Free Market versus Socialist Market - Term Paper Example

Free Market vs Socialist Market The social market is a system of economy that U.S., among many other economies, should adopt it they will ever address their economic woes that is mostly as a result of very huge gaps between the rich and the poor. This system of economy is made of two key components, including an extensive social security system and the essential elements of a free market such as freedom of formation of prices, free foreign trade, and private property. The social security comprises of systems that are put up to reduce the detrimental impact of a laissez-faire system, for example, old-age pension, universal health care, and unemployment insurance schemes. Essentially, social market economy is somewhat a mixed economy that combines some level of government regulation to stamp out abuses of private power and high economic freedom. In other words, all means of a production in a social market is owned by the state and hence not an object of trade. Rather than being used in the exchange of productive means, money plays the role of the exchange of consumer goods. This paper will support that the problem that the American economy is currently facing, especially as a result of the wide rift between the poor and the rich, can be addressed by adoption of a socialist market. The first reason for this proposition is because a socialist market would help in distribution of resources, in such a manner that the difference between the rich and the poor is reduced. Second, is because a socialist market would lead to internalization of all external impacts, and third it is because this system of an economy can encourage the people to become more accountable in the management of resources. The distinction of the rich from the rest of the population in the U.S. is a symbol of insufficient social unity. The more direct reasons, from politicians pegged with regulators’ satisfaction to society’s overall indifference concerning corporate pay, exist more social than economic problems. The results, which are new-fangled rules, taxes, and behavior, are associated with the running of the essential capitalist structure, which does not encourage accountability. Financial markets have miscarried because statesmen have tried to give people more fortune than they have netted. As a result, bankers have overlooked the public good, the governments declined to live within its incomes and investors’ greed is renowned rather than controlled. No answer limited to the ineffective methodological operations of the fiscal system can work for a long time, unless a socialist economy is adopted. Through an analysis released by the Social Security Administration, Short has demonstrated the glaring wealth gap in the U.S.’s, which is as a result of the ineffectiveness imposed by capitalistic economy. It is clearly seen that the higher one earns, the higher the percentage ratio he earns more than other Americans. This translates to the fact that the richer are always getting richer while the poor always get poorer, courtesy to capitalistic economy (Short 1). Generally, most of these problems exist because of the wide gap that exists between the rich and the poor. Essentially, the U.S. should adopt a socialist economy in order to ensure that incomes are distributed fairly, hence helping to achieve the maximum social welfare. The reason for the huge wealth gap is because distribution of ownership is the sole factor that determines the distribution of income. In a socialist economy, such a limitation does not exist, because determination of the individuals’ income is destined in the maximization of the welfare of the total economy. Furthermore, the corruption in a capitalistic economy is usually the order of the day, and this makes it very difficult for the poor to enjoy wealth while the rich continue to get richer years in end. In reference to Japan being an ideal capitalist country that emphasizes the importance of community and not-for-profit motivations: "... the most successful capitalist nation in the world flourishes economically with a motivation structure that departs firmly- and often explicitly- from the pursuit of self-interest, which is meant to be the bedrock of capitalism" (Sen 260). Unfortunately, this philosophy can hardly succeed in the U.S. because the culture that is entrenched in its people is that of self-interest; therefore, the best remedy is adoption of socialist economy. Another aspect associated with distributions and sharing of resources in a socialist economy is the increased quality of life as a result of happiness. This aspect is well articulated by Gustafson in reference to the Social Nature of Utilitarian Theory when he maintain that "An increase in public affections, social concern, and a cultivation of the mind lead to an increase in happiness, or at least the potential for happiness, according to Mill" (Gustafson 85). It is worth noting that socialists consider economic inequality to be unscrupulous for society. As a result, the government is accountable for plummeting economic inequality through programs that are advantageous to the poor. For example, free communal education, unrestricted or subsidized healthcare, communal security for the aging, greater taxes on the rich among others. On the contrary, capitalists consider the government not to use economic resources as competently as private enterprise. Therefore, society is healthier with the free market defining economic winners and losers, making a socialist economy very ideal in the U.S. whose resources are largely enjoyed a by a few (Short 1). Furthermore, in a socialist economy, all returns and costs are incorporated in the prices, including social returns and costs. This means that, by adoption of a socialist economy, the US would be able to internalise all external impacts and, therefore, establish what referred to as Pareto-optimality. In such an economy, the resources would be used to effectively spur growth, and the benefits are enjoyed by all people the society, not just the rich. Even so, adoption of a socialist economy would not lack limitation because, for example, the formation of savings or the rate of capital accumulation would be determined arbitrary by the Government rather than replicating the preferences of the consumers. Furthermore, in a capitalist economy, the numbers of corporations are always on the increase, and unfortunately the people who manage them are never responsible to anybody. The other issue with this system is that the efficiency of public officials cannot be matched with that of the private entrepreneurs. Even so, this is not a major problem because the advantages of the system are enough to water it down. Furthermore, it would be absurd to compare the public officials with private entrepreneurs; they should be compared with corporation officials, who are not also very effective. Therefore, although there would exist a problem of bureaucratization of economic life, it credible to argue that this cannot be avoided in a capitalistic economy, as well. The capitalist economy, although they may appear to spur economic growth, they eventually become an impediment to the same growth after a certain stage of technical development is attained. This argument can be based on the fact that an increasing size of firms makes it very difficult for new firms to enter an industry, which is capitalistic. Furthermore, in such a situation, capitalists usually impede technical progress in an attempt to protect their capital, and also to save their investment from being watered down by the technical progress. This problem can be addressed through the adoption of free competition, but such a move is not rational because of the increasing size of firms. As such, the socialist economy offers the best solution to this dilemma. In conclusion, adoption of a socialist economy would be a good remedy for the problems that the U.S. economy is grappling with. Such an economy would ensure that the gap between the rich and the poor is dramatically reduced, and also ensure that all external impacts are internalised, hence spurring economic growth. It is also evident that a socialist economy would encourage people to become more accountable, for example, by avoiding the corruption tendencies that are so common in government corporations in a capitalist economy (Short 1) Summary of the article In the article “Everyone In America Is Even More Broke Than You Think” by Kevin Short, the gap between the America’s rich and poor has been analysed. The author has used data from Social Security Administration to demonstrate how this trend is one of the worst challenges that the U.S. economy is facing currently. Short has further reported that more than, in 2012, half of U.S. wage earners made less than $30,000, which is very close to the federal’s poverty line of $27,010 for a family of five during the same year. The following Figure shows short’s analysis, which clearly demonstrates the skewed U.S.’s income distribution. In this figure, it is clearly demonstrated that the rich get the biggest share of the economy, possibly at the expense of the majority poor who are living in deplorable level. Figure 1: The skewed income distribution in the U.S. (Source: Social Security Administration). Works Cited Amartya, Sen. Ethical issues in business. New York sage, 2007. Print. Sen, Amartya. Ethical Issues in Business . New York sage, 1993. Print. Short, Kevin. “Everyone In America Is Even More Broke Than You Think.” Huff Post, June 2013. Web. 1 December 2013. Read More