American Free Enterprise. The Benefits of Free Enterprise

American Free American Free EnterpriseEnterprise

The Benefits of Free The Benefits of Free EnterpriseEnterprise

A Tradition of Free A Tradition of Free EnterpriseEnterprise

“ “ Land of opportunity”Land of opportunity” Equality of opportunityEquality of opportunity

Keys to America’s economic success:Keys to America’s economic success: Land, resources, human capital Land, resources, human capital

(immigrants)(immigrants) Free enterprise – social and political Free enterprise – social and political

freedom to pursue economic self-freedom to pursue economic self-interestsinterests

Constitutional ProtectionsConstitutional ProtectionsThe Bill of RightsThe Bill of Rights

Property rights Property rights 55thth and 14 and 14thth Amendments Amendments 55thth - Due process clause - Due process clause

Applies to actions of federal governmentApplies to actions of federal government 1414thth – Applied Due process clause to – Applied Due process clause to

state governments.state governments.

Constitutional ProtectionsConstitutional ProtectionsTaxationTaxation

Article I – gives Congress power to Article I – gives Congress power to levy taxeslevy taxes Sections 2 and 9 - must be apportioned Sections 2 and 9 - must be apportioned

according to population equallyaccording to population equally 1616thth Amendment (1913) – Congress given Amendment (1913) – Congress given

clear right to set taxes based upon incomeclear right to set taxes based upon income Section 10 (Article I) – Obligation of Section 10 (Article I) – Obligation of

ContractsContracts No laws can be passed changing the terms of No laws can be passed changing the terms of

someone’s business agreementsomeone’s business agreement

Basic PrinciplesBasic Principles

Profit Motive – the force that Profit Motive – the force that encourages people and encourages people and organizations to improve their organizations to improve their material well-beingmaterial well-being Business make their own choicesBusiness make their own choices Forces management to exercise Forces management to exercise

financial disciplinefinancial discipline Rewards innovationRewards innovation


Open Opportunity – everyone can Open Opportunity – everyone can compete in the marketplace.compete in the marketplace. Economic mobility – up or downEconomic mobility – up or down Based on how well you doBased on how well you do


Economic RightsEconomic Rights Legal equalityLegal equality Private property rightsPrivate property rights Free contractFree contract Voluntary exchangeVoluntary exchange CompetitionCompetition

Role of the ConsumerRole of the Consumer

Consumers are free to make their Consumers are free to make their own economic choicesown economic choices

Make their desires known through Make their desires known through their purchasestheir purchases

Can work with Can work with interest groupsinterest groups which which seek to influence public officials to seek to influence public officials to act or vote favorably to their group – act or vote favorably to their group – taxation, land use, farmers, etc.taxation, land use, farmers, etc.

Role of GovernmentRole of Government

Protect rights spelled out in Protect rights spelled out in ConstitutionConstitution

Protect us from problems that affect Protect us from problems that affect us all (pollution, unsafe foods, etc)us all (pollution, unsafe foods, etc)

Ensure that producers provide Ensure that producers provide consumers with information – consumers with information – examples?examples? Public disclosure lawsPublic disclosure laws


Protect health, safety, and well-Protect health, safety, and well-being of citizensbeing of citizens Restrictions / regulations -- Examples?Restrictions / regulations -- Examples? Matters of public interest -- Examples?Matters of public interest -- Examples?

Consumer protectionConsumer protection


Negative affects of RegulationNegative affects of Regulation Bigger government – increased Bigger government – increased

government spendinggovernment spending Costly for businesses to implement – Costly for businesses to implement –

cuts into profitscuts into profits Stifles competition resulting in higher Stifles competition resulting in higher

pricesprices


Promoting Growth and Promoting Growth and StabilityStability

Tracking Business CyclesTracking Business Cycles

American Economy is American Economy is HUGE!!!!!HUGE!!!!! 108 million households108 million households 288 million people288 million people 137 million jobs137 million jobs Earning $8 trillion a yearEarning $8 trillion a year $28 billion saved in 71,000 banks$28 billion saved in 71,000 banks 6.5 million homes / 17 million cars 6.5 million homes / 17 million cars

annually annually


Looking at Macroeconomic trends.Looking at Macroeconomic trends.

Macroeconomics – the study of the behavior Macroeconomics – the study of the behavior and decision making of entire economiesand decision making of entire economies

Microeconomics – the study of the Microeconomics – the study of the economic behavior and decision making of economic behavior and decision making of small units such as individuals, families, small units such as individuals, families, and businessesand businesses


Measuring economic well-being:Measuring economic well-being: Gross Domestic Product (GDP) – the Gross Domestic Product (GDP) – the

total value of all final goods and total value of all final goods and services produced in an economyservices produced in an economy

GDP is used to help predict GDP is used to help predict business business cyclescycles

Business Cycle – A period of Business Cycle – A period of macroeconomic expansion followed by a macroeconomic expansion followed by a period of contraction or declineperiod of contraction or decline


Free Enterprise systems are Free Enterprise systems are susceptible to cyclessusceptible to cycles Economic decisions are made by Economic decisions are made by

individualsindividuals Businesses act in their own self-Businesses act in their own self-

interestsinterests Government attempts to prevent Government attempts to prevent

wild swingswild swings Business cycles affect our livesBusiness cycles affect our lives

Promoting Economic Promoting Economic StrengthStrength

Government seeks to keep economy Government seeks to keep economy stable through policies that promotestable through policies that promote High employmentHigh employment Steady growthSteady growth Stable pricesStable prices

Technology and Technology and ProductivityProductivity

Maintaining our high standard of Maintaining our high standard of livingliving Increase productivity – How?Increase productivity – How?

American work ethic – a commitment to the American work ethic – a commitment to the value of work and purposeful activityvalue of work and purposeful activity

Improved technology – the process used to Improved technology – the process used to produce a good or serviceproduce a good or service

Inventions and patentsInventions and patents


Providing Public GoodsProviding Public Goods

Public GoodsPublic Goods

Public Goods: a shared good or service for Public Goods: a shared good or service for which it would be inefficient or which it would be inefficient or impractical:impractical:

1) to make consumers pay individually 1) to make consumers pay individually andand

2) to exclude nonpayors2) to exclude nonpayors

A number of consumers can use them A number of consumers can use them without reducing the benefits to any single without reducing the benefits to any single consumerconsumer

Costs and BenefitsCosts and Benefits

When a good or service is public:When a good or service is public:

1) 1) the benefit to each the benefit to each individual is less than the individual is less than the cost cost that each would have to pay if it that each would have to pay if it were were provided privately, andprovided privately, and

2)2) the total benefits to society are the total benefits to society are greater than greater than the total costthe total cost

Costs and BenefitsCosts and Benefits

Public goods are financed by the Public goods are financed by the public sectorpublic sector

The The private sectorprivate sector has little has little incentive to produce public goodsincentive to produce public goods

Free ridersFree riders consume what they do consume what they do not pay fornot pay for

Market FailuresMarket Failures

Market failuresMarket failures are situations in are situations in which the market, on its own, does which the market, on its own, does not distribute resources efficientlynot distribute resources efficiently

Free riders Free riders are examples of are examples of market market failurefailure

ExternalitiesExternalities An An externality externality is an economic side effect of a is an economic side effect of a

good or service that generates benefits or good or service that generates benefits or costs to someone other than the person costs to someone other than the person deciding how much to produce or consumedeciding how much to produce or consume

Positive externalitiesPositive externalities – beneficial side – beneficial side effectseffects

Negative externalities Negative externalities – unintended costs– unintended costs Government aims to encourage positive Government aims to encourage positive

externalities and limit negative externalitiesexternalities and limit negative externalities


Providing a Safety NetProviding a Safety Net

The Poverty ProblemThe Poverty Problem

Free markets generate wealth but Free markets generate wealth but it’s spread unevenly through societyit’s spread unevenly through society

Some live below the Some live below the poverty poverty thresholdthresholdSee OverheadSee Overhead

The Welfare SystemThe Welfare System

Redistribution ProgramsRedistribution Programs

Cash transfers – direct payments of Cash transfers – direct payments of money to poor, disabled, and retiredmoney to poor, disabled, and retired TANF – Temporary Assistance for TANF – Temporary Assistance for

Needy FamiliesNeedy Families Social SecuritySocial Security Unemployment insuranceUnemployment insurance Worker’s compensationWorker’s compensation

Redistribution ProgramsRedistribution Programs

In-kind benefits – food stamps, In-kind benefits – food stamps, subsidized housing, legal aidsubsidized housing, legal aid

Medical benefits – Medicare and Medical benefits – Medicare and MedicaidMedicaid

EducationEducation Faith-based initiatives – religious Faith-based initiatives – religious

organizations compete for federal organizations compete for federal funds to deliver social servicesfunds to deliver social services

Documents

American Free Enterprise. The Benefits of Free Enterprise