AGENDA Mon 1/23 & Tues 1/24•Quiz Chapter 1•QOD #5: Government Involvement•Econ Systems Overview•Externalities & Incentives Scenarios•HW: Capitalism/Socialism Venn & Essay

Homework•Read “Smith/Marx” & “Socialism v. Capitalism”

handouts•Complete Venn Diagram•Write an essay responding to the following

prompt:▫Analyze the benefits and challenges of both

capitalism and socialism to determine which system provides the greater overall benefit to society. Present a concise argument for your selection including specific evidence and theoretical support.

▫Your essay should be 2-3 pages, typed, double-spaced, MLA format with a minimum of 2 additional sources (other than those provided to you in class).

▫DUE: Wed 1/25 & Thurs 1/26

QOD #5: Government Involvement•In a modern society, government should decide what should be produced and how, so that the goods and services everyone needs are produced.▫Do you agree or disagree with this statement? ▫Give specific support for your answer.

•What type of economic system does this describe?▫What evidence do you have to support your

answer?

Traditional Economic System

Me give you bone for Audi

500.

Me drive fast past you in

mud!

I give you bone

for plastic club!

www.mbhs.edu/~grossmam/Social%20Studies%20Course%20Material/Economic%20System%20Web%20Quest.ppt

Traditional Economic System• Before the invention of money people in ancient

civilizations or small communities use to barter for goods.

• Bartering is the process of trading one good for another.

• The problem with bartering is that it is not always easy to find the person who has the good you want and often it can mean carrying a heavy load in order to make a trade. ▫ For instance, if you wanted to trade a 100 bricks for 10

pigs one of the people involved in the trade would have to carry 100 bricks or herd a 100 pigs.

• As it turns out, not only is money easier on your back, but it makes trading simpler and faster because you don’t necessarily need the specific good the other person in the trade desires, you simply need cash.

www.mbhs.edu/~grossmam/Social%20Studies%20Course%20Material/Economic%20System%20Web%20Quest.ppt

Market (Capitalist) v. Command (Socialist)

Pros Cons

Market

Command

Market EconomyAs long ago as ancient Egypt,humans began to use forms of money to trade for goods and withthe free trade of goods arose what is now known

as the market economic system.In a market economy producers make

goods based on the amount demand they perceive to exist among consumers. Consumers in turn pay for items based on their supply.

For instance, gold is greatly demanded by people across the world, but its supplyis limited. Therefore, gold is expensive.

Market Economy= Capitalism

•18th century economic & political ideology •Adam Smith’s The Wealth of Nations•Claimed people who trade with each other

don’t go to war with each other.•Government must not interfere with the

economy or it may disrupt trade and people’s ability to prosper.

•Smith claimed that instead of a government running an economy an “invisible free hand” known as a market would.

•Concept is referred to as laissez faire or “hands off” economics.

Adam Smith, father of modern economics (1723-1790)

• “It is not from the benevolence of the butcher, brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

• In other words business owners are interested in making themselves better off.

Adam Smith is most well known for his book The Wealth of Nations.

•“Lauded by politicians and noblemen alike, the self-made economist espoused the belief that if people were set free to better themselves, it would- ‘as if by an invisible hand’ -actually benefit society as a whole.”

•“His passionate advocacy for the free market enterprise system helped to create the modern academic discipline of economics.”

http://www.sceconomics.org/support.htm

Examples of Market Economies•To a large extent the US has a market

economy. Compared to the rest of the world taxes are low and supply is determined by demand

•Singapore is also an example of a market economy. In Singapore there are very few taxes and businesses can decide on how and what to produce.

•In reality there is no such thing as a true market economy because the government in almost every nation around the world plays a significant role in the economy including the US▫ http://www.heritage.org/index/Ranking.aspx

“It’s your money, not the government’s”

- President Ronald Reagan

Market economies are based on the open and free trade of goods. For example, in the New York Stock Exchange individuals buy and sell stocks (ownership) of companies (below)

The World Trade Center was seen as a symbol of American capitalism because things were bought and sold there from around the world.

Criticism of Market Economies• Market economies often result in unequal societies

where there are a few very wealthy individuals• and many poor people.• Market economies often encourage free trade that

enables large private companies to exploit the laborers or the resources of less-developed nations.▫ For instance, most of the clothing worn by

Americans is made in China ▫ by workers who earn less than a $1 an hour.

• Market economies often result in economic monopolies (when one company controls a business sector) that stop competition and result in higher prices

Criticism of Market Economies •Market economies often result in unequal

societies where there are a few very wealthy individuals and many poor people.

•Market economies often encourage free trade that enables large private companies to exploit the laborers or the resources of less-developed nations. ▫For instance, most of the clothing worn by

Americans is made in China by workers who earn less than a $1 an hour.

•Market economies often result in economic monopolies (when one company controls a business sector) that stop competition and result in higher prices

Command Economy•Critics of market economies claimed that

capitalism was a form of “class warfare.” •a few people rule over the masses•A revolution was needed to redistribute goods

equally. •This revolution came to be known as

communism and its economy was known as a command economy.

•In a command economy the government controls all aspects of the economy.

Karl Marx founder of the communist/ command economy ideology. He claimed that as long as there existed a business owning class oppression would continue.

Traits of a Command Economy

•The government controls all aspects of the economy

•Private property is illegal•Supply and demand are determined by the

government, not by consumers and producers.•Everyone is paid equally no matter what job

they do.•Industry and businesses are owned and

controlled by the government, not private individuals.

Examples of a command economy•In the former Soviet Union the government

killed small property owners and redistributed their land to workers.

•In Cuba all residents are given rations of foods. Instead of purchasing food in a market Cubans go to government food supply centers.

Examples of a Command EconomyIn North Korea the former dictator Kim Il Sung controlled the economy with an iron hand and had statues of himself built to show his people who was in charge of the government and the economy.

Example of Command Economy

Cuba’s Fidel Castro and Che Guevarra established a command economy by expelling Cuba’s small business and land owners. Many of those who lost their business now live in Miami.

Criticism of Command Economies•Command economies are inefficient and reward

unproductive workers. Critics claim that since workers are awarded the same amount of money for doing every job workers aren’t productive.

•Command economies result in shadow/ illegal markets. Because the government controls the distribution of goods, rather than consumers and producers individuals begin to sell things illegally.

•Command economies cease to stay competitive in the world because competition and entrepreneurship is discouraged.

This Professor is a Genius•An economics professor at a local college

made a statement that he had never failed a single student before, but had once failed an entire class.

•That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer.

•The professor then said, "OK, we will have an experiment in this class on Obama's plan".

•All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.

•After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.  

•As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

•The second test average was a D! No one was happy.

•When the 3rd test rolled around, the average was an F.  

•The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

•All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.

•Could not be any simpler than that.•Thinking about what we have studied related

to both market & command economies, what are your thoughts about the preceding “joke?”

Capitalism / Smith Socialism / Marx

Similarities /Mixed

Mixed Economy

•Mixed economies exist somewhere between command and market economies.

• In a mixed economy the government tends to own major industries like utilities, health care and major manufacturing industries; however, individuals own most small businesses.

•Mixed economies tend to tax their citizens more than market economies, but less than command economies.

Traits of a Mixed Economy• The government controls large industries, while

private individuals control small businesses.• Citizens are taxed heavily to provide all citizens a

social safety net such as welfare, free university tuition and free health care.

• Property is controlled by both the government and private individuals.

• Workers tend to be somewhat less productive than those in market economies, but less product then those in command economies.

• Consumers generally have a wide variety choices.

John Maynard Keynes claimed that economies would benefit from deficit spending if it led to higher employment rates.

President Franklin Roosevelt introduced the principles of a mixed economy to the US by expanding the government, providing welfare and establishing Social Security for the elderly.

Examples of a Mixed Economy • In France health care is free, university costs very

little if you get in (many do not) and taxes are high. However, there are also private industries based out of France like Air France and Puegot.

• In United Kingdom health care is free, university is cheap, but citizens can purchase private health insurance and attend private universities if they choose.

• In the United States the federal government owns much land in the West and private ranchers are allowed to graze their cattle on that land.

Criticism of Mixed Economies•Critics of mixed economies claim that they often

result in unproductive workers because there is not as much incentive to work hard as there is in a market economy. As a result mixed economies often suffer from higher unemployment rates and lack the same number of entrepreneurs as market economies.

•Mixed economies often must raise taxes in order to sustain all of the social services such as welfare, free health care, low cost university education and pension systems for the elderly which can lead to a stagnant economy.

• In essence, critics claim that mixed economies enable irresponsible behavior.

Externalities Scenarios▫ In many suburban high schools, there are giant parking

lots full of automobiles that students drive to school, even though bus transportation is available. Discuss the environmental impact of school policies that allow students to drive and park at school. Describe incentives for such actions and the externalities created. Suggest a policy to reduce the environmental problems caused by the current policy, taking care to identify the costs and benefits of both the current and proposed policies.

▫ Throughout the day, trash accumulates in the hallways of many public high schools. Oftentimes, the custodial staff spends hours a day cleaning up trash instead or taking care of repairs or enhancements to the school. Additionally, rodents, birds and insects infest the site, causing additional concerns for health and safety. Develop a list of positive and negative incentives for the student body to reduce litter in the school building and on the school grounds.

Homework•Read “Smith/Marx” & “Socialism v. Capitalism”

handouts•Complete Venn Diagram•Write an essay responding to the following

prompt:▫Analyze the benefits and challenges of both

capitalism and socialism to determine which system provides the greater overall benefit to society. Present a concise argument for your selection including specific evidence and theoretical support.

▫Your essay should be 2-3 pages, typed, double-spaced, MLA format with a minimum of 2 additional sources (other than those provided to you in class).

▫DUE: Wed 1/25 & Thurs 1/26

Web Sites to Explore•Detailed Information on Economic

Systems•Capitalist Thinker•Communist Thinker•Socialist Thinker•Another Capitalist•Evaluations of Socialist Experiments in

the US

References

•Arnold, R (2001). Economics in our times, 2nd edition. Chicago, IL: National Textbook Company .

• http://img.skitch.com/20080208-xhkwr5t2b34pj7etw8cgda1q4f.jpg

• http://www.sceconomics.org/images/AdamSmith.jpg• http://www.sceconomics.org/support.htm • www.frbsf.org/publications/education/greateconomists/

grtschls.html#A8• www.mbhs.edu/~grossmam/Social%20Studies%20Course

%20Material/Economic%20System%20Web%20Quest.ppt