By the end of the 19th century, regulation rather than subsidy had become the characteristic form of government intervention in US economic life. The abuses of the railroads with respect to rates and services gave rise to the Interstate Commerce Commission in 1887, which was subsequently strengthened by numerous acts that now stringently regulate all aspects of US railroad operations.
The growth of large-scale corporate enterprises, capable of exercising monopolistic or near-monopolistic control of given segments of the economy, resulted in federal legislation designed to control trusts. The Sherman Antitrust Act of 1890, reinforced by the Clayton Act of 1914 and subsequent acts, established the federal government as regulator of large-scale business. This tradition of government intervention in the economy was reinforced during the Great Depression of the 1930s, when the Securities and Exchange Commission and the National Labor Relations Board were established. The expansion of regulatory programs accelerated during the 1960s and early 1970s with the creation of the federal Environmental Protection Agency, Equal Employment Opportunity Commission, Occupational Safety and Health Administration, and Consumer Product Safety Commission, among other bodies. Subsidy programs were not entirely abandoned, however. Federal price supports and production subsidies remained a major force in stabilizing US agriculture. Moreover, the federal government stepped in to arrange for guaranteed loans for two large private firms—Lockheed in 1971 and Chrysler in 1980—where thousands of jobs would have been lost in the event of bankruptcy.
During this period, a general consensus emerged that, at least in some areas, government regulation was contributing to inefficiency and higher prices. The Carter administration moved to deregulate the airline, trucking, and communications industries; subsequently, the Reagan administration relaxed government regulation of bank savings accounts and automobile manufacture as it decontrolled oil and gas prices. The Reagan administration also sought to slow the growth of social-welfare spending and attempted, with only partial success, to transfer control over certain federal social programs to the states and to reduce or eliminate some programs entirely. Ironically, it was a Democrat, Bill Clinton, who, in 1996, signed legislation that replaced Aid to Families with Dependent Children with a system of block grants that would enable the states to design and run their own welfare programs.
Some areas of federal involvement in social welfare, however, seem safely entrenched. Old age and survivors' insurance, unemployment insurance, and other aspects of the Social Security program have been accepted areas of governmental responsibility for decades. With the start of the 21st century, the government faced the challenge of keeping the Medicare program solvent as the postwar baby-boomer generation reached retirement age. Federal responsibility has also been extended to insurance of bank deposits, to mortgage insurance, and to regulation of stock transactions. The government fulfills a supervisory and regulatory role in labor-management relations. Labor and management customarily disagree on what the role should be, but neither side advocates total removal of government from this field.
Since the Reciprocal Trade Agreement Act of 1934, government regulation of foreign trade has tended toward decreased levels of protection, a trend maintained by the 1945 Trade Agreements Extension Act, the 1962 Trade Expansion Act, and the 1974 Trade Act. The goals of free trade have also been furthered since World War II by US participation in the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT). With the formation in 1995 of the World Trade Organization (WTO), most-favored-nation policies were expanded to trade in services and other areas.
In 1993, Congress approved the North American Free Trade Agreement, which extended the Free Trade Agreement between Canada and the United States to include Mexico. NAFTA, by eliminating tariffs and other trade barriers, created a free trade zone with a combined market size of $6.5 trillion and 370 million consumers. The effect on employment was uncertain—estimates varied from a loss of 150,000 jobs over the next ten years to a net gain of 200,000. Labor intensive goods-producing industries, such as apparel and textiles, were expected to suffer, while it was predicted that capital goods industries would benefit. It was anticipated that US automakers would benefit in the short run by taking advantage of the low wages in Mexico and that US grain farmers and the US banking, financial, and telecommunications sectors would gain enormous new markets. As of 2003, the pros and cons of NAFTA were still being hotly debated. Spokespersons for organized labor claimed in 2000 that the agreement had resulted in a net loss of 420,000 jobs, while advocates of free trade insisted that 311,000 new jobs had been created to support record US exports to Canada and Mexico, with only 116,000 workers displaced—a net gain of 195,000 jobs.
In 2003, President George W. Bush introduced, and Congress passed a tax cut of $350 billion designed to stimulate the economy, which was in a period of slow growth. This came on the heels of a $1.35 trillion tax cut passed in 2001 and a $96 billion stimulus package in 2002. Democrats cited the loss of 2.7 million private sector jobs during the first three years of the Bush administration as evidence that the president did not have control over the economy. In 1998, for the first time since 1969, the federal budget closed the fiscal year with a surplus. In 2000, the government was running a surplus of $236 billion, or a projected $5.6 trillion over 10 years. By mid-2003, the federal budget had fallen into deficit; the deficit stood at $455 billion, which was4.2% of gross domestic product (GDP). Congress was debating an overhaul of the Medicare program, to provide prescription drug coverage for the elderly and disabled.