Until the 1930s, household members in their roles as workers and consumers had few rights.
Businesses were free to hire and fire at will and to take advantage of consumers.
Government agencies have been formed to enforce new laws to curb business abuses.
The pendulum may have swung too far the other way.
They think businesses have too many regulatory burdens.
Government plays a variety of different roles in the economy.
A stable set of institutions and rules.
Promoting fair competition.
Correcting for externalities.
Ensuring growth and stability.
Public goods are provided.
Adjusting for bad market results.
A basic role of govern ment is to provide a stable institutional framework that includes the set of laws specify what can and cannot be done as well as a mechanism to enforce those laws.
If someone doesn't pay you, you have to go through the government court system to get your money.
Eco nomic activity is difficult in countries where governments don't provide a stable institutional framework.
Over the past decade, civil unrest in Syria, Iraq, Libya, and Yemen has hurt their economies, and some economists think that peace could double growth in the region.
In a market economy, the government has to decide what role it should play in promoting competition or controlling the market.
When Microsoft gained control of the computer operating system market, the U.S. government took the company to court.
It is difficult for the government to function because most individuals and firms believe that competition is better for the other guy than it is for them, that their own monopolies are necessary monopolies, and that competition facing them is unfair competition.
Government subsidies and import restrictions are supported by farmers who also support competition.
Firms that support competition also support tariffs, which protect them from competition.
Architects and engineers support com petition, but they also support professional licensing, which limits the number of competitors who can enter their field.
There are always arguments for limiting entry into fields in the newspapers.
The job of the government is to determine if the arguments are strong enough to overcome the limitations of competition.
Two people believe that they will benefit from a trade if they freely enter into it.
Unless they are required to do so, traders are unlikely to take into account the effect that an action will have on a third party.
The government can help correct for the trade between the two parties if the externality is positive.
Education is an example of a positive externality.
Better educated people tend to make better citizens and are better equipped to figure out new approaches to solve problems that benefit society as a whole.
The burning of coal puts sulfur dioxide, carbon dioxide, and fine particulates into the air.
Sulfur dioxide contributes to acid rain, carbon dioxide contributes to global warming, and fine particulates damage people's lungs.
Burning coal has an effect that is not taken into account by market participants.
There is a chance for the government to adjust the market result through taxes, subsidies, or regulation.
The advantages and disadvantages of each will be considered throughout the book.
The government has the potential to provide economic stability.
If it is possible, the government should prevent large fluctuations in the level of economic activity, maintain a relatively constant price level, and provide an economic environment that is friendly to economic growth.
When the Employment Act was passed in 1946, these aims became the goals of the U.S. government.
The individual decision maker doesn't take into account the effects of their decision on others when they decide how much to whole.
Unemploy ment can be caused by too little spending.
People don't take into account the fact that spending less could lead to unemployment.
They can involve a macro externality in their spending decisions.
When people raise their price and don't consider the effect on inflation, they might be creating a macro externality.
Public goods are supplied by the government.
An example of a private good is an apple; if I eat it, no one else will.
National defense is an example of a public good.
Governments must require people to pay taxes in order to supply defense, rather than leaving it to the market to supply it.
When the results of the market are seen as socially undesirable, the government has a controversial role to play.
Government redistributes income, taking it away from some and giving it to others who are in need.
It tries to see that trades are fair.
Calculating what's fair is a difficult question that economists can't answer.
The question is for the people to decide.
An example of this role is having the government decide what's best for people.
Individuals can decide in the market.
People may take drugs even though they know they are bad for them, because of peer pressure, or because they just don't care.
Government action prohibiting such activities may be justified.
The world economy is divided into three main areas: the Americas, Europe and Africa, and the East Area.
The map below shows the trading blocs.
There is a major currency in each area.
In the Americas, it is imports as a percentage of the dollar; in Europe, it is the euro; and in East Asia, it is the GDP.
China's economy is growing fast and is likely to overtake Japan as the key Asian economy.
You can see a sense of the simi rate tables from the accompanying table.
The EU trade figures are adjusted.
GDP figures can be affected by currency changes.
Drug use is a bad activity and using illegal drugs is a good one.
There are some activities that the government believes are good for people, even if they don't engage in them.
Government may think that going to the opera or donating to charity is a good activity.
What is not in their self-interest in the United States.
Not everyone in the United States contributes to charity, and only a small percentage of people go to the opera.
The government may think that whole-wheat bread is more healthy than white bread.
White bread is preferred by many consumers.
Government may provide support for them through subsidies or tax benefits.
Does one way or another if there is an externality.
The fact that there are market failures doesn't mean that the government should intervene to improve the situation.
Market failure or government failure will be less problematic than other failures.
We've put the U.S. economy in historical and institutional terms so far.
We put it into perspective relative to the world economy.
We gain insights into the U.S. economy by doing so.
It is impossible to talk about the U.S. economic institutions without considering how they integrate with the world economy.
The production and sales sides of a car can be found in more than one country.
Japanese or German names don't mean it was produced abroad.
Many Japanese and German companies have manufacturing plants in the United States.
Corporate names don't always tell you where a good is made.
Most manufacturing decisions are made in the international market, not the U.S. domestic market.
The consumer sovereignty that guides decisions of firms is becoming less and less U.S.
Huge benefits for countries are offered by global corporations.
Global 500 lems for governments are also posed by global corporations.
They have an implication for domestic and international policy.
Policy measures can be used to deal with a domestic corporation within a country.
It can shift its operations to other countries if it doesn't like the policies in one country.
There is no global government that regulates a global corporation.
Global economic issues are different from national economic issues because national economies have governments to referee disputes among players in the economy.
Some people think that we need a global government.
The argument has not been taken seriously.
The United Nations is the closest to a world government.
The political and military power of its members makes it unable to impose its will or tax.
The United States ignores the UN mandate when it is opposed to it.
International problems must be dealt with through negotiation, consensus, and concessions.
A variety of international institutions have been developed by governments.
The World Bank, the World Court, and the International Monetary Governments have developed funds.
There are a variety of goals for these organizations.
The World Bank works with developing countries to negotiate and coordinate economic relations among countries.
Low-interest loans can be used to foster economic growth.
The UN, the World Bank, and the International Monetary Fund are international financial institutions.
It deals with international financial arrangements.
When developing countries encountered financial problems in the 1980s, the International Monetary Fund helped with repayment plans.
The job of global and regional organizations is to coordinate trade among countries and reduce trade barriers.
The World Trade Organization works to reduce trade barriers.
European countries developed out of a trade association devoted to reducing trade trade barriers.
The WTO, the EU, and the North American Free Trade Agreement are some.
Informal meetings of various countries are included in the formal institutions.
The Group of Seven meet to coordinate economic relations among countries.
The seven are Japan, Germany, Britain, France, United States, Canada, and Italy.
Governmental membership in international organizations is voluntary.
When the United States doesn't like a World Court ruling, it simply international organizations is voluntary, states that it isn't going to follow the ruling.
The power of the United States is limited when they are unhappy.
From time to time, other countries do the same thing.