1. Legal and Social Framework


Government provides the legal framework and the sevices needed for a market economy to operate effectively. The legal framework sets the legal status of business enterprises, ensures the rights of private ownership, and allows the making and enforecment of contracts. Government also establishes "rules" governing the relationship of businesses, resource suppliers, and consummers with one another.


Services provided by government include police powers to maintain internal order, a system of standards for measuring the weight and quality of products, and a system of money to facilitate exchanges of goods and services.


2. Maintaining Competition


With competition buyers are the boss, the market is their agent and businesses are their servants.


Monopolies are not regulated by competition.


US government attempts to control monopolies in two ways:


a. Regulation and ownership.


In a few situations, natural monopolies exist. Government has allowed them to exist but has created public commissions to regulate their prices and set their service standards. Some aspects of transportation, communications, electricity, and other utilities are natural monopolies.


b. Antimonopoly laws.


In nearly all markets, efficient production can best be attained with a higher degree of competition. The Federal government has therefore enacted a series of antitrust (anti-monopoly) laws, beginning with the Sherman Act of 1890, to maintain and strengthen competition.


3. Public Goods and Services


Certain public goods are not produced by the market system because they are indivisible i.e. they must be produced in such large units that they connaot ordinarily by sold to individual buyers. For instance aircraft carriers, highways, space telescopes, and air-traffic control.


There is a principle in economics called the exclusion principle. Buyers who are willing and able to pay the equilibrium price of the product obtain it, but those who are unable or unwilling to pay are excluded from it's benefits. The exclusion principle does not apply to public goods since there is no effective way of excluding individuals from their benefits once those goods come into existence. Obtaining the benefits of private goods requires that they be purchased while obtaining the benefits of public goods (highways for instance) requires only that they be available.


A classic public goods example is a proposed interstate highway. The contruction of an interstate highway would be economically justified if the benefits exceeded it's cost. but the benefits acrruing to one user would not be great enough to justify the purchase of such an indivisable product. Moreover, once it was in operation, there is no way to exclude anyone from using it. Because the exclusion principle does not apply to the interstae highway, private enterprises have no incentive to build it. It's a public good like national defense, flood control, public health, satellite navigation systems,and insect-abatement programs. If society demands such goods, they must be provided by the public sector and financed by the compulsary charges in the form of taxes.


Quasipublic Goods


However, many other goods and services are provided by government even though they could be made exclusive. These are called quasipublic goods which include, education, fireprotection, libraries, museums etc.


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I hope you can see from these few economic functions of government that a totally free market system would be chaos and that government plays a necessary role in our economy. So your comment about having more market freedom lacks specifity and is basically a cop out. Now the airlines are considered to be be a private enterprise but I maintain that there a many public services that have to be provided for the airlines such as air traffic control, airport maintenance and now a bigger presence in airport security to name a few. In fact if these public services didn't exist there wouldn't be airlines and if there weren't airlines I think our economy would be far worse for it. Addressing your comment about letting some airlines go bankrupt and that others would automatically pick up the slack. Well again I think the bailout goes along with the public services provided for airlines and the role government plays in ensuring competition by keeping the playing field level. This package is hardly a windfall for the airlines and I think that maintaining as close to that status quo as possible competition wise is in the best interests of the consummer. Whether or not other airlines would pick up the slack is debatable and capital formation for the airline industry would become non existent I would think. Yes the airlines are a private enterprise but they are highly dependent on publice services for their survival. A strange find of entity no doubt.