Transcript American Free Enterprise

American Free
Enterprise
The Benefits of Free
Enterprise
A Tradition of Free Enterprise
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“ Land of opportunity”
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Equality of opportunity
Keys to America’s economic success:
Land, resources, human capital (immigrants)
 Free enterprise – social and political freedom to
pursue economic self-interests
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Constitutional Protections
The Bill of Rights
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Property rights
5th and 14th Amendments
 5th - Due process clause
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Applies to actions of federal government
14th – Applied Due process clause to state
governments.
Constitutional Protections
Taxation
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Article I – gives Congress power to levy taxes
Sections 2 and 9 - must be apportioned according to
population equally
 16th Amendment (1913) – Congress given clear right
to set taxes based upon income
 Section 10 (Article I) – Obligation of Contracts
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No laws can be passed changing the terms of someone’s
business agreement
Basic Principles
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Profit Motive – the force that encourages people
and organizations to improve their material wellbeing
Business make their own choices
 Forces management to exercise financial discipline
 Rewards innovation
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Basic Principles
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Open Opportunity – everyone can compete in
the marketplace.
Economic mobility – up or down
 Based on how well you do
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Basic Principles
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Economic Rights
Legal equality
 Private property rights
 Free contract
 Voluntary exchange
 Competition
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Role of the Consumer
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Consumers are free to make their own economic
choices
Make their desires known through their
purchases
Can work with interest groups which seek to
influence public officials to act or vote favorably
to their group – taxation, land use, farmers, etc.
Role of Government
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Protect rights spelled out in Constitution
Protect us from problems that affect us all
(pollution, unsafe foods, etc)
Ensure that producers provide consumers with
information – examples?
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Public disclosure laws
Role of Government
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Protect health, safety, and well-being of citizens
Restrictions / regulations -- Examples?
 Matters of public interest -- Examples?
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Consumer protection
Role of Government
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Negative affects of Regulation
Bigger government – increased government
spending
 Costly for businesses to implement – cuts into
profits
 Stifles competition resulting in higher prices
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American Free
Enterprise
Promoting Growth and
Stability
Tracking Business Cycles
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American Economy is
 108
HUGE!!!!!
million households
 288 million people
 137 million jobs
 Earning $8 trillion a year
 $28 billion saved in 71,000 banks
 6.5 million homes / 17 million cars annually
Tracking Business Cycles
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Looking at Macroeconomic trends.
Macroeconomics – the study of the behavior and
decision making of entire economies
 Microeconomics – the study of the economic
behavior and decision making of small units such as
individuals, families, and businesses
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Tracking Business Cycles
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Measuring economic well-being:
Gross Domestic Product (GDP) – the total value of
all final goods and services produced in an economy
 GDP is used to help predict business cycles
 Business Cycle – A period of macroeconomic
expansion followed by a period of contraction or
decline
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Tracking Business Cycles
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Free Enterprise systems are susceptible to cycles
Economic decisions are made by individuals
 Businesses act in their own self-interests
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Government attempts to prevent wild swings
Business cycles affect our lives
Promoting Economic Strength
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Government seeks to keep economy stable
through policies that promote
High employment
 Steady growth
 Stable prices
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Technology and Productivity
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Maintaining our high standard of living
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Increase productivity – How?
American work ethic – a commitment to the value of
work and purposeful activity
 Improved technology – the process used to produce a
good or service
 Inventions and patents
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American Free
Enterprise
Providing Public Goods
Public Goods
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Public Goods: a shared good or service for
which it would be inefficient or impractical:
1) to make consumers pay individually and
2) to exclude nonpayors
A number of consumers can use them without
reducing the benefits to any single consumer
Costs and Benefits
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When a good or service is public:
1) the benefit to each individual is less than the
cost that each would have to pay if it were
provided privately, and
2) the total benefits to society are greater than
the total cost
Costs and Benefits
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Public goods are financed by the public sector
The private sector has little incentive to
produce public goods
Free riders consume what they do not pay for
Market Failures
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Market failures are situations in which the
market, on its own, does not distribute resources
efficiently
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Free riders are examples of market failure
Externalities
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An externality is an economic side effect of a
good or service that generates benefits or costs
to someone other than the person deciding how
much to produce or consume
Positive externalities – beneficial side effects
Negative externalities – unintended costs
Government aims to encourage positive
externalities and limit negative externalities
American Free
Enterprise
Providing a Safety Net
The Poverty Problem
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Free markets generate wealth but it’s spread
unevenly through society
Some live below the poverty threshold
See Overhead
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The Welfare System
Redistribution Programs
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Cash transfers – direct payments of money to
poor, disabled, and retired
TANF – Temporary Assistance for Needy Families
 Social Security
 Unemployment insurance
 Worker’s compensation
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Redistribution Programs
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In-kind benefits – food stamps, subsidized
housing, legal aid
Medical benefits – Medicare and Medicaid
Education
Faith-based initiatives – religious organizations
compete for federal funds to deliver social
services