United States
Comparing Alternative Economic Systems
1
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
4
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.
2.
3.
What will be produced?
How will it be produced?
For whom will it be produced?
5
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)
5
Important Aspects of the United
States Economy
6
Attributes of United States
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)
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)
6
Similarities

U.S.
7
Differences

U.S.
7
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
8
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)
8
Real World Examples of
Economic Strength

U.S.
9
Real World Examples of
Economic Weakness

U.S.
9
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.
10
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
10
Effects of Income Inequality
In a U.N. study of 124 countries,
the U.S. ranked 92nd for
equal income distribution
11
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”.
12
Government Addresses Externalities
Negative
Positive
Water 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
Air Quality Controls
 US have Border Air Controlling
Policies
Flu Shots
 Chicken pox, (childhood
immunization shots)
Teaching children to save energy and
recycle in schools
12
Economic Functions of Government





Creates and Enforces Legal Structure
Promotes Competition
Corrects Externalities
Provides Public Goods
Promotes Economic Stability
13
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
13a
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
13b
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
13c
Economic Functions of
Government-Public Goods
United States:
 National and domestic security/defense
 Interstate and State Highways
 Health programs
 Public education
13d
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
13e
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
13e
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
13e
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
13e
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
13e
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.
16
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 antidiscrimination 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.
16
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/A265812004Nov4?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, from
http://www.globalpolicy.org/socecon/develop/2005/0203measuring.htm
People of the Century. Retrieved March 27, 2006, from
http://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, from
http://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, from
http://new.bbc.co.uk/2/hi/business/4269858.stm
World Factbook – India. (2006, January 10). Retrieved March 21, 2006, from
http://www.cia.gov/cia/publications/factbook/geos/in.htm.#Econ
2&3