|Section 5: Economic Systems|
|Microeconomics - Unit 1|
The Three Economic Systems
3. A mixed economy.
Economic Systems around the World
The United States, Canada, Sweden, England, Norway, Japan, South Korea, Holland, and Germany are examples of mixed economies. The private sector (businesses and households) plays a significant role, but so does the government, in the form of various types of government spending, taxation, regulations, price controls, and monetary policies.
During the latter part of the nineteenth century and the beginning part of the twentieth century, the United States had a laissez-faire economy. In this system, households and businesses have maximum economic freedom. There is very little government involvement, minimal regulations, and free banking. The government is only in charge of the most essential economic and political functions, such as providing defense and national security, providing a legal system, and providing public goods, such as roads, highways and other infrastructure. The government collects taxes merely to pay for these essential functions. Prices, wages, interest rates, and other economic variables are determined by the economic decisions of private businesses and households.
In 1913, the United States Federal Reserve System was created. Central banks took control of the country's monetary system. Throughout the 1920s and 1930s, labor unions, supported by government legislation, gained in influence. Regulations about worker safety, anti-discrimination and anti-trust laws grew significantly. In 1934, the Federal Deposit Insurance Corporation was formed. Social programs, such as Social Security, Unemployment Compensation, various welfare programs, minimum wage laws, and farmer support programs became indispensable. New Deal types of government spending to create jobs, such as the Tennessee Valley Authority project, became commonplace. To fund these expenses and to pay for the growing number of government employees, taxes on individuals and businesses increased considerably.
Today's economy is truly a mixed economy. Significant government involvement accompanies a strong private sector. What the ideal mix is of these components is the topic of many controversial debates.
|Last Updated on Sunday, 30 December 2012 09:28|