America Is Not Really a Free Market Economy

Why That Could Be the Jobs Solution


The United States is considered the world's premier free market economy. That's because the U.S. Constitution guarantees the three critical elements that create a free market. They are ownership of private property, a competition market, and unregulated prices.  But the Constitution also allows the Federal government to step in to "promote the general welfare." That goal has led to what many call "the socialist welfare state." What many people don't consider is how command economy characteristics also pop up in national defense, industry subsidies and corporate bailouts.

The United States is a mixed economy, and is better for it.

When people think of a command or centrally planned economy, they usually call to mind Russia, China, Cuba, North Korea, or Iran. However, most modern economies are really mixed, allowing government central planning in areas that are deemed of vital importance to the economy's growth. For example, the U.S. spends more on defense ($773.5 billion in FY 2017) than any other budget area except Social Security ($967 billion). It's more than Medicare ($598 billion), Medicaid ($386 billion) or the interest payment on the debt ($303 billion). It's even more than the amount allocated for government bailouts of banks ($700 billion) during the 2008 financial crisis.

Thanks to globalization, even command economies have adopted characteristics of a free market economy. That's because they are impacted by free market pricing throughout the world, and must respond in a flexible fashion.

So, the question that should be asked this election season should not be "Are we heading toward a socialist state?" We already have aspects of that, and most people enjoy being protected financially after they retire. The question should be, instead, "What are our priorities as a nation?" A command economy is great at mobilizing economic resources quickly, as the U.S. did during World War II.

In fact, that's what ended the Great Depression.

That doesn't mean the United States should start another war to boost economic growth. In fact, today's defense spending is not very effective at creating jobs, since so much is spent on technology instead. However, we should consider shifting our priorities so we can put the millions of unemployed back to work.  That means shifting defense spending (8,555 jobs/billion) toward public works construction (19,795 jobs/billion).  This would provide the benefits of a command economy, by mobilizing quickly to solve the nation's #1 problem. Putting people quickly back to work will create the demand needed to let free market forces do the rest.

In Depth

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