American Free Enterprise Section One Benefits of Free
American Free Enterprise
Section One Benefits of Free Enterprise
A Tradition of Free Enterprise: • Since its beginnings America is “a land of opportunity”. • A key to success in America has been “free” enterprise. • This is a social and political commitment to giving people the freedom and flexibility to try out their business ideas and compete in the marketplace.
Constitutional Protections Property Rights 5 th Amendment protects property from the Federal government 14 th Amendment protects property from the State government **Land can be taken away from people if there is just cause. The government compensates for the seizure with “fair value. ”
Constitutional Protections, cont. Taxation/ Contracts The Constitution… 1. outlines how businesses and individuals are taxed. 2. cannot change laws to get a business out of a contract.
The Basic Principles of Free Enterprise Profit Motive Open Opportunity Economic Rights Legal equity Private property rights Free contract rights Voluntary exchange Competition
Profit Motive Profit motive encourages businesses and individuals to improve their material well- being. Businesses and individuals decide how to operate so they can maximize their profits and run things more efficiently. Profit motive gives businesses and individuals the drive for innovation and growth.
Open Opportunity Open opportunity allows every one to compete in the marketplace. The way individuals perform controls economic mobility. For example, a poor man can work hard and become rich while a wealthy business man can lose everything with bad business decisions.
Economic Rights Legal Equity: Everyone has the same legal rights. This allows for competition and it maximizes a country’s human capital. Private property rights: The free enterprise system allows people to make their own decisions about their property. Free Contract Rights: This allows people to decide what agreements they want to enter.
Economic Rights, cont. Voluntary exchange: People are allowed to buy or sell what and when they want. Competition: 1. Results in a variety of goods, and 2. Reasonable prices for those goods.
Role of the Consumer The purpose of the free enterprise system is to give consumers the freedom to make choices. 1. Directly with producers, OR 2. Through interest groups. - aid to farmers - land use - taxation
The Role of the Government Protect individuals and businesses Private property Contracts Protection from problems Global warming Air pollution Unsafe food & drugs
The Role of the Government, cont. Public disclosure Information about products, safety, energy efficiency, contents Consumer protection Government regulates industries whose goods and services affect the well being of the public Gas stations (leaking tanks) Drugs Labels on equipment
Negative Effects of Government Regulation The need for more bureaucracy Costly to businesses G. E. dredging the Hudson River for PCBs Car makers having to re- tool factories
Section Two Promoting Growth and Stability
Basic Economic Terms Macroeconomics: The study of the behavior and decision making of entire economies. Microeconomics: The study of the behavior and decision making of small units such as families, individuals or businesses. Gross Domestic Product (GDP): The total value of all final goods and services produced in an economy. Business cycle: A period of economic expansion followed by a period of contraction.
Promoting Economic Strength It is the government’s responsibility to make policies that will control and stabilize the economic cycles. These policies promote economic prosperity and continuity.
The Government’s Goals High Employment Rates (ideal for unemployment to be between 4% and 6%) Growth is the American Dream. Ideally, each generation will enjoy a better standard of living than the previous one. Stability The government tries to stabilize prices and regulate banks to ensure the public that their money is safe.
The Government’s Goals, cont. Technology and Productivity Technology is the process used to produce a good or service. Improvement in technology allows an economy to produce more output from the same amount of or less resources. Thomas Edison (light bulb) Engine Computers
The Government and Your Money The government gives money to individuals and businesses to research new and innovative ideas. They also have their own research and development agencies, for example NASA. As a citizen you should understand how and why the government influences the market place so you can choose lawmakers that have the right economic policies.
Section Three Providing Public Goods
Why do we need the government and what does the government provide?
Public Goods Public goods are shared goods or services for which it would be inefficient or impractical (1) to make consumers pay individually, and (2) to exclude non- taxpayers Examples: roads, bridges, dams
Public Goods, cont. When a good or service is public, The cost to each individual is less than the cost that each would have to pay if it were done privately, and The total benefits to society are greater than the total cost. COST: Since the government is funding the good or service, it decides where, when, and what to build. BENEFIT: The good or service benefits the public otherwise it would not get done.
Public Goods, cont. Public Sector: The part of the economy that involves the transactions of the government. Private Sector: The part of the economy that involves transactions of individuals and businesses. **They have little incentive to produce public goods.
Public Goods, cont. Free Rider: Someone who would not choose to pay for a certain good or service, but would get the benefit of it anyway if it was provided as a public good. Example: Army helmets Cost: $3500. 00 Benefit: National defense
Market Failures Market Failure: A situation in which the free market on its own does not distribute resources efficiently. ** That is why we need the government. Externalities: 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. Externalities can be positive or negative.
Externalities Positive Externalities benefit many people, not just those who use the benefits. They can be public, such as a road, or private, fixing up an old house. Negative Externalities are unintended costs that must be paid by someone other than the producer. Pollution has to be cleaned up after industry.
Government Goals Government promotes positive externalities. Example: Education benefits students but also benefits society as a whole because educated workers produce more. Government limits negative externalities. Example: Acid Rain Government has to regulate car manufacturers and power plants.
Section Four Providing a Safety Net
Providing a Safety Net Sometimes the government has to step in to create programs to aid the poor, disabled and the elderly. The government has a responsibility to the very young, the very old, the very sick, the poor, and the disabled. There are various federal, state, and local government programs to help raise the standard of living.
Poverty Problem: The free market creates wealth better than any other economic system. Unfortunately, the wealth is spread unevenly. It leaves some people below the poverty threshold. Poverty Threshold: An income level below that of which is needed to support families or households. In the year 2012, the threshold for a family of 4 was $23, 050/ year.
Welfare is a general term that refers to government aid for the poor. Welfare programs were developed under FDR in the 1930 s. Many questions arise with welfare: What can the government do? What should the government do? Is government intervention the best solution?
Redistribution Programs Cash Transfers 1. Temporary Assistance for Needy Families (TANF): Their aim is to move people from welfare dependence to the workforce. 2. Social Security (1935 – During the Great Depression): Pays cash to the disabled and the elderly; current workers pay for the recipients.
Redistribution Programs, cont. 3. Unemployment Insurance: (a) Cash payment to eligible workers currently unemployed (b) Funded by state and local government (c) The recipients must make an effort to find work 4. Workers’ Compensation: Cash payments from state funds to workers injured on the job. Employers pay for this insurance.
Redistribution Programs, cont. In- kind Benefits Free or greatly reduced goods or services. 1. Food giveaways 2. Food stamps 3. Subsidized housing 4. Legal aid
Redistribution Programs, cont. Medical Benefits Medicare: Health insurance for the elderly and the disabled. Medicaid: Health insurance for the poor.
Redistribution Programs, cont. Education Federal, state and local governments provide educational opportunities to the poor and disabled. This helps increase the human capital of the nation.
Redistribution Programs, cont. Faith- based Initiatives In 2001, George W. Bush announced an initiative to allow monies to support religious and community based programs. They seem to save and change lives better than government programs.
A soldier comes home from war and has PTSD. Should he receive Disability Social Security?
Man who made $1, 000 in the year 2013 from his own construction business Should the government give him assistance?
Man who made $1, 000 in the year 2013 from his own construction business Invested all his money into an all or nothing condo complex. Fell off a roof and is now paralyzed from his waist down. He couldn’t work so he lost the contract and his investment. Should he collect Social Security Disability?
Mentally ill (schizophrenic) Should we let him receive Disability Social Security?
Mentally ill (schizophrenic) His illness can be controlled with medication however, he refuses to take it because of the side effects. Should we let him receive Disability Social Security?
Woman wins $100, 000 on a scratch off lotto ticket. Should we let her receive the “food stamps”?
Woman wins $100, 000 on a scratch off lotto ticket. She spent all her after tax winnings to pay off her credit card debt and school loans. Should we let her receive the “food stamps”?
A multi-millionaire hedge fund manager loses his job due to the down sizing of his firm. Do we let him collect unemployment?
A multi-millionaire hedge fund manager loses his job due to the down sizing of his firm. He has several kids and a very big mortgage. Do we let him collect unemployment?
A hedge fund manager that made $2, 000 a year, loses his job due to the down sizing of his firm. He has several kids and a very big mortgage. He spent all his earnings on hospital bills for his now deceased wife for the past 3 years. Do we let him collect unemployment?
A hedge fund manager that made $2, 000 a year, loses his job due to the down sizing of his firm. He has several kids and a very big mortgage. He spent all his earnings on hospital bills for his now deceased wife for the past 3 years. Do we let him collect unemployment?
A 25 year old woman wants to go to college and become a nurse. Should the government give a money for college?
A 25 year old woman wants to go to college and become a nurse. The woman has never paid a bill on time and owes $25, 000 on credit card debt and lives with her parents. Should the government give a money for college?
A man punches his boss in the face and gets fired. Should he be allowed to collect unemployment?
A man punches his boss in the face and gets fired. His boss grabbed his behind and made sexual advances. Should he be allowed to collect unemployment?
Man drops out of school, moves to Colorado to live on a marijuana farm and has his own business which sells garden gnomes. He isn’t making enough money to pay his rent. Should the government help pay his rent?
Man drops out of school, moves to Colorado to live on a marijuana farm and has his own business which sells garden gnomes. He isn’t making enough money to pay his rent. He has three kids under the age of 4. Should the government help pay his rent?
Woman has HIV/AIDS and is too sick to work. Should the government pay her medical bills and living expenses?
Woman has HIV/AIDS and is too sick to work. She was infected by using illegal intravenous drugs. Should the government pay her medical bills and living expenses?
Man went to an Ivy League school and has a degree in nuclear engineering. He can’t get a job even at Mc. Donalds. Should he receive any “welfare benefits”?
This is the man---Would you hire him?
Homework Write at least a paragraph in which you: Explain how the government can account for all the different scenarios discussed in class. How we decide who should get government assistance and who should not.
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