Growth of Government Intervention in the Economy

Growth of Government Intervention in the Economy

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In the early days of the United States, government leaders largely refrained from regulating business. As the 20th century approached, however, the consolidation of U.S. industry into increasingly powerful corporations spurred government intervention to protect small businesses and consumers. In 1890, Congress enacted the Sherman Antitrust Act, a law designed to restore competition and free enterprise by breaking up monopolies.

In 1906, it passed laws to ensure that food and drugs were correctly labeled and that meat was inspected before being sold. In 1913, the government established a new federal banking system, the Federal Reserve, to regulate the nation's money supply and to place some controls on banking activities.

The largest changes in the government's role occurred during the "New Deal," President Franklin D. Roosevelt's response to the Great Depression. During this period in the 1930s, the United States endured the worst business crisis and the highest rate of unemployment in its history. Many Americans concluded that unfettered capitalism had failed. So they looked to government to ease hardships and reduce what appeared to be self-destructive competition. Roosevelt and the Congress enacted a host of new laws that gave government the power to intervene in the economy. Among other things, these laws regulated sales of stock, recognized the right of workers to form unions, set rules for wages and hours, provided cash benefits to the unemployed and retirement income for the elderly, established farm subsidies, insured bank deposits, and created a massive regional development authority in the Tennessee Valley.

Many more laws and regulations have been enacted since the 1930s to protect workers and consumers further. It is against the law for employers to discriminate in hiring on the basis of age, sex, race, or religious belief. Child labor generally is prohibited. Independent labor unions are guaranteed the right to organize, bargain, and strike.

The government issues and enforces workplace safety and health codes. Nearly every product sold in the United States is affected by some kind of government regulation: food manufacturers must tell exactly what is in a can or box or jar; no drug can be sold until it is thoroughly tested; automobiles must be built according to safety standards and must meet pollution standards; prices for goods must be clearly marked; and advertisers cannot mislead consumers.

By the early 1990s, Congress had created more than 100 federal regulatory agencies in fields ranging from trade to communications, from nuclear energy to product safety, and from medicines to employment opportunity. Among the newer ones are the Federal Aviation Administration, which was established in 1966 and enforces safety rules governing airlines, and the National Highway Traffic Safety Administration (NHSTA), which was created in 1971 and oversees automobile and driver safety. Both are part of the federal Department of Transportation.

Many regulatory agencies are structured so as to be insulated from the president and, in theory, from political pressures. They are run by independent boards whose members are appointed by the president and must be confirmed by the Senate.

By law, these boards must include commissioners from both political parties who serve for fixed terms, usually of five to seven years. Each agency has a staff, often more than 1,000 persons. Congress appropriates funds to the agencies and oversees their operations. In some ways, regulatory agencies work like courts. They hold hearings that resemble court trials, and their rulings are subject to review by federal courts.

Despite the official independence of regulatory agencies, members of Congress often seek to influence commissioners on behalf of their constituents. Some critics charge that businesses at times have gained undue influence over the agencies that regulate them; agency officials often acquire intimate knowledge of the businesses they regulate, and many are offered high-paying jobs in those industries once their tenure as regulators ends.

Companies have their own complaints, however. Among other things, some corporate critics complain that government regulations dealing with business often become obsolete as soon as they are written because business conditions change rapidly.


Next Article: Federal Efforts to Control Monopoly

This article is adapted from the book "Outline of the U.S. Economy" by Conte and Carr and has been adapted with permission from the U.S. Department of State.