We Are All Slaves?

One of my classmates posted this:

Melissa, our assumption is that the United Statutes is a democratic country, on paper maybe, but in reality it's a capitalistic country. The man with the gold makes the rules. In other words, if you are poor you are nothing but a free slave. Slave, because you have no choice but to work for someone else and on their terms.

I stewed and stewed on this for awhile.  I originally just intended to leave well enough alone and ignore such obvious ignorance.  But I couldn't let it stand - responding thusly:

I can think of nothing more democratic than capitalism. The goods and services that are available are chosen directly by the people.

Capitalism drives so much choice that nearly every preference can be accommodated.

Careers aren't chosen for us by a faceless bureaucracy, they are the result of the choices that we make and the preferences that we exercise.

The comparison to workers as slaves is deeply offensive as it makes light the true plight of slavery - looking at the wealth that the average American (indeed even the poorest American) has it is difficult to imagine the American system as anything remotely close to the abject humiliation, cruelty and barren living conditions experienced by slavery.

Technorati Tags: school,politics

Trade Can Make Everyone Better Off

Really, its true - trade can make everyone better off.  A mistake most people make is to look at a slice of time, or a slice of people and ignore the huge effects that trade creates over time.

Yes, the workers at the textile mill that just closed down face a burden, some for a short period, some for a long.  But everyone else (including themselves) have access to cheaper clothing - this makes us better off.

It is very hard to image with any confidence the way things would have been - but would we really be better off without all of those goods that China sells us for cheap?  People get really angry when prices rise, why do they also get angry when prices decline?

Change is hard, but it incrementally gets us to a better place.

Technorati Tags: economics,school

Congress Must Be Doing OK

With an approval rating hovering around 20%, a full 10% under Bush's fantastic ratings - why is everyone so confident that the Democrats are going to expand their margins in Congress?

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People Respond to Incentives

The other major flaw with most regulation is understanding that people respond to incentives.  They are typically written with a "assuming nothing else changes" mentality.

They raise taxes assuming people's spending habits or even citizenship won't change.  They raise the cost of doing business assuming that businesses will just pay them instead of finding greener pastures.

You can look at nearly any "market failure" as popularly described in the media and find government interventions in the background.  Enron and the re-regulation of California energy markets.  Rising healthcare costs and government subsidies of 3rd party payments.  Executive manipulation of earnings and caps on executive pay (at least the tax deductible parts).  Just look at the tax code could probably come up with a million distortions of behavior - some "good" some "bad."

The world would be a much, much better place if government officials had to take, and pass, a basic economic competence test, if only to learn this one simple lesson.  People respond to incentives.

Technorati Tags: economics,government,school

Rational People Think at the Margin

I have heard more than one person proclaim "if markets worked someone would have figured out something to replace gasoline" or something to that effect.

The truth is there are LOTS of someones trying to figure something to replace gasoline.  In the meantime we are all making small adjustments to our lifestyle and choices to cope with this additional cost to our budgets.

None of these changes are earth shattering - that is what is meant by "at the margin."  We are driving less, we are taking more public transportation, we are buying homes closer to work and we are deferring purchases that we would have otherwise made.

We aren't rushing out to buy a new home just because the price of gas is high - but if we are in the market for a new house, we will take its proximity to work or public transportation into account.  Its the billions and billions of little decisions like this that drive the economy forward.

When a company is looking for opportunities to become more efficient they don't look at redesigning the whole factory.  The look for opportunities to cut a penny here or a couple seconds there.  In the long run they add up to real money/productivity.

This is one of the most glaring failures of government programs.  They don't look to make incremental improvements, it is big bang or nothing.  No politician is ever going to run an election with the slogan "I made collecting taxes 1% more efficient."  So therefore, government never gets any better, it just gets more costly.

Technorati Tags: economics,school,government

The Price Of Solicalized Healthcare

Do we really want government to enforce our wastelines? Do football players get exceptions? What about sumo wrestlers?

The report shocked the nation and prompted the government to pass legislation to force the Japanese to shape up. The laws to address what the Japanese have come to call "metabo" take effect this year. They've given the government and employers, long dominant forces in Japanese workers' lives, places at the dinner table in ordinary Japanese homes. They've also sparked a flurry of products to help Japanese keep trim or shed extra pounds.

One regulation, effective in April, requires all citizens over the age of 40 to have their waists measured every year. If a man's waist is more than 33.5 inches or a woman's more than 35.5 inches, they are considered at risk and referred for counseling and close monitoring. The government is also requiring companies to slim down their workers or face higher payments into the national insurance program.

The left will deny that this would ever happen here and then as soon as they had incentive to do this here they would do it. I have no doubts.

Tags: economics, healthcare

The Cost of Something Is What You Give Up to Get It

The second of Mankiw's 10 principles, I think that Mankiw intended it to be reinforce the concept of opportunity costs.  It is also important in another way.  The "correct" price of any good or service is the price that was paid for it.

You here a lot of people and pundits complaining that the cost of gasoline is "too high" as they rip out their credit card to pay for filling up their Hummer.  Or complaining that no one wants to buy their house at "fair market value."

This isn't to say that their aren't bubbles or depressed markets, but you never really know for certain that you are in a bubble or under-priced market until its over do you?  After all everyone was convinced that housing prices would never go down and that e-commerce had ushered in a new economy that didn't follow the normal economic rules.

Then reality set in and every figured out that economic rules still apply and we were in a bubble after all. 

Hindsight is always 20/20.

Technorati Tags: school,economics

Conservation

McCain on the energy 'crisis:'

The Arizona senator called for more energy conservation, saying it was "no longer just a moral luxury or a personal virtue; conservation serves a critical national goal."

Anyone know of a better method to encourage conservation than high prices?

Technorati Tags: economics,energy,politics

People Face Trade-offs

Several of Mankiw's principles have a certain 'well duh' air about them.  This is one of those.  The amazing thing is that when people are forced to make these trade-offs they can get kinda pissed off about it.

I'm not certain what triggers this anger, but people can accept that in order to take that trip to Hawaii they may need to driver that car for an extra year.  Why is it that when you tell them that they need to  put some extra money aside to make sure that a medical emergency doesn't push them into bankruptcy they get all put out?

We face trade-offs from the moment we wake up in the morning (possibly even slightly before that) until the moment we close our eyes to go to sleep.  The most important lesson that people can learn is that government can't just make these trade-offs go away, they can merely move them around a little and hide the true costs of those trade-offs from us.

Technorati Tags: economics,school

The 10 Principles of Economics

Mankiw boils economics down to ten principles in his Essentials of Economics textbook which he views as the central, unifying ideas that drive the economy and economic decisions.

He defines these principles as:

1: People face trade-offs.
2: The Cost of Something is What You Give Up to Get It
3: Rational People Think At the Margin
4: People Respond to Incentives
5: Trade Can Make Everyone Better Off
6: Markets Are Usually a Good Way to Organize Economic Activity
7: Governments can Sometimes Improve Market Outcomes
8: A Country's Standard of Living Depends on Its Ability to Product Goods and Services
9: Prices Rise When the Government Prints Too Much Money
10: Society Faces a Short-Term Trade-off between Inflation and Unemployment

Over the next several posts I'm going to provide my views on each of these principles.

Technorati Tags: school,economics