Government_Ch1_web_economic-theories

=**Economic Theories**=
 * Section 4 (Chapter 1: People and Government)**

You will need your daily lesson guide as you go through. Turn to the section on Economic Theories.

__Discussion Question__: How much should government get involved in economics? Do you want a government that has high taxes, even if this means higher than other nations so long as money is redistributed to those who can't, don't, or won't earn as much or do you want a government with less taxes on everyone and less spending allowing people to earn wealth through hard work? Do you want government to have a lot of control over businesses or do you want the government to merely make sure businesses aren't hurting their workers or buyers? Explain your thoughts.

__Notes__: Capitalism and Socialism are the two major opposing economic theories.

The ideas of Capitalism were written by Adam Smith in his book //Wealth of Nations// in which he discussed government's role of //Laissez-Faire//, which means hands off. This theory said that Capitalism will strive when the government allows individuals to prosper by hard work. Smith noted that when an individual prospers through hard work, the whole society prospers since that individual will hire workers as well as provide a good that people want to buy. He also wrote The Theory of Moral Sentiments that provided ethical and philosophical foundations for the Wealth of Nations saying if you don't have the religion and the morals as the basis, then the economics do not work. Wealth of Nations talks about the _Invisible Hand." The invisible hand is whatever the people want they get but if people aren't interested it won't be made. A prime example is technology...wagons vs. automobiles.

The ideas of Socialism were written by Karl Marx in The Communist Manifesto and in Das Kapital in which he discussed a system controlled by the workers in which there is redistribution of wealth. He wrote that industrialized nations get divided into capitalists (bourgeoisie) who own the means of production and the workers (proletariat) who work to produce goods, which will see the workers rise up, take power, and set up Communism.

There are numerous positives of Capitalism. In Capitalism, hard work pays off. There is an incentive to be a hard worker. If one is not being rewarded for his/her hard work, that worker is free to seek employment else where or start his/her own business. There is opportunity for mobility in Capitalism. The harder one works, the more wealth one can earn. In Capitalism, there is freedom to buy and sell goods. Capitalism is the private ownership of business and property and economic resources. It is also called a market economy due to the freedom of buying and selling goods. There is competition among businesses which keeps prices affordable. There is a possibility for anyone to earn a profit. Freedom of choice is also fundamental in Capitalism. Some who are anti-capitalist say that the negative is that there is an uneven distribution of wealth. This is evident in capitalist nations where some people make more money than others. Of course, this is due to the fact that hard work pays off.

Socialists claim that the benefit of Socialism is that there is more of an even distribution of wealth since there is the redistribution of wealth - taking from the haves in taxes and giving to the have-nots. However, the major negative in socialism is the lack of initiative without much of an incentive to work hard and earn wealth. The goals of Socialism are to distribute wealth and economic opportunity equally among the people, control society's economic decisions and production, and public (government) ownership of land and business. What has become evident though in such societies is that it stifles (hurts) individual initiative, there are very high tax rates that hinder economic growth, and creates big government (which could lead to total government). Socialism is also called a command economy since the government plans the whole economy and decides how much to produce, what to produce, and how to distribute the goods and services produced.

Western Europe has developed into Democratic Socialist nations in which the people have basic human rights and some control over government officials through elections, but government owns the basic means of production and makes economic decisions, not buyers and sellers. Denmark, Norway, Sweden, Greece, France, and others are pushing toward this type. Countries such as Denmark and Sweden boast free health care and the like, but in reality, nothing is free. The taxes are very high and these nations are starting to suffer from debt. What gets missed by proponents of Socialism is that these nations were built back up after WWII by Capitalism and it was only in recent years that they moved toward Socialism. The problems became evident and these nations are beginning to want to re-embrace Capitalism. Greece, in order not to collapse financially, has accepted money from the European banks, but to secure this money, they had to agree to significant budget cuts. The people of Greece rioted in their capital over such cuts (even though their nation was going under financially, the Greek people were unwilling to accept cuts). France elected a socialist to be president in 2012 since their previous president, to save the nation money, raised the retirement age from 60 to 62. This shows the mentality that when a government starts doing things for people and giving people free stuff, it's hard or impossible to change that or take that away.

The Founding Fathers envisioned and set up a system of Capitalism since it allowed freedom in terms of economics and set up a system in which hard work paid off. The Founders didn't want a system in which the government provided everything to the people.

They saw government as an agent of the people, something that could protect the people and preserve freedoms, not something that made people reliant on the government. Overall, the Founders wanted self-reliance and reliance on God, not reliance on the government. Socialism turns the society into one of government-reliance. The following chart shows the business tax rate by nation. You'll notice which nation has the highest taxes on businesses. As any entrepreneur or business owner will tell you, there is risk in owning and operating a business. Obviously, there are rewards too. Businesses need incentive to grow. Many Americans are, unfortunately, learning the hard way that the world has entered the information age and is out of the corporate age in terms of manufacturing capacity, which means there is much more global competition now. Traditional manufacturing jobs have left the U.S. and (if history is our guide) will not return in the same format. Corporations are driven by profits and are beholden to their stock holders to show growth. Many in America look negatively on corporations due to large income but on the other hand most average Americans have their retirement savings (pensions, 401K's, 403B's, IRA's, and even Social Security) tied into the stock market i.e. corporations. Americans are critical of corporations often times but at the same time expect their retirement accounts to be sound and growing in the stock market, which means corporations must grow, expand, and earn a profit.

__Corporate tax rate by nation__:

Altogether, the U.S. has a mixed economy - one of free enterprise in which there is private ownership of business and property, but there is some government involvement to protect buyers and sellers. The degree to how much government should be involved is a point of debate between liberals (more government) and conservatives (less government). Socialists want much government, while Libertarians want very little government in economics. It's also important to recognize the difference between a Progressive and a Socialist.

The Cycle of Democracy shown below shows why, even if it's hard to accept, it matters:

media type="youtube" key="LFoNRY3boN8" width="560" height="315" In addition to this video, another point that questions the growth of government reliance is in the area of disability. No one doubts or questions the necessity of disability payments. However, the stats question whether or not there is gaming the system. In the early 1990s, a little over 3 million people were on disability. Today, it's over 10 million. One has to question why seeing as how there is much more safety awareness on the job today. It's much easier today to file a disability claim with a doctor signing off than years ago.

__Discussion Question__: What goods and services do you think should be provided by the government? Who should pay for them? Who should benefit from them? Who should make these decisions?

__On your own__: Be sure to answer the thinking questions on your daily lesson guide and also answer the section 4 part of your journal.

__Homework Assignment__: See me for homework #2. It is due tomorrow.

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