Page 166 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
Another restraining influence on the role of the American state in
the economy is the tension between the private and public sectors.
Not only does the adversarial relationshipbetween government and
business in the United States make cooperation very difficult, but their
mutual suspicions are reflected in American politics. Whereas political
conservatives reject, at least in principle, any strong role for the state
in the economy, political liberals are fearful that private business in-
terests will capture government programs in order to “feather their
own nests,” and this frequently produces political stalemate. At the
same time, however, the fragmented structure of the American gov-
ernment and its many points of access make it easier for private inter-
ests to challenge government actions than it is in some other systems.
These ideological, structural, and public versus private aspects of the
American political economy have restricted greatly the capacity of the
American government to developa coherent and effective national
economic strategy.
There is a major exception to the generally limited role of the
American government in the economy in the area of macroeconomic
policy-making. However, even in this area, the responsibility for mac-
roeconomic policy, in actual practice, has been divided. The Congress
and the executive branch are both responsible for fiscal policy, but
control over monetary policy is vested in the Federal Reserve, and
the “Fed” functions largely independently of the rest of the federal
government. However, starting with the fiscal excesses of the Reagan
Administration in the early 1980s and accumulation of an immense
federal debt, the Congress and the executive branch deemphasized
fiscal policy, and the Federal Reserve, with control over monetary
policy, became the principal manager of the American economy.
The role of the federal government at the level of microeconomic
policy is highly controversial. American society assumes that the gov-
ernment should establish a neutral environment for business and
should not involve itself directly in business affairs. The primary re-
sponsibility of the government is believed to be the regulation of the
economy, provision of public goods, and elimination of market fail-
ures. Notable examples are found in antitrust policies, regulation of
pollution, and the safeguarding of public health. As Stephen G.
Breyer and Richard B. Stewart point out in their authoritative text on
administrative law and regulatory policy, the rationale for govern-
ment intervention in the economy is to correct market failure as iden-
tified by economists. The unregulated market is treated as the norm,
and advocates of government intervention must prove that such inter-
vention is sometimes justifiable in order to achieve important public
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