- The government regulates economic activity. In other words, it tells businesses what they can and cannot do. To cite a few different kinds of examples, they tell businesses that they cannot sell heroin; they tell businesses that they cannot sell alcohol to people under 21; they tell businesses that they cannot pay people less than minimum wage.
- The government tries to keep unemployment and inflation low (they try to keep the "macroeconomy" sound). They do this through such things as the financial bailouts that people are so mad about and by more normal things such as adjusting interest rates.
- They try to encourage some kinds of businesses. They do this by subsidizing things like the housing industry, agriculture, and "green" energy.
I would say that much of the role that government occupies in our economy is to ensure a sense of fairness exists within the capitalist structure. The establishment of watchdog elements such as the Securities and Exchanges Commission is a part of this. The SEC is charged with being able to ensure that businesses and organizations follow the rules and do not manipulate the marketplace for their own benefit. At the same time, recent stimulus legislation passed is an example of government providing immediate relief to people who became profoundly impacted by the recent economic downturn. This is an example of government acting to help individuals who have to struggle with the reality of capitalist contraction. I would say that another role our government plays is to make sure that the economy is a machine that does not come to a complete standstill or a halt. The idea of constantly monitoring interest rates and adjusting them according to where the economy is at a particular time is a part of this, as well.
Stimulus - By this I do not mean the actual stimulus bill passed for this recession, but the hundreds of billions the government throws into the economy each year through defense spending, highway construction and maintenance, research and development, etc. They are actually, just in the normal course of a budget year, a huge engine in the economy.
Student Loans - Now more than ever, the government has taken over the student loan industry which makes it possible for large numbers of people to obtain a college education. This leads to higher average incomes, spending and home ownership.
Medicare/Medicaid/Social Security - The government provides a social safety net for the most vulnerable Americans. The poor, the elderly and those who need medical care all receive some kind of direct aid from the government.
1. Taxation - our legislators vote on increases of taxes and repeals of tax cuts. The tax tables help determine for the individual American how much of their pay is take-home pay. The more the average American has, the more they spend on businesses large and small, the more businesses have to pay employees and the more money goes around.
2. APR - There are federal rates of interest set by what many refer to as "the Fed". This role is not a legislative role, but Ben Bernanke is our Federal Reserve Chairman who assumes this role of determining rates and values. Currently, the Annual Percentage Rates are some of the lowest ever, so the Fed is making an effort to effect our economy in this way, but because the legislators have recently voted increased regulations of creditors, this effort is in vain. The APR is added to a credit card company's interest rate and hurts the American trying to pay down debt.
3. TRUST - When the government intervenes with Wall Street or mortgage lending or creditory rates or the bailouts of major companies it has an ethical consequence on the American people. Sometimes the Americans buy the move as benefitting them, other times, they believe the move hurts them. Of late, Americans distrust government moves and each one can be seen as Wall Street has taken hits.