The American Economy Mixed Market Solutions

Objectives Identify key philosophical beliefs of the American Economic system Analyze the role of the consumer in shaping public policy and private production Analyze competition for costs and benefits AZ SS C1 PO3

Father of Economics Adam Smith “Wealth of Nations” –Main point-Invisible hand of free market system guides the distribution of goods and services –Government should stay out of economics and allow competition to regluate market Advantages of efficiency Easy to Regulate Offers Wide Variety

Voluntary Exchange Smith’s “invisible hand” is now called Voluntary exchange –Goods and services move between producers and consumers based on their self interest –Only things that are damaging/dangerous to the state should be limited/prohibited –Inequity of wealth is ok

Critical Analysis Karl Marx “Das Kapital” –Main Point- Capitalism is inherently unfair, esp. to poor people. –“Alienation” from profits on products Governments should own everything Governments should distribute money “From each, according to their ability-to each according to their needs”

America’s Solution Mixed Market –Founded on Free Market System –Slowly Modified to provide a minimal “safety net” for poor, disabled, elderly –Government intervenes if key producers in trouble Buys more products Job training and unemployment

Components of a Mixed Economy Property Rights Profit Motive Consumer Sovereignty Competition Government intervention to regulate “fair play” and “equal opportunity” Rational Self Interest

Property Rights Foundational idea of US Constitution Government cannot take your land without trying to purchase it Idea carries over into many areas (personal property, intellectual property) National Association of Recording Artists Case

Profit Producers allowed to “charge what the market will bear” Profit brings Entrepreneurs into business Gov. can limit profits in time of wars Gov can prevent monopolies from forming to protect prices Microsoft Internet Explorer Case

Competition Government requires market to be open Gov. generally provides infrastructure (roads, sidewalks, dispute resolution, internet) in return for taxes Gov. ensures “fair” competition –Coca-Cola Case

Gov. Intervention US Gov. is America’s biggest –Employer –Consumer ($28,000 per second on military) –Social Services Organization –Supplier of Investment Capital –Great Depression Civilian Conservation Corps, Works Projects Organization

Rational Self Interest Tradition of Self Reliance People Know what is best for them (?) Role of Education CAVEAT EMPTOR “Buyer Beware”

TakeAway There are Many possible Economic Systems The USA is based on a Free Market with other economic ideas mixed in Consumers make their desires known to business through their purchases Consumers make their desires known to governments through voting, free speech.