rs is that fiscal policy is now locked into a stabilization mode, and therefore paralyzed as a tool for achieving full-employment growth under the mandate of the Employment Act of 1946. Indeed, a steadily declining budget deficit so far in the Clinton administration has dragged down real growth of GDP and slowed the creation of jobs. Therefore, monetary policy has become the only instrument of macroeconomic policy to cope with short-run cyclical problems and long-run growth. This shift to a tighter fiscal policy has spread abroad to other major countries and has now become an international pattern. From Sweden to Great Britain, Germany, and Italy, politicians have tightened central government budgets to cut down deficits and to reduce intervention of government in the private sector (Steinmo, 1994). In many countries, we can observe the push to "privatize" nationalized industries, reduce government regulation and free up markets. All across the board, governments are retreating, both as a stimulus to aggregate demand and as an instrument to regulate markets, influence the allocation of resources, and redistribute national income more equitably. This transformation of policy was occurring at a time when OECD countries had 35 million unemployed and 15 million more underemployed. The remarkable retreat from active fiscal policy, and the role of government as a regulator of economic power and an instrument of economic justice, is another result of the extraordinary philosophical counterrevolution carried out during the Reagan experiment. Government in all its activities from federal to state and municipal levels - even including public education in local communities - was believed to be "part of the problem, not the solution" of the chronic U.S. economic malaise. The historic retrenchment of the public sector at federal, state, and local levels gained momentum when the Republican landslide in the 1994 mid-term elections wrested control o...
