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Posted at 1:37 pm on April 22, 2010, by Wirkman Virkkala
Attempts to summarize all morality into a simple principle are ancient. Long before Kant’s categorical imperative we were blessed with the Silver and Golden Rules. Indeed, there is a sort of progress in the development of these rules:
But the progress may be illusory. (more…) Filed under: Economic Theory Comments: 1 Comment
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Posted at 12:04 am on April 19, 2010, by John W. Payne
The left wing caricature of a market economy presents rapacious businessmen monopolizing resources and raising prices to further enrich the wealthy while crushing the poor and middle class. There are a multitude of problems with this notion, but the primary one is that the market almost always discourages monopoly and drives prices down for the benefit of everyone except the firms that cannot compete. Even more remarkable is that in many cases the downward pressure on prices actually reaches its logical conclusion of firms giving away numerous goods and services for free (i.e. at a zero monetary cost to consumers). One often overlooked example of this phenomenon is the near total availability of condiments at fast food restaurants. Salt, pepper, ketchup, mustard, hot sauce, and more can be taken in large amounts whenever you make an order. When I was still in college, I stockpiled those little packets to use at home so that I didn’t have to pay for them at the grocery store. I’m sure this seems insignificant to most people, but that’s only because the market has made these goods so abundant that we take them for granted. In ages past, salt was such a valuable commodity that it was used as money, giving rise to the expression “worth your salt.” And it was demand for other spices like pepper that sent Europeans scrambling across the world 500 years ago in an effort to reap the enormous profits they could bring. It is nothing short of amazing that what was once so expensive that thousands of people would risk their lives to procure it is now so abundant that we don’t even give a second thought to people giving it away. A similar, if more high tech, example of the same phenomenon is the plethora of restaurants and coffee shops that now give away free WiFi internet access to anyone who wants it. Most of these places don’t even require users to make a purchase, operating on the belief that the longer a person stays in the store, the more likely they are to buy something. If you have a laptop, you can now access the greatest store of information the world has ever known as much as you want for free, all thanks to the free market, which forces businesses to compete by enticing potential customers with such fringe benefits. You might object here that the cost of these goods is included in the price of a meal, so it isn’t actually free to the consumer. That cost is negligible, which is why they give the stuff away, but the point is true enough, so let me give you a few examples where the user never has to spend a dime to reap some pretty enormous benefits. Many of the internet’s most powerful tools are completely free to users. Without search engines, the internet would be of very limited use, but despite being so valuable, they are almost all free because if one tried to charge people would very quickly migrate to a free alternative. Facebook allows individuals, businesses, charities, and all other manner of like-minded groups to set up free profiles and communicate with each other. I regularly chat on Facebook with friends across the country and the globe. Two generations ago, such instant communication wasn’t available at any price, but now it’s just part of an average day. The major search engines and Facebook rely on advertisers to provide their revenue, so you only pay for those services if you buy something through one of their ads. Furthermore, even these ads typically benefit the consumers. Because the advertisements are generated by a computer program based on information given by the user, they are more likely to be of interest than the average TV or radio commercial, and if a person buys a product because of the ad, he is made better off, provided it meets his expectations. To give a personal example, I discovered the service Groupon, which sells daily coupons to local businesses with steep discounts, through an ad on Facebook. I have eaten numerous meals for around 50 percent off thanks to Facebook, a service that I enjoy for free. Now contrast these remarkable market achievements with the government. The free market is providing numerous, highly valued goods and services at no cost to the consumer. On the other hand, the government provides many “services” that I don’t even want (e.g. the drug war, the war in Iraq, illegal wiretapping) and never for free. Why anyone would ever prefer the latter to the former is beyond me. Filed under: Economic Theory, Market Efficiency Comments: 7 Comments
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Posted at 8:51 pm on April 16, 2010, by Wirkman Virkkala
A number of writers from across the political spectrum have been writing about the word “capitalism” recently. What does it mean? Do we have what it signifies? Does talking about such a seemingly vague thing increase our understanding? John Stossel argues that we don’t live under capitalism, unless you modify the word to mean “crony capitalism.” His essay “Let’s Take the ‘Crony’ Out of ‘Crony Capitalism’” makes a very familiar case:
This is all very well and good. Accurate in its own way. But I am not sure we should give in to either libertarians who want to defend free markets or statists who want to bury them in red tape. “Capitalism” isn’t a word that means just one thing, just as “democracy” isn’t a word that means just one thing. One usage isn’t obviously better than another. Thackeray’s coinage serves more than one master. I support laissez-faire. It’s a great and noble — and ultra-civilized — policy. But laissez-faire isn’t the only form of capitalism. (more…) Filed under: Economic Theory, Regulation Comments: 3 Comments
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Posted at 7:30 pm on April 16, 2010, by Christine Harbin
As component of its Make a Difference campaign, Starbucks gives its customers a 10 cent discount if they use a reusable travel mug. This is another example of how the private sector can encourage certain behaviors without direction from the government, such as environmental stewardship. Corporate Social Responsibility (CSR) initiatives like Starbucks’s are preferable to government mandates because they respect individual choice. If, for whatever reason, a person does not want to use a reusable mug, he or she can still purchase coffee. Consumers win because they pay a lower price for the product and also because their choice is unrestricted. Companies like Starbucks win because they can reduce their material and inventory costs. The environment wins because fewer paper cups go to landfills. Filed under: Economic Theory, Environment, Market Efficiency Comments: 2 Comments
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Posted at 2:08 am on April 3, 2010, by Eric D. Dixon
Working as an intern for the Cato Institute in 1997 was one of the most formative experiences of my life. During that time, I participated with the other interns in a series of lunchtime discussions with Tom Palmer, a Cato senior fellow, director of Cato University, and also now with the Atlas Economic Research Foundation, where he’s vice president for international programs. I’ve written elsewhere about my high esteem for Tom, and his considerable impact on my own intellectual development, and I could say more — but for now, I’ll get to the point. The very first reading assignment that Tom gave to the interns was Frédéric Bastiat‘s essay “What Is Seen and What Is Not Seen.” It’s pretty powerful stuff, even today, and even for those of us for whom the ideas contained in that essay are old hat. That may be partly because of Bastiat’s clear, lucid, illustrative way of making abstract economic concepts understandable and unmistakable, but also because the economic fallacies that Bastiat debunked are still widely believed today, so his points remain relevant to modern political and social problems. When journalists — and even a Nobel laureate economist — begin to credit wanton destruction as a form of economic stimulus, it becomes obvious that Bastiat is more relevant than ever. Henry Hazlitt updated Bastiat’s essays for a new generation in his book for which this blog is named. Tom Palmer is helping to bring them to the YouTube generation. Tom has begun producing a series of video clips with Atlas that aim to take these fallacy-busting arguments viral. I’m far from the first person to link to this clip, and I’ll be far from the last. The belief that destruction — or, for the same reasons, government spending — can stimulate the economy in a useful way is a symptom of lack of forethought. Anybody reading this right now can help stem the tide of economic ignorance by passing on the link to friends, or suggesting it to the reading audience of whatever forum you might participate in. [Cross-posted at Shrubbloggers.] Filed under: Economic Theory, Government Spending Comments: 5 Comments
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Posted at 11:12 pm on April 1, 2010, by John W. Payne
N.B. I wrote this post a few weeks ago for my personal blog before I changed the site to a new server, and it seems to have gotten lost in the shuffle. I happened to really like this one, so I went through the trouble of retrieving it and thought it was worth sharing here. I finished season two of The Wire last night (yes, I know I’m way behind on this one), and I thought there was a particularly interesting point about why governments fail running through the whole season. While the show is essentially an in-depth study of how different institutions fail, I think this one might warrant a little drawing out. (This post will not really have spoilers as such, but if you haven’t seen it, you likely won’t get it, so it might be time to stop reading now.) The whole reason for the detail’s existence in season two is because Major Valchek is angry that Frank Sobotka and his union gives a more substantial gift to the church they both attend than the police union. It is nothing more than a personal vendetta, which just happens to uncover a massive criminal conspiracy. Furthermore, if Valchek had his way, the worst of the conspiracy would have remained hidden just so he could pursue one of the least guilty members of it. Public choice economics holds that one of the major problems with government is that politicians and government employees do not cease to be self-interested once they become part of the government. They do not pursue some mythical “common good” but their own profit, and Valchek is the perfect illustration of that. To use one of his phrases, Valchek “couldn’t give a hairy-ass fuck” about some ideal like law or justice. For him, being a police officer is about rising within the organization as far as possible and abusing his power to get what he wants in the outside world. There are many “natural police” who do care about doing the right thing, but they are always crushed by the organization, while the Valcheks and Burrells rise to the top. And so it is with every governmental organization. Political decisions are almost never made with an eye to the costs and benefits of the whole society but merely the costs and benefits to the politician or bureaucrat. Contrast this with the gangs in the show. While there is a great deal of personal animosity between some groups (e.g. the Barksdale and Proposition Joe), it can almost always be set aside if it becomes necessary for the sake of business. At the end of the season the Greek says “Business. Always business,” and it’s a perfect statement for the mentality of almost all the gangsters on the show. They do some truly awful things to keep their business functioning–usually because of the black market nature of their businesses–but it is rarely for any personal reason. Their organizations exist for one reason: to sell a product that people want. If they lose sight of that, they will cease to exist. However, the police and other government organizations only theoretically exist to enforce laws and mete out justice. In reality they have as many different missions as there are personalities involved. What benefits one division of police, almost inevitably hurts another, so the organization can never be organized because no one can agree on its goals. The police can only muddle forward, fighting each other almost as much as they fight crime, while even if the gangs are feuding, the shit makes it to the street. Filed under: Drug Policy, Economic Theory, Market Efficiency Comments: None
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Posted at 2:27 am on April 1, 2010, by Eric D. Dixon
The venerable Don Boudreaux linked to us from Cafe Hayek yesterday, calling us a “Great new blog” — a tremendous honor for our fledgling effort. Justin floated the idea for starting this blog only 10 days ago, I built the site later that night, and we started asking a bunch of our libertarian friends to join us over the next few days. I’m a little stunned we went in only nine days from tentative mental glimmer to getting name-checked by the chairman of the George Mason University Department of Economics, but the Internet is a pretty fantastic and fast-moving place. I had the good fortune to meet Boudreaux once, back in 2002, when he shared a Future of Freedom Foundation bill with Nathaniel Branden, the night before the Cato Institute’s 25th anniversary celebration. I sat next to Bumper Hornberger during the dinner, and he couldn’t have been nicer or more enthusiastic about spreading the ideas of liberty. At any rate, Boudreaux gave a speech pointing out the many ways that capitalism makes our lives better, safer, cleaner, and more pleasant — often in ways we take for granted because they’ve become so commonplace. It was essentially a lengthier version of this Cafe Hayek blog entry. It’s a theme that bears repeating often, such as in my blog entry from last night — or, as one of our commenters reminded me, in this Louis CK appearance on “Late Night With Conan O’Brien.” Back during the early ’00s when I lived and worked for about six years in the DC area (at U.S. Term Limits and Americans for Limited Government), I kept telling people that I planned to pursue an economics degree at George Mason. I even relocated from Maryland to Virginia in a blatant in-state tuition rent-seeking move. But then I got laid off from my job in the then-rapidly-contracting nonprofit world and my mom’s health took a turn for the worse — so I moved back out west, and eventually ended up in St. Louis where I live today. I often keenly regret not having taken the GMU plunge, though. If you’re a free-market econ geek, GMU’s program seems like one of the most exciting places on earth. To this day, I sometimes idly fantasize about applying, dropping everything, and moving to Fairfax. But grad school is really something I should’ve done a decade ago. I guess I don’t have a unifying point to all of this rambling, other than to say that Cafe Hayek is excellent, and anybody who happens to be reading our blog but doesn’t yet follow theirs regularly should rectify that today. Filed under: Blog, Economic Theory, Higher Education Comments: 3 Comments
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Posted at 7:45 pm on March 31, 2010, by Justin M. Stoddard
When first I saw the headline “Israeli MP plans ‘popcorn law’ for movie munchers’,” I was sure the corresponding article would have something to do with either taxing or banning popcorn at movie theaters because of supposed health concerns. It turns out, the reason given was much less nuanced and rather refreshingly honest:
When I say “refreshingly honest,” I mean that there are no hidden overtones here. Carmel Shama doesn’t appear to be overly concerned with health. This doesn’t appear to be a redistribution scheme, where the proceeds from taxed popcorn would go into some government coffer. This is pure, straight-up theft. This does raise an interesting question, however. Why is popcorn so expensive at the movie theater? Economist Steven Landsburg isn’t so sure that it is. In chapter 16 (aptly named, “Why Popcorn Costs More at Movies”) of his book, The Armchair Economist, Steven Landsburg goes through a number of explanations for why the price of popcorn is as expensive as it is. The reasons may surprise you. Intuitively, we would guess that the price of popcorn is high because once we enter the theater, we are a captive audience. They have, in effect, a monopoly on popcorn, since most theaters won’t allow outside food onto their premises. But, as Mr. Landsburg points out, at that point, the theater has a monopoly on pretty much everything within the sphere of its influence. There are no other restrooms, for example, other than those provided. There are no other drinking fountains or front row seats, etc… And yet, all of these conveniences come gratis with the ticket price. The reason for this is easy enough. Any ancillary charges once inside the theater would make said theater less attractive to customers. In order not to lose those customers, the theater would have to charge less for the ticket price. In essence, it’s a wash. And so it may be for popcorn, as well. We pay higher prices for popcorn in order to pay lower prices for our tickets. But, in order to make prices attractive to all (popcorn munchers and popcorn abstainers alike), a happy medium must be found. This may be a matter of one part of the theater subsidizing another. Not everyone, after all, partakes in popcorn. They are only paying for the ticket to the movie and are therefore taking advantage of those who buy popcorn at a higher price point so ticket prices can economically be lower. Another theory put forth by Mr. Landsburg suggests that since most movie goers go to movies in groups, it follows that some of them will want popcorn and some won’t. If a theater offers low popcorn prices and high ticket prices, those that don’t eat popcorn may not want to go. The same follows, visa-versa. The trick is to get both the popcorn and the ticket prices to a level both groups can agree upon. This is economic theory backed up by the very theater owners that would be affected by such a law:
Also, as a parting shot, it bears remembrance that those who trade $5 for a medium popcorn value the popcorn more than they do the $5. Even if said bags of popcorn sold at $100 per, the same holds true. And although the New Paternalists may have something to say about that (waiting periods for high-cost items, etc…), it is still a voluntary exchange, of nobody’s business but the two parties involved. One last unintended consequence. Carmel Shama may well succeed in making high popcorn prices illegal. If so, people will no longer have to worry about mortgaging “their houses for a soft drink and a snack”. They’ll be doing that just to buy a ticket. Either that, or a whole lot of movie theaters will be going under. [Cross-posted at Shrubbloggers.] Filed under: Economic Theory, Market Efficiency, Nanny State, Unintended Consequences Comments: 3 Comments
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Posted at 11:19 pm on March 29, 2010, by Caitlin Hartsell
After reading the comments that appeared on Andrew Veen’s re-posting of Jen Pierce’s excellent post on a newcomer’s perspective of libertarian arguments, I wanted to address one of the major problems I’ve encountered when having political debate with libertarians and non-libertarians alike: false comparisons. This is especially a problem when talking about health care, which admittedly is a difficult topic. The argument people sometimes present is “perfect government” (in which the efficient government delivers services efficiently) versus “imperfect markets.” Other times, it’s “perfect markets” versus “imperfect government.” Neither is very useful, as what really needs to be looked at is the actuality of how markets and government play out. Any debate that happens needs to involve what can be realistically expected from both the market and the government. Market solutions, even in “perfect markets,” are relatively upfront about their negative points. A market solution, like one for health insurance, may not “include” everyone; a competitive market will bring the price down to a certain point so as to include more people (and sometimes, even most people) but there may be people who are still priced out and cannot afford the service, or insurance, or good. This is a flaw that is often used to attempt to discredit the solution. The problem is that the government solution has flaws that are not initially apparent. For instance, in places like Massachusetts, Canada, and Great Britain, everyone has health insurance and coverage, but that equates to long wait times and rationing of care and quality. A lack of competition (and an excess of bureaucracy) stifles innovation possibilities and slows any moves toward efficiency. Also, governmental solutions have the backing of the law behind them; if one is unhappy with the service, there are limited legal methods to bypass them. (Tangential note: Some may argue that rationing happens currently in the system we have, but rationing by price is a very different and more efficient mechanism than rationing by political clout. At any rate, the current system is too distorted by special interests and governmental infrastructure to be considered a market.) The case of the sick little girl that Jen mentioned draws upon another part of the argument oft overlooked by pro-government solution proponents: the role of private charities. In the competitive market solution, people have more money to spend on other goods, including private charity. Private charities must do good work in order to garner further donations; so in the long-term, the better charities will receive the most money and make the most impact. The market may leave some people out, but the private sector can pick up the loose ends. So, while the market solution admittedly does not “include” everyone, it is disingenuous to compare it to a governmental solution that does “include” everyone. Each has their own faults, but the market solution has mechanisms to fix them, whereas one must resort to the black market to get around the flaws in the governmental solution. (Also posted at Lady Libertarian) Filed under: Economic Theory, Government Spending, Health Care, Uncategorized Comments: 1 Comment
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Posted at 9:06 pm on March 29, 2010, by Justin M. Stoddard
If you’ve had occasion to listen to the radio for any amount of time recently, you’ve probably heard the slew of commercials about the ongoing Census. What you’ll hear, unfortunately, is not an explanation of the original purpose of the census, but instead a rather inane and commonly incorrect interpretation of basic economics. The one I hear most goes something like this (and I’m paraphrasing):
I’m not as droll as the narrator of this piece, but I can attest that this is the thrust of the argument. If you don’t fill out the census, public transportation will become ineffectual because, well, apparently that whole “three overly crowded buses” in a small metropolitan area is not enough to signal to the powers that be that…”hey, we need more buses!” Ironically, what this commercial hints at is the complete failure of centralized planning (a rather funny unintended consequence). A public transit system needs a form filled out every 10 years letting them know how many people live in the area in order to function? Really? Would several competing, privately owned mass transit companies need this information? Of course not. Private companies pay attention to the ‘signaling’ their costumers telegraph their way. It’s not too difficult to literally SEE buses becoming overcrowded. What inferences would you draw from that observation? Perhaps it’s time to put another bus on the road? If markets were more fully involved in supplying transit services, when people demand more buses, the market will provide more buses, until supply and demand meet at a parity. But that’s another post altogether. I just can’t tell if this propagation of incorrect economics is willful or just ignorant. Perhaps both? Edit: Marginal Revolution just picked up on this phenomenon, independent of myself. [Cross-posted at Shrubbloggers.] Filed under: Economic Theory Comments: 5 Comments
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"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."