Obama's Economic System
Saturday, May 9, 2009
Pure Capitalism
There is private ownership of all resources and the coordination activity based on the price of all resources and the coordination of economic activity based on the price signals generated in free, unrestricted markets. Any income derived from the use of land, labor, capital, or entrepreneurial ability goes exclusively to the individual owners of those resources.
Owners have property rights to the use of their resources and are therefore free to sell those resources to the highest bidder. Producers are free to make and sell whatever output they think will be profitable. Consumers are free to buy whatever goods they can afford. All this voluntary buying and selling is coordinated by unrestricted markets, where buyers and sellers make their wishes known. Markets prices guide resources to their highest-valued use and direct goods and services to consumers who value them most.
According to Adam Smith (1723-1970), one of the first to explain the allocative role of markets, market forces coordinate as if by an “invisible hand” – an unseen force that harness the pursuit of self-interest to direct resources where they earn the greatest payoff. According to him, although each individual pursues his/her self-interest, the invisible hand promotes the general welfare.
Pure capitalism is sometimes called laissez-faire (“to let do” without government intervention) capitalism, where voluntary choices based on self interest are made on unrestricted markets to answer the question what, how and for whom.
Most Notable Flaws of Pure Capitalism
There is no central authority that can protect rights, enforce contracts, and otherwise ensure that the rules of the game are followed.
People with no resources to sell may starve.
Producers may try to monopolize markets by eliminating the competition.
So called public goods, such and national defense, will not be produced by private firms because private firms cannot prevent those who fail to pay from enjoying the benefits of public goods.
Command Economy
Resources are directed and production is coordinated based on the command or central plan, of government rather than by markets. Government planners, as representatives of all the people, determine, for example, how much steel, how many cars, how many homes, and ho many loaves of bread to produce. They also determine how to produce these goods and how to allocate the.
Most notable Flaws of Command Economy
Running an economy is so complicated that some resources are used inefficiently
Since nobody in particular owns resources, people have less incentive to employ them in their highest valued use.
Central plans may reflect more the preferences of central planners than those of society.
Each individual has less personal freedom in making economic choices.
Mixed and Traditional Economics
No country on earth exemplifies either type of economic system in its pure form. Economic system have been growing more alike over time with the role of government increasing in capitalist economies and the role of markets increasing in command economies.
The United States represents a mixed capitalist economy, with government directly accounting for about one third of all economic activity. The government regulates the private sector in q variety of ways. Most other advanced industrial nations, such as Germany, Japan, Great Britain, and Canada, also have mixed capitalist economies.
Countries with command economies are currently introducing more markets incentives. For example, about 20% of the world’s population lives in the People’s Republic of China which grows more decentralized, or markets oriented each year. The former Soviet Union has dissolved into 15 independent republics, and most of these are trying to privatize what had been state-owned enterprises to turn production decision over to market forces.
Economics Based on Custom or Religion
Some economic systems are shaped largely by custom or religion. For example, laws of the Muslim religion limit the rate of interest than can be earned on certain investment. Caste System in India and elsewhere restrict occupation choice. More generally, religion, custom and family relations play important roles in organizing and coordinating economic activity. Your own pattern of consumption and choices of occupation maybe influenced by some of these factors.
