Wikipedia defines Economics as: The social science that analyzes the production, distribution, and consumption of goods and services.
There are basically 2 ways for an economy to run.
1. An economy can be a free exchange of those goods and services, or
2. An economy can be coordinated and enforced by "smart" people (social planners)
The United States of America was founded using structure #1. #1 is most often referred to as a "free market" economy and has two specific advantages. First, a free market gives the citizens the most liberty. For those of you who think liberty is important, and people should be able to trade their goods or services at their own will to receive the goods and services that they want or need, a free market is for you. The second advantage of a free market is that it is most efficient. People will make perfectly fair trades all day long. See The Wealth of Nations by Adam Smith (1776)
The Soviet Union under Joseph Stalin utilized structure #2. The advantage of a social planning structure is that goods are allocated fairly or at least a fair allocation is attempted. Social planners believe it is morally wrong for productive people to receive food for their labors while unproductive people starve. So they decide which goods are produced, how much, and who gets them. See The Communist Manifesto by Karl Marx and Friedrich Engels (1848) and Wikipedia - Soviet Union
If you discovered an island and wanted to start your own country, which system would you choose? Would you take away people's liberty to ensure everyone is fed? If so, think of the incentives that might create for people to become lazy. Why would people produce if they are guaranteed the same goods as a producer without doing anything? Or would you choose a free market, where everyone is free to produce and consume at will, but the unproductive or lazy citizens are either fed by charity, or they die?
There are basically 2 ways for an economy to run.
1. An economy can be a free exchange of those goods and services, or
2. An economy can be coordinated and enforced by "smart" people (social planners)
The United States of America was founded using structure #1. #1 is most often referred to as a "free market" economy and has two specific advantages. First, a free market gives the citizens the most liberty. For those of you who think liberty is important, and people should be able to trade their goods or services at their own will to receive the goods and services that they want or need, a free market is for you. The second advantage of a free market is that it is most efficient. People will make perfectly fair trades all day long. See The Wealth of Nations by Adam Smith (1776)
The Soviet Union under Joseph Stalin utilized structure #2. The advantage of a social planning structure is that goods are allocated fairly or at least a fair allocation is attempted. Social planners believe it is morally wrong for productive people to receive food for their labors while unproductive people starve. So they decide which goods are produced, how much, and who gets them. See The Communist Manifesto by Karl Marx and Friedrich Engels (1848) and Wikipedia - Soviet Union
If you discovered an island and wanted to start your own country, which system would you choose? Would you take away people's liberty to ensure everyone is fed? If so, think of the incentives that might create for people to become lazy. Why would people produce if they are guaranteed the same goods as a producer without doing anything? Or would you choose a free market, where everyone is free to produce and consume at will, but the unproductive or lazy citizens are either fed by charity, or they die?
If it were a paradisiacal island where relatively unlimited amounts of food grew on trees and other resources were readily available, I'd DEFINITELY choose social planning.
ReplyDeleteI would choose to function as a mixed economy similar to how Norway carries itself, the best of both worlds. I don't think it is necessary to follow one or the other.
ReplyDeleteDave C
I'd be interested in hearing which elements from each world you'd implement.
DeleteI've done some studying. What I like about Norway is that they embrace oil-drilling and petroleum industry. 30% of their revenues come from petroleum and oil and gas exports constitute 20% of their GDP. The part I don't really like is that those industries are owned by the government, thus the government owns a huge chunk of the economy and the income. This creates a lot of money for handouts which creates an incentive that is not fair to the citizens. 22% are on welfare and 13% are "too disabled to work", the highest proportions in the world. If handouts were just free money, that would be great! But as their numbers prove, those handouts make 35% of their people very dependent on government, which isn't healthy or moral (in my opinion).
DeleteI think for now a free economy is the best set up currently available to us, but some arrangement needs to be made for those who are not lazy, but are nonetheless unable to produce due to disability. There are plenty of lazies and addicts out there and I have no problem allowing them to suffer the consequences of their choices, but there are also people out there who are seriously disabled and they have no healthy family support system to care for them for one reason or another and there needs to be a way to care for this group of people...
ReplyDeleteThis comment has been removed by the author.
DeleteGreat point Libby. I agree that there needs to be an arrangement to take care of these people. The question is, what kind of arrangement? A free market/libertarian society would give the duty of taking care of the unproductive (including the disabled) citizens through family, friends, neighbors, church, community, private charities, and then to the local government. By charging states with this duty instead of the federal government, there is still competition between states. In other words, all 50 states would come up with different ways to take care of these people - the people would flock to the state with the best system - then other states would mirror the best programs. This kind of system allows freedom and efficiency to flourish. When the federal program takes on this duty, the first thing that happens is freedom is taken away. Every citizen in the country has to pay taxes to pay for a program thought up by one group of bureaucrats (which bureaucrats also have to be paid by those taxes). Also, since the federal government is so far removed from smaller communities, they come up with inefficient solutions (for example, do you know anyone who receives disability but is not disabled? The federal government can't control where the money ends up). I feel like the biggest problem with allowing the federal government to develop charitable programs is that it takes away our personal responsibility to take care of the poor and needy.
Deletefree market is the way to go!
ReplyDeleteYou listed some great classics and another came to my mind. Have you read any Frederic Bastiat? My favorite economist. I particularly recommend "What is seen and what is not seen." It's a short article that you can get in PDF format here:
ReplyDeletehttp://www.fee.org/pdf/the-freeman/bastiat0601.pdf
seriously has impacted my thinking regarding and beyond economics as it has applications in personal and business relationship, government intrusion, etc.