1) US might not be that productive in terms of total factor productivity. All my US coworkers feel that they work about 200 hrs more than our staff in europe; get 2-3 less weeks of vacation. Also other benedits like maternity leave etc are much less in US. This should be taken into consideration while comparing pricing of products.

2) Other major reason for cheap prices in US is lower taxes. And lower taxes definitely results in more out of pocket spending for health, education, retirement funds etc.

3) We can definitely throw more complexity by adding that there are 180 or so groups of people producing some similar and some different widgets. It depends on the capability ofUS to get more prices for their widgets and get cheap widgets from other groups (could be based on many reasons including military might).

The examples you give are of improperly regulated sectors/businesses getting what they want out of the government as opposed to the government imposing it on them. The regulatory authorities and congress have been more corrupt than ever lately, and you’d be stupid as a business to not get everything you want. No price negotiations for bulk medicine purchases? Sure. Sharing costs for FDA drug trials and getting favorable results? Check. Pushing childhood disorders to be included in special school programs so the number of children diagnosed with disorders increases dramatically? That was the latest PBS Frontline episode, really. There’s evil, and then there’s evil.

All of this says very little about how markets are supposed to work other than show examples of misbehavior if not regulated properly. Voluntary industry-wide standards would suffice for regulation, but it would be nice if regulation changes didn’t help companies and hurt consumers for a change. The FCC is a prime example, but I read congress is actually going to launch an investigation into their practices.

The more corporate welfare you give, the more they lobby for favorable regulation and more corporate welfare. It’s all very transparent under the US system.

“big businesses cry foul as soon as the word ‘regulation’ is mentioned”

Big businesses love regulation, because it drives out competition. Smaller players, new startups can’t compete with them because of the huge regulatory overhead.

One is minimum wage. No matter how much minimum wage is increased, it won’t affect Walmart. http://www.mises.org/story/1950

Same with mandatory health insurance for employers.

Pharma companies love FDA regulations on drug approval process. Because of the huge cost, it guarantees that no new player can enter the field easily.

Big businesses don’t want free market. That would force them to innovate all the time.

There is a lot of innovation in IT, coz businesses haven’t figured out how to regulate it. Yet. I guess the pace of technology is faster than the pace of regulation.

The one-good, closed economy is a very good tool for understanding concepts … but it seems like a gross oversimplification if its used to explain complex global setup & systems that give rise to cheaper stuff in US.

What is agreed is that US has better R&D and smoothly running systems (thanks to smarter setup and gifts of history & geography) … does that make it cheaper??? …. not always .. yes in some goods. .. but many things (that matter) are cheaper elsewhere.

That brings us to an important point. People need transportation, not cars. Cars are a means of transporting oneself from point A to point B. Cars are not the end but only one of the many means of getting around. Roads are one obvious solution to urban transportation needs but not the only one. You could have light rail, for instance. And even if you do go in for roads, you could plan for a healthy mix of private cars, taxis, public buses, bicycles, and footpaths. The important point is that it involves planning, not just a random sequence of interventions made by ignorant policymakers.

Agreed. But you should look into and talk about the role of the auto industries in promoting cars and roads as a means of transport in the US, over rail-road and means of public transportation. That was not foresight, but short-sighted greed by private businesses, and while there are obvious pros of that, there are also many cons which are being discovered now in the US society (negative effects of urban sprawl, obesity etc.).

According to estimates, the oil and gas industries received $37 BILLION in subsidies in 2007 – basically, tax-payers’ money that could’ve been better spent on R&D of renewable energy resources.

The agribusinesses in the US receive approximately $100 BILLION in subsidies for products like corn syrup, which is one of the factors in obesity. But that’s more business for pharma companies and health industry, so I guess it’s fine, since it keeps the economic engines humming.

I’m no fan of socialism and agree with the ills you pointed out, but I’m puzzled as to why economists like you prefer to tout the “free market” while blithely ignoring its negatives and costs to the public. US is, at best a mixed economy (and not a pure free market economy – and thanks for that), though there’s much more entrepreneurial freedom than other countries.

And just to remind you, Enron happened not that long ago – a sobering reminder of what your “free market” is capable of. Maybe you should look into the cost to the US tax-payers because of Enron and write a post on it, though I wouldn’t be surprised if you put a spin on it to actually make “free market” come out clean.