Saturday, 11 September 2010
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Free Market Economy vs State Driven Economy
Free market economies stimulate greater economic growth by an interaction of supply and demand which determines the quantity of goods and services produced. The ability of free market trade lets money and resources go to the projects that provide the most economic benefit. But the end result may not be fair. The old adage it takes money to make money has some validity.
In a free market economy the poor may not be able to afford the same education, health care or legal help so they may not be able to fare as well in a free market economy as someone born into a family with resources. In a free market economy buyers and sellers are responsible for their selling and purchasing choices giving the free market power over price to decide allocation of goods and services which are then fixed by the pressure of supply and demand on commodities being sold. If demand is not as strong as the supply of the commodity then prices will fall. If there is a large demand for a product like Cabbage Patch Babies then the prices will rise. Free trade without any tariffs or subsides by the government characterize free market economies. The government's role is limited to controlling the law and order and ensuring fairness of pricing and safety regulation.
State directed economy refers to an economy where the state plays a proactive role in directing private-sector investments. Goods and services prices are determined by the government from the fixed support pricing to the control of supply by taking a farmer's raw produce. This type of controlled economy allows for long term investment in infrastructure without fear of market downturns that can lead to project abandonment. This is important for risky ventures because it provides stabilization. State directed economies usually are meant to serve the collective needs instead of the needs of the individual. The state can utilize resources to serve the economic objectives of the state. It has a tendency to limit growth but doesn't suffer from business cycles like the technology and housing bubbles. It can also allow for the provision of goods that would not be profitable therefore provided in a free market economy.
Like anything else it is a trade off. Do you want to trade freedom for security? And if so do you think a state run economy is going to give you that security. I am not trying to tell you what to do in November but I would like to remind you that with state run government comes the expenses and taxes thereof. Even Fidel Castro has finally realized that isn't the way to a better economy...
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