Tuesday, July 21, 2009

Is the United States a free market economy?

With all the bailouts and bankruptcies, recovery plans, and speculation on what is best for our 'free markets' you will hear a lot of people claim that we are about to lose our free-market economy, or that we are adopting socialism, etc.  These comments should beg the question of if the economy here in the United States is indeed a free-market economy or not.  I have been in a number of these conversations, and I would offer this posting as a means to bring a common language for any future discussions on the matter.

Let's get a working description of what REAL capitalism is:
"Today, the economies of nations that are typically referred to as capitalist are in fact mixed economies -- they incorporate certain aspects of capitalism and certain aspects of planed economies. In pure capitalism, things like child labor laws, Social Security, anti-discriminatory hiring practices and minimum wage have no place. Capitalism rejects all government intervention in economic matters."

-- How Stuff Works - "How Capitalism Works"

Most people appreciate some regulation, if not actually a great deal of regulation.  Take into consideration the actions of AIG.  If we really were a free-market economy where capitalism was the only thing to be considered...then we should have zero issue with what occurred.  But the fact is that we do have a problem with it, and we are not a purely capitalist economy.  We are a "managed economy" where we generally follow the philosophy of capitalism we also have aspects of planned (or Marxist) economics mixed in as well.
"In times of financial crisis, the United States has customarily turned to capitalism's antithesis -- socialism -- to artificially correct the markets. The very existence of the Securities and Exchange Commission (SEC) alone indicates the U.S. economy isn't a free market. For the first 116 years after it was established in 1817, the New York Stock Exchange operated without government regulation. Following the crash on Oct. 24, 1929, the federal government held hearings that revealed the types of fraud corporations used to mislead and swindle investors. These hearings led to unprecedented government oversight of the stock market. For one, corporations now had to file earnings reports with the newly formed SEC, which had the ability to audit these companies."

-- How Stuff Works - "Is a free market 'free' if it's regulated?"

So, give a listen to the Stuff You Should Know podcast listed here for the answer to this question:

http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?i=43266604&id=278981407

Is a free market "free" if it's regulated?
http://money.howstuffworks.com/free-market-economy.htm

How Capitalism Works
http://money.howstuffworks.com/capitalism1.htm

Who Said It:  Adam Smith or Karl Marx?
http://money.howstuffworks.com/adam-smith-karl-marx-quiz.htm