Manual The Size and Role of Government: Economic Issues

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Excerpt] The size and role of the government is one of the most fundamental and enduring debates in American politics. Economics can be used to analyze the.
Table of contents

Economy from then on meant national economy as a topic for the economic activities of the citizens of a state. The first economist in the true modern meaning of the word was the Scotsman Adam Smith — who was inspired partly by the ideas of physiocracy , a reaction to mercantilism and also later Economics student, Adam Mari. He maintained that the basic motive for free trade is human self-interest. The so-called self-interest hypothesis became the anthropological basis for economics. Thomas Malthus — transferred the idea of supply and demand to the problem of overpopulation.

The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture , manufacturing , mining , and transport had a profound effect on the socioeconomic and cultural conditions starting in the United Kingdom , then subsequently spreading throughout Europe , North America , and eventually the world. The onset of the Industrial Revolution marked a major turning point in human history; almost every aspect of daily life was eventually influenced in some way.

In Europe wild capitalism started to replace the system of mercantilism today: protectionism and led to economic growth. The period today is called industrial revolution because the system of Production , production and division of labor enabled the mass production of goods. The contemporary concept of "the economy" wasn't popularly known until the American Great Depression in the s.

After the chaos of two World Wars and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy.

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This was explored and discussed by Friedrich August von Hayek — and Milton Friedman — who pleaded for a global free trade and are supposed to be the fathers of the so-called neoliberalism. However, the prevailing view was that held by John Maynard Keynes — , who argued for a stronger control of the markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor. In the late s, the economic growth in America and Europe—often called Wirtschaftswunder ger: economic miracle —brought up a new form of economy: mass consumption economy.

In , John Kenneth Galbraith — was the first to speak of an affluent society. In most of the countries the economic system is called a social market economy. With the fall of the Iron Curtain and the transition of the countries of the Eastern Block towards democratic government and market economies, the idea of the post-industrial society is brought into importance as its role is to mark together the significance that the service sector receives instead of industrialization.

Some attribute the first use of this term to Daniel Bell's book, The Coming of Post-Industrial Society , while others attribute it to social philosopher Ivan Illich's book, Tools for Conviviality. The term is also applied in philosophy to designate the fading of postmodernism in the late 90s and especially in the beginning of the 21st century. With the spread of Internet as a mass media and communication medium especially after , the idea for the Internet and information economy is given place because of the growing importance of e-commerce and electronic businesses, also the term for a global information society as understanding of a new type of "all-connected" society is created.

In the late s, the new type of economies and economic expansions of countries like China, Brazil, and India bring attention and interest to different from the usually dominating Western type economies and economic models. The economy may be considered as having developed through the following phases or degrees of precedence.

In modern economies, these phase precedences are somewhat differently expressed by the three-sector theory.

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The GDP gross domestic product of a country is a measure of the size of its economy. The most conventional economic analysis of a country relies heavily on economic indicators like the GDP and GDP per capita. While often useful, GDP only includes economic activity for which money is exchanged.

An informal economy is economic activity that is neither taxed nor monitored by a government, contrasted with a formal economy. The informal economy is thus not included in that government's gross national product GNP.

Although the informal economy is often associated with developing countries , all economic systems contain an informal economy in some proportion. Informal economic activity is a dynamic process which includes many aspects of economic and social theory including exchange, regulation, and enforcement.

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By its nature, it is necessarily difficult to observe, study, define, and measure. No single source readily or authoritatively defines informal economy as a unit of study. The terms "underground", "under the table" and "off the books" typically refer to this type of economy. The term black market refers to a specific subset of the informal economy.

The term "informal sector" was used in many earlier studies, and has been mostly replaced in more recent studies which use the newer term. The informal sector makes up a significant portion of the economies in developing countries but it is often stigmatized as troublesome and unmanageable. However the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the s.

As such, integrating the informal economy into the formal sector is an important policy challenge. Economic research is conducted in fields as different as economics , economic sociology , economic anthropology , and economic history. From Wikipedia, the free encyclopedia.

For the field of study, see Economics. Most importantly, American mobilization was markedly less centralized than mobilization in other belligerent nations. The war economies of Britain and Germany, for instance, were overseen by war councils which comprised military and civilian officials.

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In the United States, the Army and Navy were not incorporated into the civilian administrative apparatus, nor was a supreme body created to subsume military and civilian organizations and to direct the vast war economy. Instead, the military services enjoyed almost-unchecked control over their enormous appetites for equipment and personnel.

With respect to the economy, the services were largely able to curtail production destined for civilians e. In parallel to but never commensurate with the Army and Navy, a succession of top-level civilian mobilization agencies sought to influence Army and Navy procurement of manufactured goods like tanks, planes, and ships, raw materials like steel and aluminum, and even personnel.

One way of gauging the scale of the increase in federal spending and the concomitant increase in military spending is through comparison with GDP, which itself rose sharply during the war.


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Table 1 shows the dramatic increases in GDP, federal spending, and military spending. To oversee this growth, President Roosevelt created a number of preparedness agencies beginning in , including the Office for Emergency Management and its key sub-organization, the National Defense Advisory Commission; the Office of Production Management; and the Supply Priorities Allocation Board.

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None of these organizations was particularly successful at generating or controlling mobilization because all included two competing parties. On one hand, private-sector executives and managers had joined the federal mobilization bureaucracy but continued to emphasize corporate priorities such as profits and positioning in the marketplace. In January , as part of another effort to mesh civilian and military needs, President Roosevelt established a new mobilization agency, the War Production Board, and placed it under the direction of Donald Nelson, a former Sears Roebuck executive.

Nelson understood immediately that the staggeringly complex problem of administering the war economy could be reduced to one key issue: balancing the needs of civilians — especially the workers whose efforts sustained the economy — against the needs of the military — especially those of servicemen and women but also their military and civilian leaders.

Though neither Nelson nor other high-ranking civilians ever fully resolved this issue, Nelson did realize several key economic goals. He thereby also established a precedent for planning war production so as to meet most military and some civilian needs.

The CMP obtained throughout the war, and helped curtail conflict among the military services and between them and civilian agencies over the growing but still scarce supplies of those three key metals. By late it was clear that Nelson and the WPB were unable to fully control the growing war economy and especially to wrangle with the Army and Navy over the necessity of continued civilian production. Beneath the highest-level agencies like the WPB and the OWM, a vast array of other federal organizations administered everything from labor the War Manpower Commission to merchant shipbuilding the Maritime Commission and from prices the Office of Price Administration to food the War Food Administration.

However, these agencies were often quite successful in achieving their respective, narrower aims. Beginning in , the government extended the income tax to virtually all Americans and began collecting the tax via the now-familiar method of continuous withholdings from paychecks rather than lump-sum payments after the fact. The number of Americans required to pay federal taxes rose from 4 million in to 43 million in Over that same period, federal tax revenue grew from about 8 percent of GDP to more than 20 percent.

The average income tax rate peaked in at Though the bonds returned only 2. Bonds served as a way for citizens to make an economic contribution to the war effort, but because interest on them accumulated slower than consumer prices rose, they could not completely preserve income which could not be readily spent during the war. Fiscal and financial matters were also addressed by other federal agencies.

Between April and June , the period of the most stringent federal controls on inflation, the annual rate of inflation was just 3. With wages rising about 65 percent over the course of the war, this limited success in cutting the rate of inflation meant that many American civilians enjoyed a stable or even improving quality of life during the war Kennedy, Improvement in the standard of living was not ubiquitous, however.

In some regions, such as rural areas in the Deep South, living standards stagnated or even declined, and according to some economists, the national living standard barely stayed level or even declined Higgs, Labor unions and their members benefited especially. By , approximately Despite the almost-continual crises of the civilian war agencies, the American economy expanded at an unprecedented and unduplicated rate between and The gross national product of the U. War-related production skyrocketed from just two percent of GNP to 40 percent in Milward, As Table 2 shows, output in many American manufacturing sectors increased spectacularly from to , the height of war production in many industries.

The wartime economic boom spurred and benefited from several important social trends. Foremost among these trends was the expansion of employment, which paralleled the expansion of industrial production. In , unemployment dipped to 1. Table 3 shows the overall employment and unemployment figures during the war period. Not only those who were unemployed during the depression found jobs.

So, too, did about Almost 19 million American women including millions of black women were working outside the home by Though most continued to hold traditional female occupations such as clerical and service jobs, two million women did labor in war industries half in aerospace alone Kennedy, Employment did not just increase on the industrial front. Civilian employment by the executive branch of the federal government — which included the war administration agencies — rose from about , in already a historical peak to 2.

Migration was another major socioeconomic trend. The 15 million Americans who joined the military — who, that is, became employees of the military — all moved to and between military bases; Continuing the movements of the depression era, about 15 million civilian Americans made a major move defined as changing their county of residence. African-Americans moved with particular alacrity and permanence: , left the South and , arrived in Los Angeles during alone. Migration was especially strong along rural-urban axes, especially to war-production centers around the country, and along an east-west axis Kennedy, , For instance, as Table 4 shows, the population of the three Pacific Coast states grew by a third between and , permanently altering their demographics and economies.

Workers at the lower end of the spectrum gained the most: manufacturing workers enjoyed about a quarter more real income in than in Kennedy, Again focusing on three war-boom states in the West, Table 5 shows that personal-income growth continued after the war, as well. Source: Nash, Despite the focus on military-related production in general and the impact of rationing in particular, spending in many civilian sectors of the economy rose even as the war consumed billions of dollars of output.

Associated Data

Hollywood boomed as workers bought movie tickets rather than scarce clothes or unavailable cars. Americans placed more legal wagers in and , and racetracks made more money than at any time before. Department-store sales in November were greater than in any previous month in any year Blum, Black markets for rationed or luxury goods — from meat and chocolate to tires and gasoline — also boomed during the war.

Monetary and Fiscal Policy: Crash Course Government and Politics #48