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Kimberly Amadeo

America Is Not Really a Free Market Economy: Why That Could Be the Jobs Solution

By August 27, 2012

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The U.S. is generally considered the world's premier free market economy. That's because the U.S. Constitution guarantees many elements that create a free market: ownership of private property, a competition market, and unregulated prices, to name just three.  However, the Constitution also allows the Federal government to step in to "promote the general welfare." This goal has led to what many call "the socialist welfare state." What many people don't consider is how command economy characteristics also pop up in national defense, industry subsidies and corporate bailouts. The U.S. is a mixed economy, and is better for it.

When people think of a command or centrally planned economy, they usually call to mind Russia, China, Cuba, North Korea, or Iran. However, most modern economies are really mixed, allowing government central planning in areas that are deemed of vital importance to the economy's growth. For example, the U.S. spends more on defense ($851 billion in FY 2013)  than any other budget area, including social welfare programs such as Social Security ($820 billion)  or Medicare ($523 billion). It allocated slightly less on government bailouts of banks ($700 billion) during the 2008 financial crisis.

Thanks to globalization, even command economies have adopted characteristics of a free market economy. That's because they are impacted by free market pricing throughout the world, and must respond in a flexible fashion.

So, the question that should be asked this election season should not be "Are we heading toward a socialist state?" We already have aspects of that, and most people enjoy being protected financially after they retire. The question should be, instead, "What are our priorities as a nation?" A command economy is great at mobilizing economic resources quickly, as the U.S. did during World War II. In fact, that's what ended the Great Depression.

Now, I'm not suggesting we start another war to boost economic growth. In fact, today's defense spending is not very effective at creating jobs, since so much is spent on technology instead. However, we should consider shifting our priorities so we can put the millions of unemployed back to work.  That means shifting defense spending (8,555 jobs/ billion) toward public works construction (19,795 jobs/billion).  This would provide the benefits of a command economy, by mobilizing quickly to solve the nation's #1 problem. Putting people quickly back to work will create the demand needed to let free market forces do the rest.

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Comments

August 27, 2012 at 6:50 pm
(1) Alton Drew says:

If we are saying that addressing an immediate short term problem (infrastructure) by hiring people to design, construct, and maintain roads, highways, bridges, broadband networks, and runways can spark aggregate demand, then I’m on board. The next issue is, what other initiatives will spur future employment short of a resurgence of the financial industry?

August 28, 2012 at 12:54 pm
(2) john coghlan says:

It seems to me (per a commenter) that it was the financial industry that got us into trouble by errant manipulations.

What we need is more manufacturing.
But – according to one statistic would be to invest in 50,000 manufactures have moved abroad
in the last ten years.

The most valuable action the gov. could take would be to invest in energy production sources that get us off oil and make foreign wars less necessary.

August 29, 2012 at 2:02 pm
(3) OnnaSinkinShip says:

The author must think the readers are clueless. Of course it’s mixed. The problem is more and more government cronyism, not priorities.

Secondly, moving money (which equates to jobs) from defense to road-building is trading one job for another.

August 29, 2012 at 2:21 pm
(4) Shawn Keenen says:

The author of this is clueless. In the midst of a war on terror, she wants to shift the emphasis away from defense to the public sector? Duh.
An oversimplification of a vastly complex issue.
By the way, the formula seems to be, Health Care is fine, the government starts Medicare; Medicare screws up the insurance industry, HealthCare still one of the best in the world, but hey, let’s really screw it up, like say, the Post Office. Yes! Remember this; if you think Healthcare is expensive now, wait till it’s “Free”.

August 29, 2012 at 2:27 pm
(5) useconomy says:

Hi OnnaSinkinShip,

I don’t think my readers are clueless at all. I hope I haven’t offended anyone. I was trying to explain how many aspects of our economy are similar to a command economy. I was more concerned about some people taking offense to that statement.

I disagree that shifting defense spending for public works is simply trading jobs. Every billion in defense spending creates half the jobs that public works spending does, according to the research.

Kimberly

August 29, 2012 at 3:58 pm
(6) Michelle Hackler says:

There is a tendency in political dog fights to banter around terms like “free market economy” without explaining what the parties using these terms means by them. The voters are supposed to just magically know what they mean by them. The Republicans are experts at this. We have real economic problems today to solve. These problems can not be solved when one sides says there will never be an increase in tax revenue. The factions of both political parties cannot get down to develop any kind of a economic policy when they will not agree on the meaning of the terminology they are using. When economic terminologies are used as a means to gain control over the government economic problems can never be solved. We are living in a world wide economy of the 21st century and as the author of the article says most all economies are mixed economies. The players in today’s involve multinational public stock corporations, regional economic blocks, as well as national economies, multinational financial institutions, as well as individual national governments, I have probably missed some of the other players in the market system. Political ideology of the players complicates the economies even more. These competing political ideologies make it almost impossible to solve any of the financial crisis in the world today.

August 30, 2012 at 11:53 am
(7) professorzed says:

I would agree with the author on this. There have been economic downturns since the days of Ancient Rome, and the one thing that has always pulled us out of the slump was repairing, maintaining, and constructing infrastructure.

Taking money from the bloated Defence budget is the most logical solution. The ‘war on terror’ is a phoney war, invented to give the military-industrial complex a reason to not only exist, but demand more money and resources. The U.S. Government are the real terrorists. It was the U.S. government who created Al Qaeda, employed Osama Bin Laden, and gave weapons to Saddam Hussein.

Now, not only Bush but also Obama are telling us ‘This war may not end in our lifetimes’. So like the phoney war on drugs, the ‘war on terror’ is something they plan on keeping going perpetually.

September 1, 2012 at 7:09 pm
(8) Jon Eric says:

I think we need a modern day Teddy RooseveltTo break up these big banks and the big corporations too.Whatever happened to our anti-trustlaws?I also feel that any company or corporation that outsources denying jobs to American workers should be denied access to the same American markets that are making them rich.
Jon Eric

September 2, 2012 at 9:43 pm
(9) Jon Eric says:

Kim,you and most republicans erroneously refer to Social Security and Medicare as social welfare programs.The definition of welfare is “financial or other aid provided by government to the poor and needy”.I had social security withheld from my paycheck from the time I was 16 until I retired at 65.Medicare was withheld from my paycheck from 1965 until I retired.That was money earned by me but entrusted to the government to be paid monthly when I reached retirement age.I and most seniors that I know resent the term welfare when referring to these two programs which were earned by a lifetime of hard work.
P.S.-I didn’t mean to infer that you are a republican because I know you try hard to remain non bias.
Jon Eric

September 7, 2012 at 8:29 pm
(10) JimBauman says:

Shawn, isn’t it funny that we have a “war on terror” now that we terrorized Iran in the early 50′s by ruining Iran’s democracy and installing (by coup) an oil puppet/religious nut. Perhaps we could start solving the terror by apologizing to Iran for ruing their democracy. Main idea though: Train/pay the 10% unemployed to manufacture and install solar panels throughout U.S. “Made in China” panels not allowed, period. My wife and I are putting 20 327Watt panels on next month, 20KW /year, enough to power the average house entirely, and an electric car. This would solve energy, and unemployment. Twofer. Road buiding, etc is not as effective now, as those paid to build roads spend money at Walmart, where all merchandise is made in China….. only further stimulates retail economy, not US manufacturing. In the ’30′s these projects further stimulated US manufacturing, since most retail was made here…. jeans, tools, cars (including components!)

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