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Brooks Wilson's Economics Blog: Economic Systems

Monday, March 9, 2009

Economic Systems

Radio talk show hosts, blogs, and other forms of news dissemination, noting the growth of government in the first two months of the Obama administration have been calling President Obama a socialist. I even heard one talk show host refer to his supporters as Obamunists. Such complaints made their way through a New York Times reporter to the president, who gave a dismissive answer. Joe Curl writing for the Washington Post in "Obama makes Oval Office call to reporters," explains that President Obama has become concerned that his answer was inadequate.

President Obama was so concerned that he had appeared to dismiss a question from New York Times reporters about whether he was a socialist that he called the newspaper from the Oval Office to clarify his policies.

"It was hard for me to believe that you were entirely serious about that socialist question," he told reporters, who had interviewed the president aboard Air Force One on Friday.

Below I have provided definitions of several economic systems and a little information about the economists providing the definitions. You can decide which system best describes the collection of policies thus far expressed by the Obama administration.

From the Concise Encyclopedia of Economics, in an article titled "Socialism," Robert Heilbroner defines socialism

Socialism—defined as a centrally planned economy in which the government controls all means of production—was the tragic failure of the twentieth century. Born of a commitment to remedy the economic and moral defects of capitalism, it has far surpassed capitalism in both economic malfunction and moral cruelty.

The "About the Author" section of the article states,

Robert Heilbroner, a socialist for most of his adult life, was the Norman Thomas Professor of Economics (emeritus) at the New School for Social Research and author of the best-seller The Worldly Philosophers. He died in 2005.

Milton Friedman the Nobel Prize Laureate in Economics who supported capitalism in the popular press in Capitalism and Freedom (The University of Chicago Press, 1962, pg. 5.) writes,

As it developed in the late eighteenth and early nineteenth centuries, the intellectual movement that went under the name of liberalism emphasized freedom as the ultimate goal and the individual as the ultimate entity in society. The kind of economic organization that provides economic freedom directly, namely competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other. History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition.

Robert Hessen, who writes on business and economic history, and is a senior research fellow at Stanford University’s Hoover Institution writes in the Concise Encyclopedia of Economics ("Capitalism") that

Capitalism,” a term of disparagement coined by socialists in the mid-nineteenth century, is a misnomer for “economic individualism,” which Adam Smith earlier called “the obvious and simple system of natural liberty” (Wealth of Nations).

Sheldon Richman, the editor of The Freeman: Ideas on Liberty at the Foundation for Economic Education, writes for the Concise Encyclopedia of Economics ("Fascism")

As an economic system, fascism is socialism with a capitalist veneer.

Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the “national interest”—that is, as the autocratic authority conceived it.

George Reisman, writing for the Mises Daily in "What is Interventionism?," describes interventionism,

Interventionism is any act of government that both represents the initiation of physical force and, at the same time, stops short of imposing an all-round socialist economic system, in which production takes place entirely, or at least characteristically, at the initiative of the government. In contrast to socialism, interventionism is a system in which production continues to take place characteristically, at the initiative of private individuals, including private corporations, and is motivated by the desire to earn private profit. Interventionism exists in the framework of a market economy, though, as von Mises puts it, such a market economy is a hampered market economy.

12 comments:

  1. Hello Dr. Wilson,

    I really enjoyed reading your blog about capitalism, interventionism, and different socialists!! I understood it very well!!

    Your student,Jameela Thomas from Chilton

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  2. Conservative talk show hosts use the term “socialism” as a misguided insult aimed at democratic economic policies to take advantage of the inflated fears embraced by the lowest common denominator. How can these talk show hosts compare these policies to that of Cuba, or Venezuela, whose countries have cripplingly low productivity rates? The GDP of the United States during the Clinton administration was at very healthy levels, and the economic advisors who advised Clinton then are the ones that are guiding Obama now. If this term was truly an accurate portrayal of democratic economic policies then our physical and human capital would be abysmally low right now due to inward-oriented policies that true socialists utilize.

    Your student, Mark Balko

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  3. Excellent blog topic. When talk show hosts refer to the President as a "socialist", the understanding that I get from them is that he has socialistic tendancies. The US averages 7 times higher per person income as compared to China, giving us a great snap shot of the two economic systems today. The US dominates because of the limited government intervention. When the Obama administration starts increasing regulation and control over major segments of the economy (AIG), we start drifting towards socialism.

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  4. When I hear the word "socialism", I associate it with a negative connotation. Having politicians in the government decide what goods are to be produced could be disastrous. In my mind, the government needs to focus on national seruity, laws, taxes, etc. and leave the economy to rely on markets. I don't believe that Obama and his administration will move to a full-fledged socialistic economy, but I could see some of his policies leading the country farther from a capitalistic economy. I don't like this outlook because, in my mind, the ideal economic system is capitalism because it allows the "invisible hand" to work the markets rather than any individuals.

    Catherine L.

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  5. I do believe that Obama is leaning towards being a socialist. The government to me is trying to be the ones that control everything in the world of production. No one has a say in anything anymore and capitialism is completly out the window. I think that the government should worry more about the country as a whole and let the markets handle the production side of things without the goverenment trying to butt in.
    Krislyn Combs

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  6. j. grisham27/3/09 6:11 PM

    I notice now that Obama does have socialist ways about himself. He has a wonderful idea for a "health-care reform" but with the reform, the nation will go into deeper debt, and medical workers will be payed less, and become few. It seems like a "medicare-for-all system" as said by Susie Madrak. A horrible concept with a socialist way.

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  7. I feel like the term "Socialism" is being thrown around way too much in interviews and talk shows based on economics. If Obama were truly a socialist, I believe that our economy would be even more worse off than it is today. Yes, our economy is in terrible shape, but I'm pretty sure that Obama is not trying to fix it by being what some are calling, a "Socialist." I think that it is very extreme to say that the government is trying to control everything. As soon as the government does that, we will be having much worse problems than a failing economy.

    Lew

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  8. I think Obama is said to be a socialist just because that's the media. The media is always going to feed on issues and ideas that can crumble the image of a potrayed person. I do however, personaly think that Obama basis his actions as those that are interventionism. Actions that to his administration influence and improve our country's capital, productivity and income.

    -Ami Barragan

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  9. I enjoyed this blog very much. Like my fellow readers, i do agree that Obama is more of a socialist. He has good ideas and im ready to see how he plans to carry them out.

    Amber Hensley-Chilton

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  10. Cesar Rodriguez-Bautista2/4/09 1:15 AM

    It has been argued many times in the past that Pure Capitalism promotes large wage earners in a society to have more while it causes the small wage earners to earn less. Many of the new theories of economic systems were designed to try to aleviate some of these disparaties.

    Unfortunately in practice the "invisible hand" of Adam Smith (Wealth of Nations) proved to be the most efficient system in providing equality.

    But in our advanced societies still found poverty and huge disparaties in income. The social programs that we see in place today were largely initiated as a trial and error basis from the great depresion, where large business transactions were unsecured in the stock market, the government did not get involved in trying to correct the problems caused by the market crash, and by a furious and hungry citizenry.

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  11. I think Obama is not a socialist, but understands that their is times when the government must be involved for the better interest of the company and consumers. Take General Motors for example; when they got that bailout, they gave all their major employies huge bonuses. That shows that their first priority is their pocket book, that's when i think the government needs to step in.
    Now that I have read the blog, I have a better understanding of socialism and capitalism and can guaranty myself that I will know it for the test.

    Mike Glatter, Connally

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  12. It seems like everytime i turn around, I hear Obama and socialism. I feel like this word is being used too quickly. I am at a crossroads in regards to just what needs to happen in our current crisis but I feel that the way things were handled in the last eight years obviously did not help, so a change is definitly needed and he should be given a chance to show what he can do without being pre-judged

    your student
    jennie bryant

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