Economic systems

All countries and economies must decide: WHAT to produce For WHOM to produce HOW should they be produced and by WHOM?

Economic Systems Capitalism = Capital City Socialism Communism = Equality City Social Democracy (mixed economy) = Regulation City Traditional economies = Community City

“Capital City” VALUES: Profit Private property/private ownership economic freedom/ market economy economic growth Individual opportunity over economic equality and economic security Personal responsibility Business over labor (workers) Only some government regulation

Definition of Capitalism Economic system in which private citizens own most of the factors of production (land, labor, capital) in order to make a PROFIT. The signal that controls capitalism is the PRICE signal. Important people: Adam Smith, Milton Friedman, Maynard Keynes

An economic “market” is not Ralph’s- it is much bigger WORLD OIL MARKET JAPAN’S TELECOMMUNICATIONS MARKET

The “story” of capitalism: Resources are scarce and so must be allocated efficiently. This means using price as a signal. CONCEPT OF SCARCITY

The history of capitalism Once upon a time, we were artisans and craftspeople working out of our homes and our work was meaningful to us. Then Industrialization mechanized work and we became wage workers

Many choices…and contrasts

How low can we go? Whose making all that cheap stuff and how much are they getting paid?

Is “free” trade really free? NAFTA = North American Free Trade Agreement between US, Mexico and Canada. Removed many tariffs and restrictions on trade. Nike factory in China: An American company gets American tax breaks to NOT employ American workers.

Breaking down the GDP

Capital City worships GDP= value of all goods and services produced in a country

GDP and GNP GDP (Gross Domestic Product) = value of all goods and services produced in the legal economy that are taxed. GNP (Gross National Product) = dollar value of all the final goods and services purchased by the nation’s consumers, government and investors. NOTE: Neither of these are direct quality of life indicators or tell you what social class is benefiting or quantify government waste.

GNP “logic”: McDonald’s makes sales, GNP goes up = good Obesity rises = weight loss clinics make money, GNP rises = good GDP/GNP have no way to subtract for negative effects that cost society in other ways = externalities = + or – effects on third parties not involved in economic transaction

Quality of Life not measured by GDP Let’s complete the Ten Chairs lesson

Capitalism Quiz 1) 10% of the population controls _______% of the wealth. 2 – 5): List one characteristic of capitalism for items 2-5)

Allocation in a market economy: What do we value and why? THE FARMER’S WIFE Identify as many positive and negative aspects of capitalism as you can

Equality City NO private ownership Government plans economy + sets prices Redistribution of wealth Glorification of workers Workers are “comrades” Cult of Personality Communism tends toward dictatorship, surveillance, secret police and inefficient allocation of resources- there are no markets or price signals, only government production.

Planning Ministries decide what goods are produced, not consumers GOSPLAN

Equality City: Cult of Personality MAO- former Communist leader of China

Equality City’s view of Capital City

Communism in documentary and drama The Red Violin

The Berlin Wall

1961: A Soldier who is supposed to guard the wall instead escapes!

The End of Communism….the wall falls!

Regulation City: Mixed Economies of Europe: Social Democracy Quality of life over individual wealth Working to live instead of living to work taxes/ benefits More government ownership/regulation Universal single payer health care –may be rationed SWEDISH PARENT SPENDING MORE TIME WITH FAMILY DUE TO FLEX -TIME

High taxes, more benefits

Benefits

Drawbacks High taxes, less take home pay Lack of convenience- everything closed on Sundays, government offices may close early with no notice Higher unemployment

Community City: Doing things the way your parents did them, the traditional way Indigenous people engage in traditional economies Produce own products to use and trade Much of life is spent taking care of survival needs often agriculturally –based: hunting, farming barter /trade systems Exist in agricultural parts of South America, Africa and Asia

Example of a traditional economy The Khanty of Western Siberia

Little Diomede Island Off coast of Alaska