Here’s how the government spent $6.8T last year (From “USA Facts” article) The federal government spent $6.8 trillion in fiscal year 2024. We’ll say that again. $6,800,000,000,000. We’re not saying that’s good or bad, too much or too little. But we can agree that that scale is hard to fathom, right? Our new agency spending chart makes 2024 spending for the executive, legislative, and judicial branches easier to understand. We even tracked the president’s budget, independent agencies such as NASA, and entities that get federal money but don’t slot neatly into other categories (think the Smithsonian). A few insights: The Department of Health and Human Services spent $1.7 trillion in 2024. That was about 25.4% of federal expenditures, primarily driven by the $1.5 trillion in spending by the Centers for Medicare & Medicaid Services. The Social Security Administration accounted for the biggest share of independent agency spending: $1.5 trillion. Federal Student Aid accounted for 2.4% of federal spending, totaling $161.0 billion. The National Parks Service spent just under $4.5 billion, for 0.07% of federal spending. Congress runs the botanic garden adjacent to the Capitol Building. The garden accounted for $19.0 million in legislative branch spending.
While lengthy this article does a great job of explaining the differences
In both a republic and a democracy, citizens are empowered to participate in a representational political system. They elect people to represent and protect their interests in how the government functions.
Key Takeaways
Republics and democracies both provide a political system in which citizens are represented by elected officials who are sworn to protect their interests.
In a pure democracy, laws are made directly by the voting majority, leaving the rights of the minority largely unprotected.
In a republic, laws are made by representatives chosen by the people and must comply with a constitution that protects the rights of the minority from the will of the majority.
The United States, while basically a republic, is best described as a “representative democracy.”
In a republic, an official set of fundamental laws, like the U.S. Constitution and Bill of Rights, prohibits the government from limiting or taking away certain inalienable rights of the people—even if that government was freely chosen by a majority of the people. In a pure democracy, the voting majority has almost limitless power over the minority.
The main difference between a democracy and a republic is the extent to which the people control the process of making laws under each form of government.
Pure Democracy
Republic
Power Held by
The population as a whole
Individual citizens
Making Laws
A voting majority has almost unlimited power to make laws. Minorities have few protections from the will of the majority.
The people elect representatives to make laws according to the constraints of a constitution.
Ruled by
The majority
Laws made by elected representatives of the people
Protection of Rights
Rights can be overridden by the will of the majority.
A constitution protects the rights of all people from the will of the majority.
Early Examples
Athenian democracy in Greece (500 BCE)
The Roman Republic (509 BCE)
Is the U.S. a Democracy or a Republic?
The United States, like most modern nations, is neither a pure republic nor a pure democracy. Instead, it is a hybrid democratic republic. However, when the delegates of the United States Constitutional Convention debated the question in 1787, the exact meanings of the terms republic and democracy remained unsettled. At the time, there was no term for a representative form of government created “by the people” rather than by a king. In addition, American colonists used the terms democracy and republic more or less interchangeably, as remains common today.
In Britain, the absolute monarchy was giving way to a full-fledged parliamentary government. Had the Constitutional Convention been held two generations later, the framers of the U.S. Constitution, having been able to read the new constitution of Britain, might have decided that the British system with an expanded electoral system might allow America to meet its full potential for democracy.
Nevertheless, Founding Father James Madison may have best described the difference between a democracy and a republic:
“It [the difference] is that in a democracy, the people meet and exercise the government in person: in a republic, they assemble and administer it by their representatives and agents. A democracy, consequently, must be confined to a small spot. A republic may be extended over a large region.”
The fact that the Founding Fathers intended for the United States to function as a representative democracy, rather than a pure democracy, is illustrated in a letter from Alexander Hamilton to Gouverneur Morris dated May 19, 1777.1
“But a representative democracy, where the right of election is well secured and regulated & the exercise of the legislative, executive and judiciary authorities, is vested in select persons, chosen really and not nominally by the people, will in my opinion be most likely to be happy, regular and durable.”
The Concept of a Democracy
Coming from the Greek words for “people” (dēmos) and “rule” (karatos), democracy means “rule by the people.” As such, a democracy requires that the people be allowed to take part in the government and its political processes. U.S. President Abraham Lincoln may have offered the best definition of democracy as being “a government of the people, by the people, for the people” in his Gettysburg Address on November 19, 1863.
Typically through a constitution, democracies limit the powers of their top rulers, such as the President of the United States, set up a system of separation of powers and responsibilities between branches of the government, and protect the natural rights and civil liberties of the people.
In a pure democracy, all citizens who are eligible to vote take an equal part in the process of making laws that govern them. In a pure or direct democracy, the citizens as a whole have the power to make all laws directly at the ballot box. Today, some U.S. states empower their citizens to make state laws through a form of direct democracy known as the ballot initiative. Put simply, in a pure democracy, the majority truly does rule, and the minority has little or no power.
Representative Democracy
In a representative democracy, also called an indirect democracy, all eligible citizens are free and encouraged to elect officials to pass laws and formulate public policy representing the needs and viewpoints of the people. Today, representative democracies are very commonly utilized, by nations including the United States, the United Kingdom, and France.
Participatory Democracy
In a participatory democracy, eligible citizens vote directly on policy while their elected representatives are responsible for implementing those policies. In this manner, the people determine the social and economic direction of the state and the operation of its political systems. While representative and participatory democracies share similar ideals and processes, participatory democracies tend to encourage a higher level of citizen participation than traditional representative democracies.
While there are currently no countries specifically classified as participatory democracies, most representative democracies employ citizen participation as a tool for social and political reform. In the United States, for example, so-called “grassroots” citizen participation causes such as the women’s suffrage campaign have led elected officials to enact laws implementing sweeping social, legal, and political policy changes.
The concept of democracy can be traced back to around 500 BCE in Athens, Greece. Athenian democracy was a true direct democracy, or “mobocracy,” under which the public voted on every law, with the majority having almost total control over rights and freedoms.
The Concept of a Republic
Derived from the Latin phrase res publica, meaning “the public thing,” a republic is a form of government in which the social and political affairs of the country are considered a “public matter,” with representatives of the citizen body holding the power to rule. Because citizens govern the state through their representatives, republics may be differentiated from direct democracies. However, most modern representative democracies are republics. The term republiccan also be attached to not only democratic countries but also to oligarchies, aristocracies, and monarchies in which the head of state is not determined by heredity.
In a republic, the people elect representatives to make the laws and an executive to enforce those laws. While the majority still rules in the selection of representatives, an official charter lists and protects certain inalienable rights, thus protecting the minority from the arbitrary political whims of the majority.
In this sense, republics like the United States function as representative democracies. In the U.S., senators and representatives are the elected lawmakers, the president is the elected executive, and the Constitution is the official charter.
Perhaps as a natural outgrowth of Athenian democracy, the first documented representative democracy appeared around 509 BCE in the form of the Roman Republic. While the Roman Republic’s constitution was mostly unwritten and enforced by custom, it outlined a system of checks and balances between the different branches of government. This concept of separate governmental powers remains a feature of almost all modern republics.
Republics and Constitutions
As a republic’s most unique feature, a constitution enables it to protect the minority from the majority by interpreting and, if necessary, overturning laws made by the elected representatives of the people. In the United States, the Constitution assigns this function to the U.S. Supreme Court and the lower federal courts.
For example, in the 1954 case of Brown v. Board of Education, the Supreme Court declared all state laws establishing separate racially segregated public schools for Black and white students to be unconstitutional. In its 1967 Loving v. Virginia ruling, the Supreme Court overturned all remaining state laws banning interracial marriages and relationships.
More recently, in the controversial Citizens United v. Federal Election Commission case, the Supreme Court ruled 5-4 that federal election laws prohibiting corporations from contributing to political campaigns violated the corporations’ constitutional rights of free speech under the First Amendment. Further, the constitutionally granted power of the judicial branch to overturn laws made by the legislative branch illustrates the unique ability of a republic’s rule of law to protect the minority from a pure democracy’s rule of the masses.
What Controls Inflation (Monetary vs. Fiscal policy)
Monetary Policy
Central banks typically use monetary policy to either stimulate an economy or to check its growth. By incentivizing individuals and businesses to borrow and spend, the monetary policy aims to spur economic activity. Conversely, by restricting spending and incentivizing savings, monetary policy can act as a brake on inflation and other issues associated with an overheated economy.
The Fed frequently uses three different policy tools to influence the economy:
Open Market Operations: Open market operations are carried out on a daily basis when the Fed buys and sells U.S. government bonds to either inject money into the economy or pull money out of circulation.1
Reserve Requirements: By setting the reserve ratio, or the percentage of deposits that banks are required to keep in reserve, the Fed directly influences the amount of money created when banks make loans.
Discount Rate: The Fed also can target changes in the discount rate, which is the interest rate it charges on loans it makes to financial institutions. This tool is intended to impact short-term interest rates across the entire economy.
Monetary policy is more of a blunt tool in terms of expanding and contracting the money supply to influence inflation and growth and it has less impact on the real economy. For example, the Fed was aggressive during the Great Depression. Its actions prevented deflation and economic collapse but did not generate significant economic growth to reverse the lost output and jobs.
Contractionary vs. Expansionary Monetary Policy
Monetary policies can be either contractionary or expansionary. Implementing one type of policy depends on the current economic climate and the ultimate goals.
Contractionary Monetary Policy: Central banks will use contractionary monetary policies when inflation becomes a concern as the economy gets overheated. In this case, prices rise as purchasing power drops.
Expansionary Monetary Policy: This type of monetary policy is used to help spur growth when can there’s a recession or slowdown. Expansionary monetary policies have limited effects on growth by increasing asset prices and lowering the costs of borrowing, making companies more profitable.
Important
Monetary policy seeks to spark economic activity, while fiscal policy seeks to address either total spending, the total composition of spending, or both.
Fiscal Policy
Fiscal policy refers to the steps that governments take in order to influence the direction of the economy. But rather than encouraging or restricting spending by businesses and consumers, fiscal policy aims to target the total level of spending, the total composition of spending, or both in an economy.
The two most widely used means of affecting fiscal policy are:
Government Spending Policies: Governments can increase the amount of money they spend if they believe there is not enough business activity in an economy. This is often referred to as stimulus spending. They can borrow money by issuing debt securities (like government bonds) if there are not enough tax receipts to pay for the spending increases, allowing them to accumulate debt. This is referred to as deficit spending.
Government Tax Policies: By increasing taxes, governments pull money out of the economy and slow business activity. Fiscal policy is typically used when the government seeks to stimulate the economy. It might lower taxes or offer tax rebates in an effort to encourage economic growth. Influencing economic outcomes via fiscal policy is one of the core tenets of Keynesian economics.2
When a government spends money or changes tax policy, it must choose where to spend or what to tax. In doing so, government fiscal policy can target specific communities, industries, investments, or commodities to either favor or discourage production—sometimes, its actions are based on considerations that are not entirely economic. For this reason, fiscal policy is often hotly debated among economists and political observers.
Fiscal policy essentially targets aggregate demand. Companies also benefit as they see increased revenues. However, if the economy is near full capacity, expansionary fiscal policy risks sparking inflation. This inflation eats away at the margins of certain corporations in competitive industries that may not be able to easily pass on costs to customers; it also eats away at the funds of people on a fixed income.
Contractionary vs. Expansionary Fiscal Policy
Governments can execute their fiscal policies through contractionary or expansionary measures:
Contractionary Fiscal Policy: Governments can turn to contractionary measures to slow down the economy and curb inflation. These steps include raising taxes and reducing government spending. It isn’t uncommon that a recession follows to bring balance back to the economy.
Expansionary Fiscal Policy: This is commonly done during recessions to encourage people to spend. Governments often turn to measures like stimulus checks issued to taxpayers. They may also increase government spending as a way to boost employment. Expansionary fiscal policies are commonly associated with deficit spending.
Fast Fact
In comparing the two, fiscal policy generally has a greater impact on consumers than monetary policy, as it can lead to increased (or decreased) employment and income.
Key Differences
While the overall goal of monetary and fiscal policy is generally the same—to influence the economy—there are inherent differences between the two.
Among the key differences between monetary and fiscal policy is the party responsible for carrying them out. Monetary policy is carried out by a nation’s central bank, such as the Fed in the U.S., the Bank of Canada (BOC), and the Bank of England. Fiscal policy, on the other hand, is the sole responsibility of a country’s government.
The tools that are used are also distinct between the two. While monetary policy relies on open market operations, reserve requirements, and/or the discount rate, fiscal policy involves the use of government spending and/or changes in government tax policies.
What’s the Difference Between Monetary and Fiscal Policy?
Monetary and fiscal policy are different tools used to influence a nation’s economy. Monetary policy is executed by a country’s central bank through open market operations, changing reserve requirements, and the use of its discount rate.
Fiscal policy, on the other hand, is the responsibility of governments. It is evident through changes in government spending and tax collection.
Is Monetary or Fiscal Policy Better?
That depends on who you ask and the type of policy implemented. When central banks lower interest rates by using monetary policy, the cost of borrowing and investment becomes cheaper. This allows consumers to assume more debt and make large purchases. Businesses are also able to invest in their growth.
Fiscal policy, on the other hand, helps increase gross domestic product (GDP) through expansionary tools. This occurs because demand for goods and services increases, which leads to a rise in prices and output.
What Are the Common Goals of Monetary and Fiscal Policy?
Monetary and fiscal policy are two different tools that central banks and governments use to influence the economy. Both are employed to help bring stability to a country’s economy. They often work best when they are implemented together, where monetary policy shifts a country’s financial markets while fiscal policy affects how much money people have in their pockets.
The Bottom Line
Both fiscal and monetary policy play a large role in managing the economy and both have direct and indirect impacts on personal and household finances. Fiscal policy involves tax and spending decisions set by the government, and will impact individuals’ tax bill or provide them with employment from government projects. Monetary policy is set by the central bank and can boost consumer spending through lower interest rates that make borrowing cheaper on everything from credit cards to mortgages.
