1. Mixed Economies

2. Mixed Economies
Most economies today have a combination of both market and command economies.
Every economic system has its own problems in addressing the three basic questions (mixed economies included).
Traditional economies have little room for growth or change
Command economies stifle innovation, do not meet consumer needs and severely limit freedom
At this point in history, most countries that have an economy with a lot of command elements are predominantly market economies. Otherwise, it doesn’t tend to work really well (Venezuela)

3. Free Market Economies
Early free market thinkers believed that if left alone, the market would provide the greatest benefit of people living under the system and increase their standard of living.
They were correct. More people have been lifted out of poverty in the past years than in all of human history.
Laissez Faire- Little to no government interference in the market
Especially since the beginning of the 20th century, the level of government intervention in the economy has increased dramatically and there are a few reasons for this.

4. U.S. Government Intervention
Government will supply some needs in order to achieve different economic goals:
Public schools vs. private schools.
Protecting private property rights
Intellectual property
Consumer protection
Redistribution of income
Social Security, welfare, etc…
Requirement to purchase health insurance from private businesses
The list continues…
How well could a free market fulfill the needs of a modern society such as a national defense or a national highway system?
Governments today also play a role in the economy by protecting property rights. For instance, the 5th and 14th amendments to the US constitution declare that no person may be deprived of L,L,P, w/o due process of law. These amendments protect private property, or property owned by individuals or companies and not by the government or the people as a whole. The government also protects private property with laws that give individuals control over intellectual property such as books, songs, or movies they have created. Private property is a fundamental human right and element of the American economic system.
Govs try to make sure that exchanges in the market place are fair. For instance, laws require businesses to give honest info to consumers and block firms from joining together to prevent competition and fixed prices.
Finally, people’s preferences for redistribution of income have changed. Some gov’ts tax individuals and businesses to fund pension payments for individuals who are retired workers, those who cannot work, because of disabilities, and others.

5. Government vs. Freedom
A mixed economy is an economic system that has some market-based elements and some government involvement.
Every society must assess its values and prioritize its economic goals. Some goals are better met with the market and others through government.
Societies must evaluate the opportunity cost of pursuing each goal.
What are you willing to give up? Are you willing to pay taxes to fund an army? To give money to the unemployed? To give all people an education? Questions like these can cause heated debate.
No nation today has a pure free market or command economy. Most economies are mixed. A mixed economy is an economic system that has some market-based elements and some government involvement. The degree of government involvement varies from nation to nation.

6. Circular Flow Model of a Mixed Economy
To illustrate how most economies work today, we need to add government to the circular flow model.
Just like in an anarcho-capitalist economic system, firms purchase land, labor and capital from individuals/households in the factor market. The same is true for governments. For example, the gov pays nearly 3 million employees over $150 billion/year for their labor. State and local governments also pay people for their labor (police, teachers, firefighters, etc…).
Like households, governments purchase goods and services from firms in the product market. Gov’t offices may buy telephones, computers, etc… in order to run. Printing money requires many tons of paper, cotton and gallons of ink. Governments buy services like consulting or waste removal. The vast majority of these purchases are made from private firms.
Governments collect taxes from both households and businesses, then they will transfer some of this money to individuals and businesses for a variety of reasons, such as providing funds to save a failing industry or making payments to disabled workers. In recent years, the U.S. gov has paid out over a trillion dollars in Social Security and Medicare benefits each year.
What effect do government actions have on the product market?

8. Selected Governemnt Transfer Payments, 2009
Program
Amount Transferred
Social Security
$664 Billion
Medicare
$500 Billion
Unemployment Insurance Payments
$130 Billion
Federal Education and Training Assistance Payments
$57 Billion
Food Stamps
$55 Billion
Veteran’s Benefits
$51 Billion
Government transfers some of the money it collects to people and businesses. Which part of the circular flow model of a mixed economy does this table represent?

10. Mixed Economies Today
Economic Transition- a period in which a nation moved from one economic system to another.
Privatization means selling enterprises operated by the government to individuals, then allowing them to compete in the marketplace.
Most modern economies are mixed economies. Governments are involved to some degree, but some are much more heavily involved than others. You can see some of the differences that shows the range of some countries between command and market economies.
North Korea represents one extreme of the continuum. Like the former Soviet Union, communist NK has an economy almost totally dominated by the government. The government owns all property and all economic output. State-owned industries produce 95% of NK good’s. Imports are almost totally banned and production by foreign companies is forbidden by their government.
In China, government dominated the economy for decades, but more recently, Chinese leaders have loosened their control of the economy, allowing more private ownership of farms and businesses. They have also become more willing to permit foreign firms to invest and operate in China. As a result, China’s place on the continuum is further to the center than NK’s for example. An economic transition is a period where a nation shifts from one economic system to another. In China, the transition involves privatizing state-owned firms. Privatization means selling enterprises operated by the government to individuals, and then allowing them to compete in the marketplace. Economic transitions can be a long, and difficult process.
At the far right of the continuum are Singapore and Hong Kong. Singapore has one of the world’s freest markets. The government of the small nation encourages foreign trade and investments while imposing few regulations or taxes on commercial activity. This has resulted in strong economic growth and a high standard of living for people in recent history.
Hong Kong is another economic powerhouse we’ve seen in class already. Peace, easy taxes, and a tolerable administration of justice has led Hong Kong to be one of the most prosperous places on earth. After the end of United Kingdom administration of Hong Kong, they later became a special administrative region of China, with an agreement that the Chinese government allow the free market to be free as before Chinese rule. Unfortunately in more recent years, the Chinese government has begun to overtake the judicial system in Hong Kong, leading to an erosion of some of their political and economic freedoms. Overall at this point, however, the market in Hong Kong remains predominantly free and prosperous.

11. The Economy of the U.S. Free Market with some government control
More government?
Less government?
The government of the US plays a substantial role in the American economy. The us government keeps order, provides services, and promotes the general welfare. Federal and state laws protect private property. The marketplace operates with a limited degree of government regulation and some limits government places on business use of private property. For instances, local laws may allow businesses to operate only in certain areas and not in a residential area. A company planning to shut down a facility may not freely do so if it has 100 or more employees. Federal law requires such a firm to give employees sixty days warning if that shut down will result in job loss.
Some Americans argue that there is a need for more government services and stricter regulation of businesses. They want greater regulation of employment practices to protect workers or of business processes to protect consumers or the environment. Many others, however, say that the government intervenes too much in the economy. They call for relaxation of existing regulation, arguing that the government rules drive up the operating and administrative costs of businesses, making them less efficient and less competitive.

12. Households and businesses in the united states enjoy a high level of economic freedom – with a few limits. Individuals can choose what kind of work they want to do and where they want to live. Entrepreneurs have the freedom to launch and expand business. Both new and existing businesses have the ability to engage in whatever business they want and operate where they want. Though oversight of the banking industry hanged somewhat after the 2008 financial crisis, the industry still operates under relatively few restrictions compared to most other nations.
The US economy is open as well. Foreign investment is encouraged. So, to, is free trade, although the government does protect some domestic industries and does retaliate against foreign trade restrictions imposed by other nations. Foreign owned banks have few restrictions in addition to those on domestic banks.

13. Questions What are the characteristics of a mixed economy?
How does the US government protect private property?
What are the potential benefits of moving from a command economy to a market based system?
What is an example of a government limit on the use of business property?
Why is privatization not needed in a free market economy?