To what extent was 'big government' reduced?

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Was Big Government reduction clearly beneficial?

  • Reagan believed reducing big government under new federalsit policies would benefit the USA 
  • New Federalism would produce less federal interference in state, local affairs, and business 
  • These sounded positive especially to nation that were suspcicious of government intervention 
  • However they could also be interepreted as less funding for state and local government projects and less regulation of business expansion and greed, as well as less control over foreign imports and less social welfare for the needy 
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How was 'big government' reduced in the short term

Reagan saw deregulation as a key tool in reducing big government and he said in his state of union adres in 1982 that he was already winning the fight against big government: 

  • He replaced federal agencies with private sector ones and federal employees with volunteers
  • Helped to bring dwon the csot of petrol and heating fuel by deregulation 
  • Created a federal strike force to combat government fraud/waste that had saved $2billion
  • Cut federall regulations almost in half by removing 23,000 pages from the federal register 

Reagans first days in office shows how he could become focused on small details of federal spending. It was part of his media spin to discuss small change as as small scale savings were more real to the public than cuts of $2 billion 

Media focused on his discussion of deregulation as if it was something he had instigated even though Carter had begun degrugaltaion and deregulated the airlines, railways and some areas of finance. 

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The problems of removing controls

  • One problem was that when smaller companies were struggling bigger companies could buy them out. 
  • During the 1980s big companies expanded while small independent businesses struggled 
  • The period saw a rise in the number of conglomerates in the USA 
  • Businesses set their own standards of safety and set them lower than government regulators
  • Initally deregulation brought lower prices through competition, however, as big businesses grew it was more likeley that several businesses would 'fix' a price structure so they didnt have to compete 
  • Many businesses from phone lines to airlines cut services provided to maximise profit and in most cases it was rural areas that suffered
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The savings and Loan collapse

  • The Reagan administration applied deregulation to the savings and loans institutions 
  • When banking restrictions were lifted, banks could offer high interest rates on savings which was good for savers, but bad for struggling business & people with long term loans e.g farmers
  • Banks and newly deregulated S&Ls competed and those who understood the offers benefited
  • Before deregulation they had mostly provided mortgage loans at a regulated rate of interest but when they began to compete with banks they had to make increasingly risky investments and lend at very low rates and offer high rates of savings to savers
  • Many S&Ls failed through incompetence  
  • The federal government was forced to pass the competitive equality in banking act in 1987 and provide money cover the money lost by closed S&LS. by 1988 S&Ls lost $10 billion
  • In 1989 the property market collapsed making the situation of all instutitons that lent money on property even more diffcult.
  • Bush had to sign FIRREA which bailed out failing organisations and set up new federal regulators all at the cost of $150 billion  
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What were the effects of the policies on trade

  • Big government could also be reduced by not intervening to affect narkets 
  • The balance of world trade shifted against the USA as the buying power of the dollar weakend
  • It meant that foreign imports became cheaper so imports of foriegn goods rose and American companies lost business e.g 250 Textile plants were closed and over 300k lost their job
  • Some economists said that chepaer foriegn goods was damaging the economy and that the USA was a global borrower for the first time rather than 'the worlds banker'
  • Even worse American companies were being bought out by freign companies and in 1987 one finance magazine said Britain was getting the colonies back by buying them
  • Supporters of Reagan argued that the rise of imports was a good thing ebcause it gave consumers more choice and made the USA an attractive place for other countries to trade with
  • They pointed oyut the level of Japanese investment in the USA saying it was bring money into the country
  • However this ignored the fact that many Japanese re-invested their profits made in the USA back into Japan  
  • Japanese cars used little fuel which meant they could make a car and ship it to the USA and still sell it at a profit for less than a US manufactured car. 
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Conclusion

  • Big government was not reduced as much as Reagan had hoped as Congress had blocked plans to remove regulations on enviromental issues like pollution and working conditions 
  • Also state and local government were unwilling to take over areas of projects under federal control because they did not want to pay for something that wasnt federally funded 
  • Reagan didnt introduce that many regulators and it was congress that had persuaded Reagan to pass the Fopd security act in 1985 which gave federal help to struggling farmers 
  • By the time Bush came to power people were elss keen on deregulation and federal withdrawl from state and local govenrment 
  • It had become celar that many deregulated businesses were more interested in their own benefit rather than the public benefit for example aeroplanes flew to all over the USA and were often only half full due to high prices
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