Mixed market and U.S. economy

0:00- [Instructor] So let's talk a little bit about economic systems. So first of all, what is that? Well, that's a system of how you decide what resources go to whom or go where or use to do certain things. Now, you might initially say, well, isn't there just one way of doing it?

0:16You have markets, you have capitalism. And I would say that is one way of doing it. And for us here in the United States, that is a major part of our economic system. But that's not the only way to organize an economy. But let's start there. And really, the intellectual underpinnings of capitalism and our market system, or what is mostly a market system, comes from Adam Smith, who was an 18th century philosopher, economist, and he is known for writing "Wealth of Nations".

0:52And "Wealth of Nations" was actually published in 1776, and it became a major philosophical underpinning of our economic system. Now, what are some of the big ideas? Well, it's this idea that if multiple folks essentially act in their interests, that it could actually be good for the general system as a whole, that it actually could allocate resources appropriately.

1:19Adam Smith talks about something known as the invisible hand. And when he talks about invisible hand, he's saying there's no central planner, there is no central hand that's deciding who gets what. But when, say, a farmer says, wow, I'm getting higher prices for, say, sugar cane that I am getting for, I don't know, beets, the farmer will produce more sugar pick cane.

1:44And likewise, if sugar cane is all of a sudden costing more, maybe the cook or whoever else needs sugar cane says, well, maybe I wanna find other things that are cheaper for whatever I need to do. And so this invisible hand is actually a very good way, even though it's counterintuitive for most of human history, a very good way of allocating resources.

2:06So to just think about the different types of economic systems, including a market system based on the invisible hand, let's make some end points here. So here we have a market system. Think of this as capitalism where individuals decide what to produce and where to use their resources, and prices are a big factor of it.

2:36Prices and markets. And there really is very limited or even no central planning. Now, the other extreme of economic systems, you can think of a command economy. Command economy. And for this, you can think of, say, the former Soviet Union, a very strict communist system where you really don't have private ownership, or maybe you should say very limited private ownership.

3:10Limited private ownership. In comparison, in a pure market economy, you have a lot of private ownership. And in a command economy, some central authority, usually the government, government controls allocation of resources, or at least most allocation of resources.

3:35While in a pure market system, you have very limited role for government. Now, I would put the United States closer to this left part, but it's not a pure market system because we do have the public sector, we do have government controlling certain resources in our system.

3:55For example, we have a social safety net in things like social security and Medicare. We have a public education system where the government uses tax revenues in order to give everyone an education because a pure market system might not lead to everyone getting an education.

4:12We have government agencies like the Food and Drug Administration that regulate the market, regulate private industry to make sure that we're not getting pills that hurt us or that don't do anything. So I would put the United States closer, definitely closer, to the market system than the command economy, but I would put it right over here.

4:32This is the USA, and I would call this a mixed economy 'cause there is a situation where the government is controlling certain parts of the market and certain parts of the economy. Now, if you want to go further and further to the right, we already said at the extreme over here at the command economy, you can think of the former Soviet Union, the USSR.

4:59And if you want to go in between the US and the USSR, you can think, but still closer to a capitalist market economy, you can think of a lot of European countries. So let's say we put France here or Germany, where it is fundamentally still a market system, it's a capitalist economy, but the government plays an even larger role.

5:21In fact, most of the time, when people say mixed economy, they do think more of places like Europe, and USA, the US is pretty close to to a market system, especially if you think about the large economies. Although of course the government does play a role. So why am I putting France and Germany further to the right?

5:39Well, above and beyond all the things that I mentioned that we have in the United States, like public education system and a social safety net, and government agencies that regulate, say, food and drug, France and Germany also have things like universal healthcare.

5:54Universal healthcare. They also might have stronger regulations or stronger social safety nets. So I'll stop there. There's many different ways of organizing economies. These are most of the modern ways that we see. Most countries today are some form of a mixed economy, but there's even economies that I wouldn't even necessarily put on the spectrum.

6:20You could have things like a traditional economic system that you might see in tribal communities. This actually might be how humanity organized itself for most of human history. Let me write this over here. You could have traditional, traditional economic system, that might be limited or no private ownership, it might be that the tribe owns everything, that things are passed down from generation to generation in a communal way.

6:44So you can imagine a lot of different ways of organizing an economy. But Adam Smith and the invisible hand from "Wealth of Nations" is really how most modern societies predominantly organize themselves with a market capitalist system.