Is there free market economy in the US?

Question

We were taught that in a free market economy, prices are determined by demand and supply. There are 3 main resources: people, property and money. The cost of people is their salary, cost of property is rent and cost of money is interest.
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As we know, interest rate is not determined by the market but set by the central bank. This is absolutely against the philosophy and is actually totalitarian/dictatorial approach.
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Now the US want to teach this freedom to everyone in the world, should it not use it on their own people first?
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I asked many Economy students and was surprised not only they did not know how the central bank sets the interest rate, but they never realized interest should be determined by the market no by the bank.
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Please save you time ti write some excuses on how we need the cantral bank and how it helps us - it just helped us to get rid of our many recently. I want some smart answers.

Answer 1

In a nutshell the Central Bank is in control of the money supply in the country. A country needs to import and export (balance of payments) and then a government will have taxation policies in order to fund public sector expenditure (and there always has to be some of this-its unavoidable!). The Central Bank is then in control of inflation-if its galloping ahead the Central Bank will raise interest rates to dampen demand -or at least it should (ahem). Its impossible to have a free for all.



It sets the minimum cost of borrowing i.e. Base Rate /LIBOR but the market then sets the rate over and above these rates depending on the demand for RISK. The higher the risk of the borrower then the higher the margin over the basic interest rate he will pay. At least, that's how it should work. But it didn't in the last decade because Banks abandoned proper risk analysis and the price for risk (margin above base/Libor) was inadequate. This meant that bad, high risk borrowers had access to cheap money-fuelling the money supply & asset prices.

As asset prices are not included in the inflation index then not enough adjustments were made to interest rates to control the boom. Now look where we are!

Answer 2

It can be argued that the US is a mixed economy. Firstly, it is true that the US has free market elements because we believe there should be little government involvement in the economy. Yet, our economy is regulated by the government to a certain degree such as through programs like the FDA, FDIC, EPA, FAA, OSHA. Also, the government does run several institutions such as public education, public transportation, fire department and polices. Hence, the Unites States is not a true free market economy because in the free market there would not be any government regulation and there would be no protection for workers. We actually have a "safety net", which are programs like Social Security, and Unemployment insurance that helps us when the worse happens, none of that would exist in an ideal free market economy.

Answer 3

The whole global is resentful of the way industry is finished in America. We have rule of regulation and ethics that is why we can consistently be the quantity one economic climate on the earth. Doing industry within the U.S. way it is "secure" and that calls for vigilance and law to preserve the economic climate loose, however secure.

Answer 4

No.

http://www.2sidesmagazine.com/Articles/ArticlesAdmin/tabid/76/articleType/ArticleView/articleId/22/Free-Market-Capitalism.aspx



Opposing point of view:

http://www.2sidesmagazine.com/Articles/ArticlesAdmin/tabid/76/articleType/ArticleView/articleId/23/Pro-Govt-Intervention.aspx