Evaluating Economic Performance
When Galen Kaufman discovered that fruit could fizz, he made it his
goal to market the idea. Economic systems also have goals. These goals
provide a way to guide economic decisions. They can also help people
measure how well the system is working to meet its goals. If our economic
system fails to achieve our goals, we may decide to seek changes. We could
demand laws to modify the system until our needs are met. In the United
States, efforts to meet our economic and social goals have caused the
economy to evolve slowly over time.
Economic and Social Goals
In the United States, people share many broad economic and social
goals. While it might be difficult to find all of our goals listed in any one place,
they are repeated many times in statements made by friends, relatives,
community leaders, and elected officials. We can categorize those
statements into seven major economic and social goals.
Economic Freedom
Americans traditionally place a high value on the freedom to make their
own economic decisions. They like to choose their own occupations,
employers, and uses for their money. Business owners like the freedom to
choose where and how they produce. The belief in economic freedom, like
the belief in political freedom, is one of the cornerstones of American
society.
Economic Efficiency
Most people recognize that resources are scarce and that factors of
production must be used wisely. If resources are wasted, fewer goods and
services can be produced and fewer wants and needs can be satisfied.
Because economic decision making must be efficient, economic efficiency
is also one of our major goals.
Economic Equity
Americans have a strong tradition of justice, impartiality, and fairness.
Many people, for example, believe in equal pay for equal work. As a result, it
is illegal to discriminate on the basis of age, sex, race, religion, or disability
in employment. At the national level, we have established the minimum
wage—the lowest legal wage that can be paid to most workers. While not
everyone supports it, the minimum wage does put a floor on the amount of
income that some workers earn.
Most people believe that advertisers should not be allowed to make
false claims about their products. Many states even have “lemon laws” that
allow new car buyers to return cars with too many defects.
Economic Security
Americans desire protection from such adverse economic events as
layoffs and illnesses. As a result, many states have set up programs to help
workers who lose their jobs through no fault of their own, and many
employers have insurance plans to cover the injuries and illnesses of their
workers. At the national level, Congress has set up Social Security—a
federal program of disability and retirement benefits that covers most
working people. More than 90 percent of all American workers participate in
the Social Security system. Retirees, survivors, disabled persons, and
Medicare recipients are eligible for benefits. Survivors are spouses and
children of deceased persons covered by Social Security. Medicare also
provides health insurance for persons 65 or older.
Full Employment
When people work, they earn income by producing goods and services
for others. Without jobs, people cannot support themselves or their families,
nor can they produce output for others. As a result, most people want their
economic system to provide as many jobs as possible. The goal of full
employment even became law when Congress passed the Employment Act
of 1946 in an effort to avoid the widespread joblessness before World War II.
Price Stability
Another goal is to have stable prices. If inflation—a rise in the general
level of prices—occurs, workers need more money to pay for food, clothing,
and shelter. People who live on a fixed income—an income that does not
increase even though prices go up—find that bills are harder to pay and
planning for the future is more difficult. High rates of inflation can even
discourage business activity. During times of inflation, interest rates on
loans tend to increase along with the prices of goods and services. If interest
rates get too high, they can discourage both borrowing and spending by
businesses. Price stability adds a degree of certainty to the future for
businesses and consumers alike.
Economic Growth
The last major goal of most Americans is economic growth. Most
people hope to have a better job, a newer car, their own home, and a number
of other things in the future. Overall growth enables more people to have
more goods and services. Because the nation’s population is likely to
increase, economic growth is necessary to meet everyone’s needs.
Future Goals
The seven goals we have discussed so far are the ones on which most
people seem to agree. As our society evolves, however, it is possible for new
goals to develop. Do people feel that a cleaner environment is important
enough to be added to the list of goals? Should we add the preservation of
endangered species such as the California Channel Islands fox? In the end,
we are the ones who decide on the goals that are most important to us, and
it is entirely possible that our goals could change in the future.
Resolving Trade-Offs Among Goals
People often have different ideas about how to reach a goal, or the goals
themselves might conflict. Even our economic policies have opportunity
costs. For example, a policy that keeps foreignmade shoes out of the United
States could help achieve the goal of full employment in the domestic shoe
industry, but it could work against individual freedom if people have fewer
choices of shoes to buy.
Even an increase in the minimum wage involves a conflict of goals. On
one hand, supporters of the increase argue that an increase is the equitable,
or “right,” thing to do. Opponents argue that an increase may cause fewer
workers to be hired. In addition, it restricts the freedom of employers to pay
wages that they think are fair. How are trade-offs among goals resolved? In
most cases, people compare their estimate of the costs to their estimate of
the benefits, and then vote for political candidates who back their position.
If the majority of voters feel that the minimum wage is too low, then it will be
raised. The minimum wage then tends to stay at this new level until the
majority of people feel that it needs to be changed again.
People, businesses, and government are usually able to resolve
conflicts among goals. Fortunately, the economic system of the United
States is flexible enough to allow choices, accommodate compromises, and
still satisfy the majority of Americans. In a democratic society, government
reflects the will of a majority of its people. As a result, many government
functions reflect people’s desire to modify the economic system to achieve
their economic goals. A program such as Social Security, as well as laws
dealing with child labor and the minimum wage, reveal how Americans have
modified their free enterprise economy. This system most likely will undergo
further change as the goals and objectives of the American people change.
