List of Pros and Cons of Mixed Economy

Economics is a complicated subject, especially when the issue stops being theoretical and starts being applied to real life situations. Command economies, for example, look great on paper but history has proven that when a government is given complete control of the economy, it almost inevitably leads to a gross abuse of power. A market economy, on the other hand, leaves the government powerless to intervene in declining markets.

A mixed economy sounds like the perfect compromise between the two. Simply defined, a mixed economy is one in which part of the control is given over to the government and part of it is left in the hands of the free market. In reality, most economies the world over are mixed to some extent as it is almost impossible to run a country entirely one way or the other. But even this compromise has some drawbacks, along with its benefits.

What Are the Pros of a Mixed Economy?

1. More Efficient.
The free market is proven to be more efficient at managing the economy that governments. Part of this is their incentive to cut costs and maximize profits. This leads to new innovations all the time. These new innovations often free up resources that can then be used for the good of the entire country’s population.

2. More Stable.
The downside of the free market is that it is unpredictable and unstable. By allowing some measure of governmental control, a mixed economy allows for policies to be passed that bolsters weak links in an economy. This can help prevent recessions, or help bring an end to recessions that were unavoidable.

3. More Equality.
Ideally, a mixed economy provides a way for the government and the market capitalists to balance each other. This prevents people from being forced to live in absolute poverty. A mixed economy also provides incentive for hard work and free enterprise, as people are able to reap the benefits of their own making.

What Are the Cons of a Mixed Economy?

1. Too Many Market Factors.
Because a mixed economy is a combination of two different economic systems, there are a lot of market factors that come into play. These competing factors often confuse issues that are already complex to begin with. As a result, resources can be allocated inefficiently or unfairly.

2. Too Much Gray Area.
There is no set definition of how much control the government has in a mixed economy. It varies from country to country and within countries it changes with time. With no set guidelines, the government often ends up interfering when others would argue that they had no reason to become involved.

3. Too Much Competition.
One of the reasons that mixed economies are appealing is because they balance the free market and the government. Often, however, these opposing forces become so entrenched in their battles that it leads to a stalemate. This leads to a decline in the economy while the powerhouses fight for control.