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United States

Comparing Alternative Economic Systems

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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

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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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Important Aspects of the United States Economy

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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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Similarities

U.S.

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Differences

U.S.

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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

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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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Real World Examples of Economic Strength

U.S.

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Real World Examples of Economic Weakness

U.S.

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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

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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”.

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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

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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

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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

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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

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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

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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.

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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