Perfect Markets & Government Intervention: Adam Smith to Present - Essay Sample

Introduction

Since Adam Smith's era, economists have acknowledged that a perfect market system enhances economic prosperity in several ways. This includes permitting resources, services, and products to be channeled to those who value them; by giving incentives for cost savings and distribution of goods and services; and by raising the low prices (Bahl, 2014). Economists have also acknowledged that under some circumstances, markets do not achieve their desired goals. In such cases, then the government intervenes with an appropriate action plan to improve the markets' operation and its prosperity (Bahl, 2014).

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The idea of economic efficiency is to the effect that an economy is efficient if it is impossible to make at least an individual better off without making someone else worse off. This concept is broader in the sense that it includes the idea of technical or engineering efficiency, which requires goods to be produced at the lowest cost possible while ensuring that the quality and quantity of the good produced to meet the desires of the society (Bahl, 2014). Therefore, the test of an efficient market system is searching for changes to a current economic condition that can improve the well-being of some people, but not decrease the well-being of any others.

Types of Economic Systems Used in The United States

Throughout the world, there are different types of economic systems that are used. They include socialism, capitalism, and communism. The significant economic systems in current societies are capitalism and socialism. The United States is largely a capitalistic system.

Capitalism is defined to be an economic system where the ownership of capital goods is largely private or corporately through private investments rather than state control. It is a system where the means of production are privately owned. Adam Smith, who is the founder of modern economics, states that the primary goal of capitalism is personal profit. Because the united states are capitalistic, it encourages the use of markets in the allocation of goods and the effective use of resources. Unfortunately, not all markets are competitive, and as a result, the government intervenes on many occasions (Bator, 2018).

The advantage of capitalism is that as individuals purse personal profit, they encourage competition, and as a result, businesses try to attract demand through producing better products and lowering prices (Qin et al., 2020). Capitalism, to this extent, ensures the production of best products at the lowest prices which benefits society. Capitalism, therefore, is marked by private ownership of capital goods, competition for-profit and minimal government intervention (Bator, 2018).

Practically, no society is purely capitalist and socialist. Therefore, socialism is another type of economic system in the united states. Socialism, as stated by Karl Marx, is an economic system where the means of production are jointly owned by the government. For instance, the United States has many airlines owned by airline corporations; in a socialist system, the government might own one airline (Bator, 2018). Unlike capitalism, the main goal of socialism is not for personal profit but rather work for the good of others. In socialism, the needs of a society are considered important than those of individuals. In capitalism, the government's intervention in the economy is minimal but in socialism, the government controls the economy (Qin et al., 2020).

The united states and china are the largest economies worldwide. The population of china is more than four times the population of the United States. Capitalism has been of advantage to the United States, despite the huge population of China, while socialism has delayed the progress of Chinese economic development (Dalhammar et al., 2018). However, this has significantly changed because China adopted "socialism with Chinese characteristics." The country gave room for foreign investments and allowed entrepreneurs to start their businesses even as most parts of the economy remained a state's ownership (Qin et al., 2020).

On the one hand, the United States economy has become a fixed economy with a lot of government intervention. For instance, the government subsidizes and provides tax incentives for some businesses, while requiring these businesses to be licensed. On the other hand, in as much as China's involvement in the free market economics has been problematic, it is the world-leading exporter. One major reason that slows down the Chinese economic growth is that the government is largely involved in Chinese businesses (Dalhammar et al., 2018). The living standards of china have improved, but compared to those in the United States, they are still far behind.

The economic management of Russia has been praised because it achieved macroeconomic stability. Their national debt is low; their budget is in surplus, and inflation has been reduced. The collapse of the Soviet Union in 1991 forced the Russian government to implement several reforms that were designed to improve the economy from a centrally planned one to a capitalist-controlled economy (Qin et al., 2020).

However, Professor Barry Ickes has identified Russia's economy as a "virtual economy." The majority of its enterprises, especially in the manufacturing sectors, cannot survive in a competitive market. In such a system, enterprises can continue to produce their noncompetitive goods because they are avoiding the use of money (Dalhammar et al., 2018). As a result, goods will be highly-priced. Even as Russia continues to position itself as a global power, its currency is fluctuating; the population is declining, and its economy is dependent majorly on oil and gas.

Conclusion

In conclusion, a state can change its economy for the better by changing policies, either monetary or fiscal. The United States is a federal democracy that is driven by-elections in which citizens with different ideologies compete. With the economic resources focused on the top of the wealth, the political power to influence and make policies in the United States remains with a few people who are beneficiaries of the United States economy.

References

Bahl, R. W. (2014). Financing State and Local Government in the 1980s. New York: Oxford University Press. Retrieved from https://katv.pw/1577872446.pdf

Bator, F. M. (2018). The Anatomy of Market Failure. Bobbs-Merrill Company, College Division. Retrieved from https://katv.pw/1577872446.pdf

Dalhammar, C., Luth Richter, J., & Machacek, E. (2018). Energy efficiency regulations, market, and behavioral failures and standardization. Retrieved from https://lup.lub.lu.se/search/publication/1dd0f4b9-fb00-4863-82a6-fc9b2acb786e

Qin, Q., Jiao, Y., Gan, X., & Liu, Y. (2020). Environmental efficiency and market segmentation: An empirical analysis of China's thermal power industry. Journal of Cleaner Production, 242, 118560. DOI: 10.1016/j.jclepro.2019.118560