In any decision that involves two or more options, a person deals with an opportunity cost. Often times the cost or value of a given good or service is considered of in monetary terms.
Opportunity cost in a particular decision is rooted on what must be given up as a consequence of that decision. In other words, opportunity cost may be thought of as the benefits or advantages that one could have gotten if an alternative action were taken. This is an important principle to consider in an economy as it helps guide the system in work.
One side of economic models is known as Capitalism. Capitalism is simply the type of social system where the economy is separated from the state. In capitalist systems, governments have no involvement in economic activities at all. Private ownership of properties best describe capitalism and every one are allowed having their businesses in a free market. In a capitalist society, it is believed that the sole purpose of the government is to protect the people from fraudulent activities. Suffice to say, capitalists usually are simply for profit.
On the other hand, socialism is like the exact opposite of capitalism. The government plays a major role since it owns the social properties of the country. Even though most properties are government-owned, the resources in a socialist society are controlled and used by the peopleworkers, not only by the ruling elite. The laborers have the power to control the economic productions that will benefit everyone in the society. The major difference between these two systems is that in capitalism profits are highly regarded whereas in socialism the relationships between the people in order to attain the common good for their society is utmost taken into account.
The distinctions and comparisons between the two, a principle would arise from a capitalist point of view. This principle would not work in socialist construct as explained. The invisible hand principle is quite easy to comprehend. It was coined by Adam Smith who deemed that the market works instinctively like it is being guided by an invisible hand. No central control or direction is necessary. The free will of all those involved in the market (producers and consumers), act according to their own interests but in turn also benefits the society as a whole. This however will be opposed by some, for reasonable explanations as with what the US government faces recently in its economic recession.
The US government faced huge problems as it hit an economic recession coupled by growing budget deficits. The Obama administration embarked on a journey of historic proportions facing what could be the worst economic crisis since the great depression. The government faced problems in all major sectors of the country especially the financial sector. After the first troubling months of this awful economic slump, the US government gets a hold of the situation and slowly shields the other sectors that needed some help. But the increasing budget alterations for the economic reconstruction have its own downside, steadily increasing the budget deficits with the economic stimulus. The economic stimulus was a double edge sword -It slowly but surely made impact on the economy as well. However, the US government was in a place that it chooses between two evils that if failed, would bring about catastrophic economic results.
In theory, it would be the best to create stimulus packages for the economy to slowly blossom once again. The government would need to be invasive in the economic crisis with this response but would help the economy to reduce the slump if not put a brake to it. Though it helped the economy today, if continued, it would then be the cause of another crisis but now caused by budget deficits. The economy must be put in a state of balance between those two or else, the crisis may again hit the biggest economy in the world.
The level of involvement by the government should be controlled. The economys functions will be very much affected if the government would take more control than the fiscal policies and other tax incentives it gives out. The main program that can be controlled efficiently is the tax programs. The use of tax incentives for individuals and corporations should be maintained in a minimal level. That way, it balances with the deficits of government funds.
The US Government is bound to pursue these economic principles as to regain the footing of the biggest economy in the world- rising once again, to be stronger than ever.