Video Transcript: The Role of Government in a Mixed Market Economy

Hello, welcome back. In this video, we will be discussing the role of government  in a mixed market economy. First, let's define what a mixed market economy is.  A mixed market economy is an economy that mixes parts of the command or  government-directed economy with the market economy or an economy that is  purely driven by the actions of the market, a mixed economy sees the  government being involved with economic decisions, but still allows many  private companies to provide goods and services. Right, so the United States is  a good example of a mixed market economy. You still have some government  involvement. It's not a it's not a totally free market economy, but it is as close to  a free market economy as you can get with a little government regulation. Right, we're not like a socialist government, right? That that kind of structures  everything, or a communist government that kind of structures and controls and  central plans everything. Right, the U.S. economy is still very decentralized, but  it is driven by some government policy that makes sure that the consumer is  protected and that we keep markets free as possible. The role of government in  a mixed market economy. The government plays an important role, although  limited. Right, we're limited role by the government. The role in the economy of  any mixed economy. Mixed economies see many decisions made by individual  consumers and producers with little input from the government, right? So, so  firms are still able to operate freely, you know, abide by the rules, produce their  products, manufacture, you know, distribute and sell. Laissez faire is the general practice of government in a mixed economy, right? They want to fuel the  economy by interest rate, fiscal policy, monetary policy, right? Through taxes  and interest rates, we can. The government can control how the economy heats  up. They need to cool it down. You know, obviously, you want to heat up heat up the economy, cut taxes, lower interest rates. Right, people can borrow from the  banks for less, cheaper borrowing costs. Right, and then if you lower taxes,  obviously, corporate corporations and firms and entities will have the opportunity to take that capital that they receive from the tax break and reinvest it into their  company. Now there are six roles that the government should be fulfilling in a  mixed economy. Let's look at the first one: maintaining legal and social  framework. In a mixed economy, the government maintains legal and social  framework, saying that the government will set rules and laws for businesses to  work within, but if the business chooses to go outside the lines, the government  can impose fines and penalties to force compliance. Right, so you know they  need to CEO, CFO, board of directors need to make sure that they're in  compliance with the government rules, right, because they will enforce impose  fines and penalties, and not limited to jail time. Protecting private property rights, right, patents, trademarks, etc. Protecting the common good, right? They want to make sure consumers are protected. Obviously, see pollution and safety.  Obviously, we don't want the entity, the corporation, whoever it is that is  manufacturing or whatever they're doing, to you know pollute the earth. We want

to make sure that we have you know safeguards and regulations against excess pollution, and you know make sure that the consumer is safe. The FDA is a  good example of consumer safety. Number two, maintain competition. Right in a mixed economy, the government maintains competition between firms. The  government uses the rules from the previous to protect competition between  firms. For instance, using that one company cannot control all aspects of a  market. Essentially, monopoly, right? You see that Microsoft went through an  antitrust suit, right, because they were dominating their space, right, becoming a monopoly, and they had to face the antitrust suit to ensure that you know  Microsoft stayed competitive with the market, and also Justice Department  review of mergers and acquisitions. You know, if it's going to, if two companies  are going to merge, you know, and create one mega company to dominate the  space. You know, the government's going to oversee that, and they're going to  want to make sure that that that doesn't happen because. You know, it's not  going to promote fair competition. Three, providing goods and services in a  mixed economy, the government provides goods and services that individual  businesses can or will not provide. Essentially, electric, water, any kind of  utilities. The government's going to make sure that that happens. Right. The  government provides us roads to travel on, schools to attend, other public  services that might not otherwise be provided for by the citizenry. Right, airports  and seaports, public schools, etc. All right, redistributing income in a mixed  economy, the government sees that income should be redistributed to other  members of society, and this is done through the taxation. Right, the  government redistributes income from the very wealthy to the poor while not  trying to completely redistribute income. Basic services are usually provided with this money. Right, so we have the child health care protection. Right, so the  CHIP program that is funded through taxation, right? So you have less fortunate  families that their children need health insurance, though it may be an unfunded  liability. You know the CHIP insurance is there to ensure the children have a  safety net for their health care, right? Again, food assistance, tax returns, things  like that is redistributing the income. Right, you're taking you know the money  from the from the upper echelon tax bracket, redistributing that down to the to  the tax bracket that's the lowest. Number five, stabilizing the economy. In a  mixed economy, the government wants to maintain a stable economy. The  government has the goal of reducing large shifts in the economy, with the goal of eliminating things like unemployment and inflation. The government ultimately  wants to increase increase total economic growth. Right. So, a good mix of  interest rate hikes or reduction, and coupled with taxation, you know the tax  policy is critical, right? So right now in 2018, we see ourselves in a environment  where rates are rising and taxes are being cut, right? We'll see how that we'll  see how that balances out in the future as taxes are cut. Corporations are going  to have excess capital to reinvest in their jobs, into their businesses, and grow 

jobs. Right, but on the flip side, you'll see interest rates are rising, which is going to make borrowing costs more expensive for firms looking to expand, but the  hope is that the tax cut will offset the interest rate increase, and so the cost of  capital from the interest rate hikes won't be as negative impact as they might be  without the tax cut. Correcting for external for externalities in a mixed economy,  the government wants to correct externalities. The government has the goal of  correcting issues that occur in the market, such as fixing costs and benefits of  certain actions, as well as fixing any market failure, right? So, in 2009, you  know, we went. The United States and the world went through financial crisis.  The government stepped in, bailed out General Motors and Chrysler. You know,  put the taxpayers on the hook for that. But you know, it was a main staple of the  United States. A lot of manufacturing jobs could potentially have been lost.  Revenue, which would have hurt our GDP, and you know, overall production  would have would have went away, and we would have lost GM had that not  happened. So, in that case, you know, we the government, the U.S. government should not be getting in the way and bailing companies out, but we we we kind  of took that under our wing there, and we had to we had to make it happen  because if GM would have went down and would have went bankrupt and belly  up, you know it would have been a lot, a lot of jobs. So we wanted to make sure  that that didn't happen, and then the American Recovery Investment Act, right?  It was basically a huge bailout for banks that were underwater through the real  estate crisis, you know, the mortgage-backed security crisis that went on, and  you know, subprime lending, those things like that. So these rules that were  enacted to ensure that this, the Dodd Frank Act was enacted to kind of curb all  of this, right? To make sure that we are sustainable in our lending practices for  the big banks, because if they get bloated with a lot of suspect mortgages or.  Make bad loans. We want to prevent. The government wants to prevent another  market meltdown like we experienced in 2007, 2008.