The Economic Climate (10): The Government and the Fed

The US federal government is much bigger than it was during the last Great Depression. 

Back then, it didn't have much economic clout. 

• There was no welfare, no social security, no housing department, none of the hundreds of departments that exist today. 
• In 1935, the entire federal budget was $6.4 billion, about 1/10th of the total US economy. 
• In 1995, it was $1.5 trillion, and nearly 1/4 of the total economy.

An important divide in US:  As of 1992, more people worked in local, state, and federal governments than in manufacturing.  This so-called public sector pays so many salaries and pumps so much money into the economy that it keeps the economy out of the deep freeze.  

• Whether business is bad or good, millions of government employees, social security recipients, and welfare recipients still have money to spend. 
• And when people get laid off, they get unemployment compensation for several months while they look for another job.

The dark side of this story is that the government has gotten out of whack, with huge budget deficits that

• soak up investment capital and
• keep the economy from growing as fast it as once did. 

Too much of a good thing has become a bad thing.

The agency in charge of climate control is the Federal Reserve System, also known as the Fed.