Economic Regulation Essays - Market Structure,

Economic Regulation The U.S and the world economy like everything else have its ups and downs. The government plays a crucial role in deciding how the economy will set over time. An Economist by the name of John Maynard Keynes felt that if either inflation or unemployment got out of hand, the government could adjust the business cycle to balance the economy. Keynes was more geared toward the bigger picture and focused on macroeconomics. His work led to the government and many economists believing that they had control over the economy. This led to economic regulations, which affected everyone from companies to the consumers. Through the history of our economy the government has made changes by enforcing many regulations to have full control of the growth and power of the economy and to protect the consumers. Regulations can be divided into two different categories, Economic regulations and Social regulations. An Economic regulation covers sectors of the economy such as electricity, natural gas, communications, transportation, aviation, agriculture, and banking. These regulations usually include barriers to entry and exit, licensing and tariff laws, and the control of prices and wages. These regulations include acts such as the banking act of 1933 or the civil aeronautics act of 1938. Social regulations on the other hand, are there to protect the consumers. These regulations concern such things as health and safety of workers, environmental issues, and civil rights. Unlike the Economic regulations these were created much later in the 1960's and 70's. Examples of Social regulations would include the food and drug administration and the Equal Opportunity Commission, which protects employers. Regulations were starting to appear around the time of the New Deal. The government's main purpose for enforcing these regulations was because competition among corporations was starting to fail. The bulk of these regulations were put into affect from 1933 through 1938. At the time regulations seemed to have been helping. The economy continued to grow and was doing better than it ever had been. The system was able to control price and entry competition in the nations key industries. From 1930 through the sixties the economy was booming. There were low inflation rates that averaged 3.8 percent over that period of thirty years. The interest rates were also low at two percent over a period of three months. Bank failures were virtually non-existent, oil and gas supplies were readily available. The price of gas even had a slight decline in the sixties. As the sixties came to an end the growth had stopped and problems in the economy started to occur once again. The budget deficits in 1968 went from eight billion dollars to twenty five billion dollars, and continued to rise as it exceeded over 200 billion dollars by 1983. The growth in labor productivity from 1948 to 1968 was about 3.3 percent and from 1968 to 1983 declined to as low as 1.2 percent. In 1974 the banking failure rate had skyrocketed from past success. The Airlines were losing money even though they kept on increasing the price of fares; also the nations largest railroad companies were facing possible bankruptcy. The reason for the downturn in the economy was due to the control, which the government had over these corporations by enforcing these regulations. The problem with these regulations was that it caused higher than necessary costs, distorted the patterns of supply and demand. The rate of return regulations was creating inefficient capital allocations. These problems brought on what is called as deregulation. Deregulation is were the government drops many of the regulations that were put on the corporations. The period of deregulating in the late 70's is stated by many economists to be very crucial in the affect of our economy today. Major corporations such as American Airlines, AT&T, El Paso Natural Gas, and Bank America went through a process of deregulating in the late 70's and into the 80's. Even though recent acts of deregulations have occurred and have been proven to be very successful, there are also benefits to regulations along with the disadvantages. Social regulations are most beneficial to the consumer, because it protects them from their employers to what they eat. With out these regulations corporations might take short cuts to save on money, while in turn they are harming their consumers with out us having any knowledge of it. It also protects us from our employers who might have been trying to take advantage of us, or tries to refuse us of the benefits we deserve. There are also economic regulations, which protect our economy by making