The economists describe the US economy as a mixed market economy. US is known as a mixed economy because the government and private businesses both play significant roles in the economy. The literature is filled with many enduring debates regarding the economic history of America while focusing on the roles of the private and public sectors.
Given below is a detailed explanation of how the American mixed economy works.
The American system of free enterprise lay emphasis on private ownership. Most services and goods are produced by private businesses. Approximately 66.67% of the total national economic output is meant for individuals to be used personally, whereas the remaining output is purchased by businesses and the government.
Personal freedom is among the paramount beliefs of the American mindset. From the start, America has aimed to limit the authority of government over individuals. It is believed by Americans that the economy will more efficiently operate if it is driven by private ownership, instead of considerable government ownership.
In the case of unregulated economic forces, Americans think that the price of any product or service is determined by supply and demand. It is the prices that dictate businesses regarding what should they produce. A product’s price rises if people want it more than the amount of what is already being produced. This attracts other companies so they can help in the production of more goods while also earning profits. Contrarily, the prices fall if people don’t want a product as much. This makes those producers either start producing some other products or simply go out of business. This is how a mixed economy works in the US.
The Role of Government
Free enterprise also comes with certain limits. The government can perform some services better than private enterprise. For example, the US government is responsible for administering education, justice, social statistical reporting, national defense, and city and regional planning. Moreover, the government is also asked to regulate the natural monopolies if the price system is not working well in the US economy, for instance, antitrust laws are used by the government to break up or control other powerful business groupings that are capable of overcoming the market forces.
The government addresses those problems that market forces are not capable of addressing. It provides unemployment and welfare benefits to those individuals who are unable to support themselves. It pays medical costs for poor or aged people. It administers private industries to reduce water and air pollution. It provides easy loans to those people who have been struck by some natural disasters. It plays a lead role in exploring space, which private enterprises can’t do as it is very expensive.
The Role of Consumers
The main reason why economists describe the US economy as a mixed-market economy is a role that consumers play in it. Sometimes, economists characterize the American economy as the “consumer economy” because the role of consumers is great in this regard.
People can assist in guiding the economy not only by their choices but also through their casted votes in favor of future economic policymakers. In the past few years, the consumers have spoken out about various concerns, such as product safety, potential health issues, environmental threats from industrial practices, etc. In response, the government has created agencies for promoting public welfare and protecting consumer interests.