1 United States Comparing Alternative Economic Systems
Dec 29, 2015
4
Selection of Appropriate Economic Systems www.heritage.org
The Heritage Foundation
U.S. ranks 9 with a score of 1.84
Category: mostly market capitalist
5
What, How, and for Who?
The Economic concept of “scarcity” forces all governments to answer these three questions regarding it’s country’s
resources…
1. What will be produced?
2. How will it be produced?
3. For whom will it be produced?
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What, How, and for Who?
United States: Leaning more toward Market Capitalism
Price determines what will be produced by the “votes” of our spending dollars
How is determined by business firms as they develop the “least-cost combination” of input of resources to produce the greatest output at minimum cost
For whom is determined by the price the market creates for the goods people want to purchase (land, goods, services)
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Attributes of United States
Privatization:
Private ownership of all resources.
Individual producers and consumers decide which
goods/services will be produced and at what price
Interaction between producers of goods/services and
consumers ultimately decide cost of goods/services -
competition plays vital role
Boasts largest economy world has ever known (United States)
Citizens enjoyed highest material standards -Economy of living in world during 20th century (United States – Economy)
United States Government:
Plays limited role in decision-making
Provides incentives to encourage production and consumption of certain products and discourages production
of other products
Establishes safety guidelines regulating consumer products, working
conditions and environmental protection
Provides goods/services that private sector cannot (i.e. – National Defense,
low-income assistance programs to families, interstate highways and
airports)
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Inferences on Economic Strengths
Entrepreneurship encouraged – small business owners accept risks and challenges to make profit
Ray Kroc, founder of McDonalds, started out early 1950s selling milkshake machines - today there are 24,500 McDonalds restaurants in 115 countries (People of the Century)
Supply and demand - responsible for price and allocation decisions “The most important single central fact about a free market is that no
exchange takes place unless both parties benefit.” (Milton Friedman)
Price-setting market prices allow economy to operate with increased efficiency - high degree of freedom for producers and consumers
Access to information Advertising provides consumers with important information on which to
base purchasing decisions
Competition determines best way to produce goods/services - helps decide what features and quality standards go into products – holds down costs
When Wal-Mart Superstore comes into small town, smaller “Mom & Pop” stores must find specific “niche” to keep customers or risk going out of business
inferences about economic strengths and weakness
8
Inferences on Economic Weakness
U.S. Mounting US budget and trade deficits adversely affecting US currency and dependency on foreign money
Current trade deficit - approximately $600 billion (Blustein, P.)
Excessive imports reduced number of US jobs Importing clothing from Indonesia and Taiwan - greatly reduced number of
jobs available to US workers in clothing manufacturing Needs to find ways to retrain displaced workers due to outsourcing of jobs
Low rate of household savings compared to many industrialized nations - higher interest rates for both borrowers and savers
More costly to finance investments in factories, equipment and other goods - slows growth in national output and income levels
High value of US $ - cheaper for US citizens to import products – results: larger deficit or smaller surplus in balance of US trade
Employment and wage discrimination faced by women and many minorities Wages for Hispanic workers about 5% lower than white workers (United
States - Economy) Unemployment rates for black workers about twice as high as for white
workers (United States - Economy)
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Natural Monopolies
Natural Monopolies are defined as industries where the fixed cost of the capital goods is so high that it is not profitable for a second firm to enter and compete.
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Natural Monopolies
Examples:
United States Postal Service
Natural industries (telecommunication and electric utilities)
Water and sewage pipes in a city
Some of the effects that occurred from natural monopolies are: Deregulation laws Privatization
Profit Regulation Price Cap Regulation (preferred by utilities and
government) Anti-trust laws
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Effects of Income Inequality
In a U.N. study of 124 countries, the U.S. ranked 92nd for equal income distribution
12
Government Addresses Externalities
Externalities Defined: Costs or benefits of a transaction that are borne by someone not directly involved in the transaction.
A spillover to a “third party”.
12
Government Addresses Externalities
NegativeWater pollution
organic and chemical
Air pollution Acid rain
Destruction of farm lands and forests for more homes Increase in
population=decrease in farmlands and forests
Lost over 12.8 million acres already and rising
PositiveAir Quality Controls
US have Border Air Controlling Policies
Flu Shots Chicken pox, (childhood
immunization shots)
Teaching children to save energy and recycle in schools
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Economic Functions of Government
Creates and Enforces Legal Structure Promotes Competition Corrects Externalities Provides Public Goods Promotes Economic Stability
13a
Economic Functions of Government-Legal Structure
United States: The Constitution provides protection of property An honest and independent judiciary A sound code and laws for the resolution of contract
property disputes between private parties The right to buy, sell and trade property
13b
Economic Functions of Government-Promotes Competition
United States: Free enterprise promotes competition. Competition among the producers determines
what they will sell and the quality that goes in. Government allows individuals to enter the
industry of their choice. Antitrust and Trade Regulation Deal
13c
Economic Functions of Government-Corrects Externalities
U.S. government provides positive and negative
externality regulations through a variety of federal departments:
Disabilities Act, civil rights organizations, environmental laws, health and product safety standards, food and drug labeling requirements For Example:
Auto emission control
Noise ordinances Labor laws and safety Education
13d
Economic Functions of Government-Public Goods
United States: National and domestic security/defense Interstate and State Highways Health programs Public education
13e
Economic Functions of Government-Economic Stability
Humphrey-Hawkins Act "...promote full employment and production, increased real income, balanced growth, a balanced Federal budget, adequate productivity growth, proper attention to national priorities, achievement of an improved trade balance . . . and reasonable price stability..."
Federal Reserve System
Government Spending/Borrowing
13e
Costs/Benefits and Conclusions of Government-Legal Structure
Costs: are not always in control of all our property
Conclusion: government interferes with some environmental and zoning regulations of properties
Benefits: an honest and independent judiciary
Conclusion: we shall not be deprived of life, liberty or property without due process of
law we can dispose of and enjoy our property within the law
13e
Costs/Benefits and Conclusions of Government-Promotes Competition
Costs: the firm must be concerned on what and how they sell (competition) the self interest of the seller becomes the interests of the buyer this determines at what price to sell
Conclusion: United States faces higher barriers to entry in their rival’s home markets
Benefits: competition determines the best way to sell and the quality going in
the economy will excel
Conclusion: overall economy will be efficient and responsive to individual preferences
13e
Costs/Benefits and Conclusions of Government-Correcting Externalities
Costs: regulations haven’t stopped certain cracks in the law for pollution control
and water regulatory clean up
Conclusion: lower income neighborhoods are still fighting for rights minorities are poor
Benefits: we have the control of our environment choice to own devices to make life healthier and richer health insurance can be made available
Conclusion: United States is able to distribute resources to educate for better skills
provide sources for a better living
13e
Costs/Benefits and Conclusions of Government-Public Goods
Costs: provide assistance to other countries at our expense nationally there is never enough money or enough force to stop crime big money is found in the trade of services of defending the law
Conclusion: United States spends extra money on national defense money could be used in more beneficial ways
Benefits: federal court system is based on English common law protection in our cities and states/strong national defense over major wars
Conclusion: United States has a strong, upcoming and growing defense
13e
Costs/Benefits and Conclusions of Government-Economic Stability
Costs: the onrush of technology creates two-tier labor markets rapidly rising medical and pension costs of an aging population sizable trade deficits
Conclusion: bottom tier lacks the education and skills to get jobs with comparable pay raises, health insurance and other benefits
long term problems also include stagnation of family income in the lower economic groups
Benefits: United States has the most technological, powerful economy in the world
greater flexibility
Conclusion: United States continues a leadership role in free trade fiscal burden is holding government intervention holds steady the United States has the most dynamic and developed financial market
in the world
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Personal Position on the Role of Government
We believe the best type of government is a mixed economy. It is nice to have a free market economy where the consumers and businesses regulate the market but sometimes the government needs to intervene. Government intervention can prevent monopolies and correct externalities in the marketplace. Having a mixed economy will help keep stability in the marketplace.
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Personal Position on the Role of Government
We believe that a society benefits the most in a free economy based on the principles of market capitalism. We value our freedom over the “safety net”
touted by socialism or communism. The government’s role should be limited to protecting our freedoms as individuals to create and buy the goods and
services we chose, to live where we please, to own private property, and to hire or fire staff within our businesses. We do want the government to provide a
legal framework to encourage individuals and businesses to play by the rules of the “free market game” (such as control over monopolies and anti-
discrimination laws). We want the government to promote competition by minimizing regulation and controls over prices and the market. Government
should encourage new business growth with lower corporate taxes. We agree with the economist Milton Friedman, who said, ”Many people want the
government to protect the consumer. A much more urgent problem is to protect the consumer from the government.” In a free system, the self-interest of
people causes them to make decisions which will benefit themselves and thus, society as a whole. We believe the government usually makes the economic
system worse for society the more they try to get involved. Rigid regulation has been shown, time and again, to breed corruption and to stifle growth, just as it
has in India. We are happy to live in a country that leans heavily toward the ideals of market capitalism and hope that our nation’s citizens will use their
voices and votes to keep it that way.
2 & 3
References
(Slides 2-10)
Foreign Policy Association of New York (Producer). 2006. Great Decisions 2006 Video Series, Asian Giants: The Rise of India and China [documentary video]. New York, NY: FPA
Miles, Marc (2006). Keep pushing India toward economic freedom. Retrieved March 24, 2006, from http://www.heritage.org/Press/Commentary/ed031706b.cfm
2006 Index of Economic Freedom: India.(2006). Retrieved March 23, 2006 from http://www.heritage.org/Research/Features/Index/country.cfm?id=India
2006 Index of Economic Freedom: United States. (2006). Retrieved March 23, 2006 from http://www.heritage.org/research/features/index/country.cfm?id=Unitedstates
Alternative Economic Systems. (2006). Retrieved March 23, 2006, from http://www.mptceconomics.org/data/Alternative_economic_systems.ppt
Miller, R. (2006). Economics Moraine Park Technical College. Boston, MA: Pearson Custom Publishing.
Walker, A. (2005). India’s economy packs more punch. Retrieved March 22, 2006, from http://news.bbc.co.uk/2/hi/business/4269858.stm
Commanding Heights: India. (2006). Retrieved March 22, 2006, from link at http://www.pbs.org/wgbh/commandingheights/hi/countries/index.html
2 & 3
References Continued…
(Slides 11-21)
Asian Development Outlook 2005: II. Economic trends & prospects in developing Asia: South Asia . (2005). Retrieved from, http://www.adb.org/Documents/Books/ADO/2005/ind.asp
Brainy Quote- Milton Friedman Quotes. (2006). Retrieved March 28, 2006, from
http://www.brainyquote.com/quotes/authors/m/milton_friedman.html
Blustein, P. & Weisman, J. (2004, November 5).Dollar Falls on Fears of U.S. Deficits.Washington Post, p.E01.Retrieved March 28, 2006, from http://www.washingtonpost.com/ac2/wp-dyn/A26581-2004Nov4?language=printer
Index of Economic Freedom 2006 – India. (2006). Retrieved March 20, 2006, from
http://www.heritage.org/research/features/index/country.cfm?id=IndiaI
Index of Economic Freedom 2006 – United States. (2006). Retrieved March 27, 2006, from
http://www.heritage.org/research/features/index/country.cfm?id=Unitedstates
India’s Employment Perspective. Retrieved March 28, 2006, from
http://www.indiaonestop.com/unemployment.htm
2 & 3
References Continued…
(Slides 23-28)
Information from web article: India's water economy — World Bank prescription does not hold water by Pratap Ravindran and published by The Hindu Business Line on October 11, 2005 under the url of A:\The Hindu Business Line India's water economy — World Bank prescription does not hold water.htm
Information from article: Income Inequality on the rise in India by Michael, R and printed by United Press International,(May 7, 2004)
Information from internet article: Failure of GMOs in India by Dr.Shiva, V. and Jafri, A
a:\S-R 33 Failure of GMOs in India (Vandana Shiva and Afsar Jafri).htm obtained March 20, 2006
(Slides 29-39)
Economy of India-Government:http://wikipedia.org. Retrieved March 18, 2006
www.heritage.org Index of Economic Freedom 2006-United States. Retrieved March 20, 2006
India information is taken from www.traveldocs.com/in/economy.htm. Retrieved March 15, 2006 and www.heritiage.org/research/features/index/country.cfm?id=India. Retrieved March 19,2006
www.cipe.org/publications/fs/ert/e10/renik.htm Property Rights in a Market Economy. Retrieved March 19, 2006
www.asianinfo.org/asianinfo/india/economy/htm . Retrieved March 18, 2006
Inweb18.worldbank.org/SAR/sa.nsf/Countries/India. Retrieved March 19, 2006
www.faqs.org/docs/factbook/geos/us.html. Retrieved March 22, 2006
2 & 3
References Continued…
(Slides 11-21) Krueger, A. (2005). UN Aims To Cut Poverty in Half as Experts Wonder How to Measure It. Retrieved March 28,
2006, fromhttp://www.globalpolicy.org/socecon/develop/2005/0203measuring.htm
People of the Century. Retrieved March 27, 2006, fromhttp://www.sacbee.com/static/archive/news/projects/people_of_century/sci_biz/kroc.html
US Department of State – Bureau of South & Central Asian Affairs – Background Note: India. (2005, December). Retrieved March 20, 2006, from
http://www.state.gov/r/pa/ei/bgn/3454.htm
United States (Economy). (2005). Retrieved March 26, 2006, fromhttp://encarta.msn.com/encyclopedia_1741500821/United_States_(Economy).htm.
Walker, A. (2005, September 21).BBC News – India’s economy packs more punch. Retrieved March 21, 2006, fromhttp://new.bbc.co.uk/2/hi/business/4269858.stm
World Factbook – India. (2006, January 10). Retrieved March 21, 2006, fromhttp://www.cia.gov/cia/publications/factbook/geos/in.htm.#Econ