’t really do that much.

A lot of that has to do with fiscal policy and taxation, which we’re going to discuss

in another episode, and maybe that dinner you’re going to invite me to, but some of

it was certainly because of the way that the Supreme Court had interpreted the Commerce Clause

to mean that government regulation was suspect, and by suspect, I mean generally not allowed.

But by the end of the 19th century the Federal government’s regulatory power had begun

to change, and a lot of that has to do with one of my favorite subjects - no not Star Wars.

And no not the protection of endangered species. (punches eagle)

I’m talking about railroads (Yeah!). Let’s go to the Thought Bubble.

So, with the completion of the transcontinental railroad in 1869, travel and communication across

the U.S. became much easier and it was possible for the first time to have a national market for goods.

If you raised cattle in Kansas, you could now easily ship beef to New York or San Francisco.

Railroads were, almost by definition, interstate entities, so it was pretty clear that Congress

could regulate them. And they needed regulation because railroads had a nasty habit of discriminatory

pricing, charging much, much more for some shippers than for others. Something had to

be done and Congress stepped in with the Interstate Commerce Act in 1887, which created the

Interstate Commerce Commission to regulate railroads.

The period of time around the turn of the 20th century in the U.S. is known as the Gilded

Age and is associated with runaway capitalism and the creation of modern corporate structures

and industrial capitalists like Andrew Carnegie – or Carnegie, if you will – and John

D. Rockefeller who are heroes to some and villains to others. In response to some of

the abuses of the Gilded Age, Congress passed its first wave of regulatory legislation.

In addition to the ICC, Congress created the Federal Trade Commission to regulate trade

and the Sherman and Clayton Acts to try to counter the problem of monopolies. These anti-trust

laws are the basis of modern anti-trust regulation and have been used against Standard Oil and Microsoft.

This first wave of economic regulation didn’t have huge effects on the economy, certainly

not greater than the effects of, say World War I. In the 1920s the federal government

returned to a more traditional laissez faire approach, which lasted until the Great Depression

swept Herbert Hoover and the Republicans out of office and Franklin Roosevelt into it.

And with Franklin Roosevelt came the New Deal and the advent of what law schools sometimes

like to call the administrative and regulatory state.

Thanks Thought Bubble. We’re not going to get into details about the various laws and

regulations of the New Deal here, but luckily I think John talked about them in Crash Course: U.S. History.

John, he talks about stuff.

But in general, those regulations meant that the federal government would take an active

role in regulating certain sectors of the economy, like agriculture and transportation.

Sometimes technology played a part. There really wasn’t a need for a Federal Aviation

Administration until there were airplanes.

The next big wave of government regulation happened in the early 1970s under, of all people, president Nixon.

These new regulatory laws were different from their New Deal predecessors in that they focused

on the economy as a whole. For example the Occupational Safety and Health Administration

dealt with ALL occupations, or at least most of them, and the EPA was created to protect

the whole country’s environment.

Beginning in the 1980s with Ronald Reagan, or actually before him under Carter, the federal

government has undertaken various initiatives to de-regulate the economy, but we already

talked about deregulation in our episode on taming the bureaucracy so we don’t need to re-hash that here.

The point to remember is that, despite attempts at deregulation, the administrative regulatory

state appears to be here to stay.

So why do we have an administrative regulatory state now, even though so many people complain

about it? Part of the reason has to do with the remarkable staying power of bureaucracies,

which are harder to kill than Wolverine.

Nowadays the federal government not only has economic goals, goals like increasing prosperity

that most of us agree upon, it also has a sense, maybe even a belief that it should

try to achieve those goals.

This is a long way from the view of the federal government that persisted through the 19th

century, one which many people say was handed down by the framers. But times change, and

the world and the U.S. has gotten much more complex.

Economic concerns take up an increasingly large part of our lives and many of them,

especially big macroeconomic policies require big solutions. And for many Americans, but

certainly not all of them, the best solution we have is government.

Thanks for watching. See you next time.

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