The Role of Government in the Economy

I. PRELISTENING__________________________________________________

B. Vocabulary and Key Concepts

1. One of the important characteristics of American-style capitalism is individual ownership of property, including such things as houses and land, businesses, and intellectual property such as songs, poems, books, and inventions.

2. The second characteristic is free enterprise.

3. The idea in a pure capitalistic system is for the government not to interfere, that is, for the government to take a laissez-faire attitude.

4. In a pure capitalistic system, the government’s role would be se­verely limited. It would be responsible only for laws governing contracts and property, as well as for the national defense.

5. Companies may have to install pollution control equipment to comply with government regulations.

6. People who earn little or no income can receive public assistance. often called welfare.

7. The government makes sure that the marketplace stays competi­tive through its antitrust and monopoly laws.

8. The government interferes with the economy in an effort to main­tain stability.

9. Through taxationr the government tries to control inflation.

10. The government has to be very careful to keep unemployment and inflation in balance, however.

11. The government further tries to achieve stability through its expenditures and by controlling the interest rate.

12. Republicans, the more conservative party, tend to favor fewer taxes, less welfare to the poor, and conditions that help business grow.

13. The government’s role in the economy is not a static thing because the composition of the government changes every few years.

LECTURE: The Role of Government in the Economy

Let me begin today by saying that the American economy is basically a capitalistic economy. One of the important characteristics of American – style capitalism is individual ownership of property, including such things as houses and land, businesses, and intellectual property such as songs, poems, books, and inventions. The second characteristic is free enterprise. This means the freedom to produce, buy, and sell goods and labor without government intervention. The third charac­teristic is free competitive markets. Those businesses that succeed stay in the market, and those that fail must leave the market. In this type of economy, not everyone will be able to find a job at every mo­ment and not all businesses will be successful, but in a pure capitalis­tic system, the government is not expected to interfere with the nat­ural economic forces. The idea in a pure capitalistic system is for the government to take a laissez-faire attitude toward business.

Thus, in a purely capitalistic society the government’s role would be limited to a very few areas. For example, the government would make laws concerning contracts and property rights. The government would also be responsible for national defense. Finally, in a pure capitalist state the government would provide only those goods that private businesses could or would not ordinarily provide, such as roads and canals.

In truth, because the United States is not a pure capitalistic system, government today does not maintain a completely laissez-faire atti­tude toward business. The government’s role in business has been growing since the beginning of the century, especially since the 1930s. This expanding role of government is another complicated subject,

and Гш going to discuss only a few issues today, just to give you some idea of why the government tries to regulate the economy. We’ll be discussing four basic reasons for government interference.

The first reason the government tries to regulate the economy is to protect the environment. Because the costs of polluting the environ­ment can affect all members of society, the government uses various legal means to try to regulate businesses and to protect the environ­ment. Companies must comply with certain government regulations. For example, companies may be required to install expensive pollution control equipment. The government also has regulations about how and where toxic wastes can be dumped and imposes fines upon those companies that do not follow these regulations.

The second reason the government interferes with the economy is to help people who for some reason beyond their control earn little or no income. These people may be too young or too old or too ill or other­wise unable to support themselves. The government has various pub­lic assistance, or welfare programs, that are paid for with tax money to help these people.

The third reason the government interferes in the economy is to try to see that the marketplace stays competitive. Early in the century the government passed antitrust and monopoly regulation laws. Antitrust laws were passed to prevent businesses from joining together to drive other businesses out of the marketplace. Monopoly regulation laws were designed to prevent a situation where one business, because of its size and strength, just naturally drove all other similar businesses out of the marketplace. The government believed that it was better to interfere in the economy to be sure that competition was protected. The government still enforces these laws today. For example, the government forced the telephone company, a giant monopoly, to split up into smaller companies. This allowed other companies to enter the market and compete with these smaller companies instead of having one giant monopoly.

The last reason for the government’s interfering with the economy is to maintain economic stability. Basically, the government uses three methods to achieve stability. The first is taxation, by which the gov­ernment collects money from people and businesses. The second method used to keep the economy stable is through expenditure, the money that the government spends. And the third method the gov­ernment uses to maintain stability is controlling the interest rate on money it lends to businesses. Let’s look at each of these methods in more detail. First, let’s look at how the government uses taxation to stabilize the economy. If the economy is growing too fast, inflation becomes a problem. The government can raise taxes to take money out of the economy and lower the inflation rate. However, raising taxes can also lead to increased unemployment. Therefore, the government has to be very careful to regulate taxes to keep unem­ployment and inflation in balance. The second way the government

promotes stability is through its own expenditure, as I just men­tioned. The government has a huge amount of money to spend every year. Some of its decisions about how to spend the money are based on economic conditions in different industries or in different parts of the country. For example, the government may try to help the econ­omy of a certain state by buying goods and services from businesses inside that state.

And a third way is by controlling the interest rate on the money the government will lend to business. If the economy is growing too slowly, the government lowers the interest rate. The lowering of the interest rate will encourage individuals to borrow more money to be­gin new businesses and expand old businesses. If the government feels that the economy is growing too fast, the government raises the inter­est rate. Raising the interest rate will discourage investment in new businesses and business expansion. These three ways, taxation, expen­diture, and setting the interest rate, are the government’s main means of maintaining the economy’s stability.

Generally speaking, the two major political parties in the United States differ on how big a role they think the government should play in the economy. Republicans, the more conservative party, tend to fa­vor fewer taxes, less welfare to the poor, and conditions that help busi­ness grow. Democrats, on the other hand, are often more protective of the environment and more sympathetic to the needs of the old, poor, and sick. Democrats are, consequently, more often in favor of raising taxes to pay for social programs and of regulating businesses more closely. The government’s role in the economy is not a static thing be­cause the composition of the government can change every few years. So, the extent to which the government interferes in the economy changes depending on which party the president is from, which party has a majority in Congress, and how well the president and Congress work together. But I am getting close to the topic of the next lecture, so I’ll stop here.

Ml. POSTLISTENING

A. Accuracy Check

1. What are two examples of intellectual property?

2. What does free enterprise mean?

3. What are two examples of the kinds of things the government would be responsible for in a pure capitalistic system?

4. Does the lecturer suggest that the role of the government in the economy is greater or less in this century than it was in the last century?

5. What is the government’s role in relation to the environment?

6. For what kinds of reasons are some people not able to earn enough money to take care of themselves?

7. Does the lecturer suggest that the government thinks competition is a good or bad thing?

8. What is an example of a large American company that was forced to divide itself into many smaller companies?

9. What are the three methods that the government uses to maintain economic stability?

10. When the economy is growing too fast, does the government raise or lower the interest rate on money it lends to business?