h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

Entry: ECONOMICS - Why A Mixed Economy Is The Inevitable Compromise - A3414188
Author: Deano - U211726

This article is based on an A-level essay I did last week, so it isn't the shrouded in complex economic theory, which is probably a good thing. Economics affects everyone's lives, so it is important that they understand basic principles.

Hi Deano

Good essay! Better than most of mine anyway.

I'd be tempted to change the title to "Why a mixed economy comprises of a compromise", na, only kidding that'd be silly!

Okay, title is about a mixed economy but you don't state (in the first para) what that is. As my tutor was fond of saying: be sure to pose and answer the question in the first 5 lines.
He was also keen on: List assumptions, describe model, discuss weaknesses. ...and on those little round cheesey biscuits.

>>"who will naturally act in their own self-interest,"
...well, err, the classical economist presumes this and, subject to bounded rationality, it is true on the right time/size scale yes, but if you check out your game-theory cooperation and evolutionary strategies fun things start happening.

>>"With more income being the ultimate goal"
....income or utility, not forgetting the backward bending labour curve for hours worked with salary.

>>"However, free market economies have significant disadvantages, primarily in that public goods are non-existent."
......in the absence of charity, private insurance, cooperation, and the human condition.
e.g. pre Loyd George (1909ish) their was no national medical system or national unemployment benefit (well not much), but people were provided for through private insurance groups, workers unions and charity. The nationalisation was a presumption that "Whitehall knew best", subsequent groups such as the Medical Research Council were to become demonstrations to the contrary.

>>"poorer families would not be able to afford education"
.....Newton still made it to Cambridge though, can't have been all bad news.

>>"planned’ economies were common in the mid-19th Century,"
Marx's Das Kapital was 1867, Stalin and Mao were pretty keen on centrally planning things too.

>>"the invisible hand" a term coined by Smith (1723-1790)

>>"income can be distributed in a more equal manner"
....or not distributed at all!

>>"central planning agency requires a colossal amount of information // inevitable bureaucratic overload"
Is it information and overload? I don't think so. It is the human condition - trying to keep themselves in the money & jobs, and being opposed to change.

Central planning assumes that the planners in the Capital know best, history has shown that this stifles innovation, technology, economic and cultural developed, and improvements in the standard of living.
Par Example:
Egypt - great pyramids built through feats of engineering and coordination. No evolution of language, agricultural planning, etc...life for the average person was pretty much the same over many hundreds of years.
Rome - Aqueducts, sewerage systems, roads, all that jazz, but the waterwheel was invented by the "Barbarians" and for all that pure science at Alexandria nothing was invented for the everyday man.

Incentive is very important, as you say in the conclusion.

Basically the central planners get stuck in a mindset, be it imperialistic or religous and they don't know how to develop. They also have their own self interests.

Free economy positively encourages people to think, develop new things, to innovate. You are rewarded for your work. A bad way of doing things doesn't remain as a new better one takes over.
.....well that is the bright positivism of economists at least.

Hence the "mixed" part. Correcting for stingyness and for missing markets, and stopping free-riders.

>>"Thus the only feasible is a mix between the two – a ‘mixed’ economy."
...the only sustainable, the extremes are feasible in the short term.

>>"A standard economy" - what's that?
>>"Policing" - maintaining law and order, or Policing, with a capital I think.

>>"Hallmark" OED says "Hall-mark: A distinctive mark or token of genuineness, good breeding, or excellence."
Can one talk about a system of economics in that way, hmmm, not sure.

Have fun!
Z

I'll be back.

DD BA(Econ)

thanks for the feedback Zophiel. I'm off to India tonight so I will make some changes when I get back in January. Much appreciate the input.

Deano

hi i'm back i've made a few changes though there's an awful lot more to do... any suggestions regarding how I might be able to expand the actual essay...?

cheers
Deano

Hi Deano, hope you had a good time in India and didn't get too near the flood waters.

>how to expand the essay?

Okay I think there are three areas: stability, examples, reference to economic movements.

Stability
Everything you discuss is in the static version of the economy, nothing wrong with that, but if you want to make it more involved you should discuss the ability of the economy to react to both predicted and unpredicted disturbances.
A command economy with sufficiently quick reactions may be able to circumvent some of the lag of inaction by channelling resources more efficiently - for example, not having to set up committees and beaurocratic organisations who have to agree to act in a certain way. The central planner can just give the command, and it happens....well, almost.
However the committees have their purpose, choosing the right action to take, rather than acting on irrationally held beliefs.

Of course central planning requires the reporting information and this is likely to have a lag associated with it, whereas the capitalist's utopia allows the people closest to the unexpected disturbance to act independantly, the good ideas succeeding whilst the poorer ideas are pushed aside, a natural selection of the best solution.


Central planners make poor choices. As there is the credability of a single person at stake the refuse to accept their wrong decision and so insted of loosing face, just push along with inappropriate schemes.
Hence China is growing very rapidly, effectively playing catch-up for the years it lost under Mao.


Examples
>> A standard economy is where the government operates a taxation policy in order to fund essential services such as education and healthcare, as well as public goods such as defence, policing and utilities.
....this suggests that the USA is non-standard, what is standard? Perhaps you should reference countries more, yes a pseudo laissez-faire economy with some governmental meddling is standard for the West, but it's not else where.



Economic movement
The consensus of opinion for laissez-faire over command control have varied over time, so historically which comes from where and when, afterall which ever form of government is in place they were at one time endorsed by the population.
Par example: Egyptians had Pharaohs and centrally planned everything, they built some great pyramids...but never developed an effecient language.
The Romans had great buildings, aqueducts, good armies...but saw academia as a distraction, the library at Alexander was magnificent, but the inventions were never common place for the people.
etc...
In more recent times the changing of Kingdom translates into economic and scientific movements, Enlightenment, Renaissance, Modernism, post-modernism, with their associated authors.


So you really could expand this on and on and on and ....
but do you want to? and is that the point of an entry?
who knows!

Ciao
Z

thanks a million zophiel - that is absolutely wicked! i will endeavour to update my entry within the next week incorporating the changes you mention. many thanks, Deano

I'll be back to read this. From my quick scan it's looking good, but I shall be back being pedantic tomorrow morning.

Kat

I don't know anything about economics, so I can't help expand the article like Zophiel, but I can help with general readability etc.

Ecomonics>>Economics

"A true free market economy is one in which there is no government intervention – there are no taxes or state-funded amenities, everything within the economy is owned by private individuals and prices for any and all products and services are determined by the price mechanism."

This sentence is quite long, would it be better broken down a bit?

It's worth linking to a few other articles and sites, such as

Say about Karl Marx, or the NHS.

Kat - thatnks for the readability points - i've made the changes you suggested although i'm working on links.

zophiel, i've added in some stuff along the lines you mention about command economies ==> China under Mao, as well as a bit about examples of varying degrees of mixed economies. plenty more to do but i've got a lesson to go to now! any further suggestions would be much appreciated as usual!

Deano

>>'invisible hand' 1’
....you've got an extra flying comma (').

Basically I think you're there, or as near as is required.

It's always possible to keep tweaking, for example:

You could change some of the tone a bit to be more open and less certain since we don't have "an answer", see http://www.bbc.co.uk/dna/h2g2/brunel/A2896329 on "The Nature of Time" for an idea of what I mean.

You could champion the capitalist system more by suggesting that it could produce workable NHS and military systems(!), or replace the state funding of Universities and sciencetific research.

Or you could try to tone the language down to less-economicsey level. At the moment it reads well to someone who is used to economics texts, but maybe less well to others. (see www.economicsuk.com/blog/ for David Smith's style)

If you were really keen you could ask others to tell you which bits they don't understand......oh, that's what peer review is for.

Come on people, get reviewing!

Am probably off-line for a while. Have fun.
Z

yeah i like the last thing you said! obivously, given i wrote it, my entry makes sense to me, but if there's some crazy economic lingo that anyone doesn't understand then please let me know! plus any grammar mistakes like the old inverted comma!

cheers,

deano

made a few more changes - added a bit more about public goods. i don't want to make it too complicated economically, so i'm not sure which parts are too complex...

Hi Keane,

This is a good A level essay. Two points:

1) I think you should definately highlight that there are in fact no examples of either a pure capitalist economy or a pure command economy (to the best of my knowledge). This lends creedence to your claim that a mixed economy is the way to go.

2) Your argument is a little misleading. You explain how neither free nor command economies are feasible and you conclude that the only other option is some mixture of the two ["Thus the only feasible is a mix between the two"]. You cannot say this unless you show that all possible economic arangements lie between these extremes... could there not exist other types of economic structures?

Are you still working on this, Deano?

hi yeah sorry I've been really busy with school work for a while now... as soon as I've got some spare time i'll make some changes!

thanks for your patience!

Not meaning to be rude...and of course I always believe that school work comes before h2g2 ...but changes??

Kat

sorry for the delay - i've had so much revision and practice papers and things to do recently!

i've made quite a lot of changes to the beginning of the entry - now that i've been doing economics for longer I've edited the Free Market section quite a lot...

I could talk about merit/demerit goods as another failure of the free market, but free market failures are becoming quite a litany at the minute...

thanks for your patience,

Dean

ok i've made some more changes - i think i've covered most of the issues... if anyone spots anything else please let me know!

Deano

it looks good, I can understand it and I'm no economist
however I think the title could be improved

currently its 'ECONOMICS - Why A Mixed Economy Is The Inevitable Compromise'

I don't feel the ECONOMICS is needed, that it is about economics is apparent from the rest of the title

Not every word in the title needs to be capitalised

also even today many people in the 3rd world are subsistence farmers and have little to do with the wider economy

I'd suggest something like 'Why a Mixed Economy is Inevitable in a Modern Industrial Society'