3/31/2012

Ricardian equivalence

The Ricardian equivalence proposition (also known as the Barro–Ricardo equivalence theorem[1]) is an economic theory holding that consumers internalize the government's budget constraint: as a result, the timing of any tax change does not affect their change in spending. Consequently, Ricardian equivalence suggests that it does not matter whether a government finances its spending with debt or a tax increase, because the effect on the total level of demand in the economy is the same.

In its simplest terms: governments can raise money either through taxes or by issuing bonds. Since bonds are loans, they must eventually be repaid—presumably by raising taxes in the future. The choice is therefore "tax now or tax later."


In its simplest terms: governments can raise money either through taxes or by issuing bonds. Since bonds are loans, they must eventually be repaid—presumably by raising taxes in the future. The choice is therefore "tax now or tax later."

Suppose that the government finances some extra spending through deficits; i.e. it chooses to tax later. This action might suggest to taxpayers that they will have to pay higher tax in future. Taxpayers would put aside savings to pay the future tax rise; i.e. they would willingly buy the bonds issued by the government, and would reduce their current consumption to do so. The effect on aggregate demand would be the same as if the government had chosen to tax now.

3/30/2012

Externalities

It's important to understand these spillover effects and their impacts on economic value.

Negative externalities on production occur when producing an item imposes a cost on those not directly involved in producing or consuming the item.(Pollution)

Positive externalities on production occur when producing an item confers a benefit on those not directly involved in producing or consuming the item.

Negative externalities on consumption occur when consuming an item actually imposes a cost on others.(Cigarettes)

Positive externalities on consumption occur when there is a benefit to society of consuming an item above an beyond the direct benefit to the consumer of the item.(Deodorant 除臭剂)

This market failure, at a fundamental level, arises because of a violation of the notion of well-defined property rights, which is in fact a requirement for free markets to function efficiently. This violation of property rights occurs because there are is no clear ownership of air, water, open spaces, and so on, even though society is affected by what happens to such entities.

Difference between real and nominal variables

Generally a real variable, such as the real interest rate, is one where the effects of inflation have been factored in. A nominal variable is one where the effects of inflation have not been accounted for.

Example: Nominal and real interest rates:
Suppose we buy a 1 year bond for face value that pays 6% at the end of the year. We pay $100 at the beginning of the year and get $106 at the end of the year. Thus the bond pays an interest rate of 6%. This 6% is the nominal interest rate, as we have not accounted for inflation. Whenever people speak of the interest rate they're talking about the nominal interest rate, unless they state otherwise.

Now suppose the inflation rate is 3% for that year. We can buy a basket of goods today and it will cost $100, or we can buy that basket next year and it will cost $103. If we buy the bond with a 6% nominal interest rate for $100, sell it after a year and get $106, buy a basket of goods for $103, we will have $3 left over. So after factoring in inflation, our $100 bond will earn us $3 in income; a real interest rate of 3%.

Fisher Equation: Real interest rate= Nominal interest rate - inflation rate

Example2: Nominal GDP growth and real GDP growth:
GDP, or Gross Domestic Product is the value of all the goods and services produced in a country. The Nominal Gross Domestic Product measures the value of all the goods and services produced expressed in current prices. On the other hand, Real Gross Domestic Product measures the value of all the goods and services produced expressed in the prices of some base year.


Suppose in the year 2000, the economy of a country produced $100 billion worth of goods and services based on year 2000 prices. Since we're using 2000 as a basis year, the nominal and real GDP are the same. In the year 2001, the economy produced $110B worth of goods and services based on year 2001 prices. Those same goods and services are instead valued at $105B if year 2000 prices are used. Then:

Year 2000 Nominal GDP = $100B, Real GDP = $100B
Year 2001 Nominal GDP = $110B, Real GDP = $105B
Nominal GDP Growth Rate = 10%
Real GDP Growth Rate = 5%

#3 Nominal wages and real wages:

These work in the same way as the nominal interest rate. So if your nominal wage is $50,000 in 2002 and $55,000 in 2003, but the price level has risen by 12%, then your $55,000 in 2003 buys what $49,107 would have in 2002, so your real wage has gone done. You can calculate a real wage in terms of some base year by the following:
Real Wage = Nominal Wage / 1 + % Increase in Prices Since Base Year

3/29/2012

Interest rates

The interest rate is the yearly price charged by a lender to a borrower in order for the borrower to obtain a loan. This is usually expressed as a percentage of the total amount loaned.

The differences in rates can be due to the duration of the loan or the perceived riskiness of the borrower.

Nominal and Real interest rates:

A nominal variable, such as a nominal interest rate, is one where the effects of inflation have not been accounted for.

Real interest rates are interest rates where inflation has been accounted for.

What happens if the interest rates goes to negative?
Zero nominal interest rate: A zero nominal interest rate occurs when the interest rate is the same as the inflation rate.I loan $100 to someone, I get back $104, but now what cost $100 before costs $104 now, so I'm no better off.


During a recession, central banks tend to lower nominal interest rates in order to spur investment in machinery, land, factories, etc. If they cut interest rates too quickly, they can start to approach the level of inflation.(People spend more money and the commodities fail to expand as fast as money does) Inflation will often rise when interest rates are cut, since these cuts have a stimulative effect on the economy.

 When expected returns from investments in securities or real plant and equipment are low, investment falls, a recession begins, and cash holdings in banks rise. People and businesses then continue to hold cash because they expect spending and investment to be low. This is a self-fulfilling trap.(Liquidity trap)


Fiat money and Gold Standard

Fiat money is money that is intrinsically useless; is used only as a medium of exchange.

Gold standard: a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price. A combination of the gold and silver standard is known as bimetallism.

The Bretton Woods System, enacted in 1946 created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at the price of $35/ounce.

The benefits and costs of Gold Standard:

The main benefit of a gold standard is that it insures a relatively low level of inflation.So long as the supply of gold does not change too quickly, then the supply of money will stay relatively stable. The gold standard prevents a country from printing too much money.The government can only print as much money as its country has in gold.


The gold standard also changes the face of the foreign exchange market.The extensive use of gold standards implies a system of fixed exchange rates. If all countries are on a gold standard, there is then only one real currency, gold, from which all others derive their value. The stability the gold standard cause in the foreign exchange market is often cited as one of the benefits of the system.

The disadvantages of gold standard:

One disadvantage of a gold standard that the size and health of a country's economy is dependent upon its supply of gold, not the resourcefulness of its people and businesses.The gold standard causes countries to become obsessed with keeping their gold, rather than improving the business climate.

The stability caused by the gold standard is also the biggest drawback in having one. Exchange rates are not allowed to respond to changing circumstances in countries. A gold standard severely limits the stabilization policies the Federal Reserve can use. Because of these factors, countries with gold standards tend to have severe economic shocks. Moreover, because the gold standard gives government very little discretion to use monetary policy, economies on the gold standard are less able to avoid or offset either monetary or real shocks.

The value of money

   Money doesn't have any inherent value. It is simply pieces of paper or numbers in a ledger.
 
It didn't always work this way. In the past money was in the form of coins, generally composed of precious metals such as gold and silver. The value of the coins was roughly based on the value of the metals they contained, because you could always melt the coins down and use the metal for other purposes. In the time of gold or silver standard, the paper money still had value because you can take the money to the government to exchange your money into gold or silver based on teh exchange rate set by the government.
 
Now the United States is on a system of fiat money, which is not tied to any other commodity. So these pieces of paper in your pocket are nothing but pieces of paper.

Money is a good with a limited supply and there is a demand for it because people want it. The reason I want money is because I know other people want money, so I can use my money to others to get goods and services from them in return. Goods and services are what ultimately matter in the economy, and money is a way that allows people to give up goods and services which are less desirable to them, and get ones that are more so.

Money is essentially a good, so as such is ruled by the axioms of supply and demand. Inflation occurs when the price of goods increases; in other words when money becomes less valuable relative to those other goods. The key cause of inflation is increases in the supply of money. Inflation can occur for other reasons. If a natural disaster destroyed stores but left banks intact, we’d expect to see an immediate rise in prices, as goods are now scarce relative to money. These kinds of situations are rare. For the most part inflation is caused when the money supply rises faster than the supply of other goods and services.

So to answer your question, money has value because people believe that they will be able to exchange their money for goods and services in the future. This belief will persist so long as people do not fear future inflation. To avoid inflation, the government must ensure that the money supply does not increase too quickly.

What is inflation

Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole.

Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability.

Inflation is too many dollars chasing too few goods.We can also have inflation and deflation by changing the amount of money in the system.Thus inflation is caused by the amount of dollars rising relative to the amount of oranges (goods and services), and deflation is caused by the amount of dollars falling relative to the amount of oranges.

The four major causes of inflation:


1.The supply of money goes up.
2.The supply of other goods goes down.
3.Demand for money goes down.
4.Demand for other goods goes up.

3/25/2012

Sports

Because teams compete for better players by offering higher salaries, the quality of a team depends largely on how strong it is financially.

Exceptions to the rule that financially stronger teams are better are some small-market teams, such as Oakland and Montreal, that, for certain periods of time, develop high-quality players in their farm-team system. Of course, the exception proves the rule. Once these players win substantial salary increases through arbitration or become free agents, big-market teams often hire them away.

When the home team gets to keep more of the gate receipts, the teams in bigger cities get more of the benefit from their inherent financial advantage. When the split is more equal, the financial advantage of being in a bigger market is less. Partly for this reason, financial disparity is least in the National Football Leaque (NFL).(The gate division between home and guest is 60:40)

But in all sports, revenues from national television contracts have grown as a percentage of total revenues, and TV revenues are divided equally among the clubs. As a result, the differences in the financial strength of teams have narrowed. Big-city domination, though not completely eliminated, has diminished.

By their very nature, sports leagues are cartels that exclude competition from other companies. You cannot start a baseball team and hope to play the Yankees unless you can get Major League Baseball (the cartel) to grant you a franchise.

Owners claim that restrictions on player movement are necessary to maintain competitive balance and prevent financial powerhouses such as the old Yankees from buying up all the best talent and completely dominating the sport. Economists have always been skeptical about the owners’ motives—and about the evidence.There never was any disagreement over the fact that star players would wind up on big-city teams. But economists believe that this would happen regardless of whether or not leagues restrict moves initiated by players.

The team that pays the most is the one that expects the largest increment in revenue from that player’s performance. Since an increment in the win-loss record yields more revenue in, say, New York than in Kansas City, the best players go to New York rather than to Kansas City. For a small-city franchise, the team holding the player’s contract expects him to contribute, say, one million dollars in incremental revenue to the club. In a large city, that same player’s talents might contribute three million dollars. Because the player is worth more to the big-city team in either case (and the big-city team will pay more for him), the small-city franchise has an incentive to sell the player’s contract to the big-city team, and thereby make more money than it could by keeping him. Thus, players should wind up allocated by highest incremental revenue, with or without restrictions on player-initiated movement.

 The dramatic rise in player salaries since the mid-1970s, notably in baseball and basketball, is largely the result of the relaxation of restrictions on player-initiated transfers.

Conscription and draft

A military draft forces people to serve in the military—something they would not necessarily choose to do. With a draft in place, the military can pay lower wages than it would take to attract a force of willing volunteers of the same size, skills, and quality. This reduction in pay is properly viewed as a tax on military personnel. The amount of the tax is simply the difference between actual pay and the pay necessary to induce individuals to serve voluntarily.

Before the United States abolished the draft in 1973, some of its supporters argued that an all-volunteer force (AVF) would be too expensive because the military would have to pay much higher wages to attract enlistees. But the draft does not really reduce the cost of national defense. It merely shifts part of the cost from the general public to junior military personnel (career personnel are not typically drafted).In other words, the draft is a tax on military service, the very act of patriotism that a draft is sometimes said to encourage.

Every time a draft has been imposed, the result has been lower military pay. But even in the unlikely event that military pay is not reduced, a draft would force some unwilling people to serve in order to achieve “representativeness” or “equity.”

A draft also encourages the government to misuse resources. Because draftees and other junior personnel seem cheaper than they actually are, the government may “buy” more national defense than it should, and will certainly use people, especially high-skilled individuals and junior personnel, in greater numbers than is efficient. This means that a given amount of national defense is more costly to the country than it need be.

A draft also forces some of the wrong people into the military—people who are more productive in other jobs or who have a strong distaste for military service. A draft also weakens the military because the presence of unwilling conscripts increases turnover (conscripts reenlist at lower rates than volunteers), lowers morale, and causes discipline problems.

In short, an all-volunteer force is both fairer and more efficient than conscription.

contract for joining the army

Contracting for labor in the military market is no different from contracting in labor markets generally, with one important exception. In a private labor market, prices adjust to clear the market as demand for labor rises or falls. But the purchaser of military labor is Uncle Sam.

If a country chooses to fight when it does not have to, citizens will disagree on the wisdom of fighting. Fewer men will see any necessity for military service, and so will have to be paid more to enlist.The more controversial the war, the higher the budgetary costs of a volunteer army compared to a war that can be staffed by conscripts.

Heads of state generally like conscription, as it allows them to pursue their personal goals with cheap labor. But for conscription, Napoleon could never have found the over half a million men he sent into Russia in 1812.The Russian campaign resembled the Vietnam war in that Napoleon, like Lyndon Johnson, fought to maintain political power, not out of military necessity.

The need to contract for an army establishes a sort of referendum(公投) on a war.


Environmentalism

Environmental quality is what economists call a "normal" good. That is, people want more of it as their real incomes increase.The cost of preserving the environment is inherently economic as well. Equipment and labor to clean air or water, for example, have an "opportunity" cost: they could be used to produce something else. How clean the air should be is what economists call a normative issue: people's answers depend on their values.

Though figuring out the efficient amount of environmental quality is difficult, it theoretically is the point at which the value that people put on the last increment of cleanliness equals its cost. After that point additional cleanliness costs more than its value to society.


Japan's economy miracle after WW2

four factors contributed about two percentage points each to the 8.77 percent annual growth rate of national income between 1953 and 1971. The four, in order of importance, were: increases in capital (2.10 percentage points); advances in knowledge and factors not elsewhere classified (1.97); economies of scale (1.94); and increases in labor (1.85). Most of the remaining growth was accounted for by reallocation of resources away from the inefficient agricultural sector.

The major cause of Japan's large increase in capital was its large increases in investment. Almost one out of every three yen of Japanese production in 1970 and 1971 was invested in capital. This private investment, in turn, was financed largely by Japanese saving.

Many people believe that Japan's outstanding growth is due in large part to MITI. They believe that MITI has decided what industries the Japanese should invest in, and that MITI persuaded other Japanese government agencies to use their coercive power to get companies to go along. But the evidence goes against this view. (MITI: Ministry of International Trade and Industry)

Between 1953 and 1955 MITI did persuade the government's Japanese Development Bank to lend money to four industries—electric power, ships, coal, and steel. Some 83 percent of JDB financing over that period went to those four industries. But even with hindsight, what has not been established is whether those were good investments.

By one reasonable measure—government spending as a percent of GNP—government's role in Japan is less than in any other major industrialized country.

Another way Japan is less interventionist is in antitrust policy. Japan, unlike the United States, has no antitrust restrictions on joint research and development. This allows Japanese companies to avoid duplicating each other's research.

Japan's government also allows banks to own stock.Because Japanese banks own stock and because many bank officers sit on company boards, they can discipline managers.A further advantage of allowing banks to own stock is that a bank confident of a company's future can back it when other creditors get scared.


Money supply

The U.S. money supply comprises currency—dollar bills and coins issued by the Federal Reserve System and the U.S. Treasury—and various kinds of deposits held by the public at commercial banks and other depository institutions such as thrifts and credit unions.

An increase in the supply of money works both through lowering interest rates, which spurs investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending.Business firms respond to increased sales by ordering more raw materials and increasing production. In a buoyant economy, stock market prices rise and firms issue equity and debt. If the money supply continues to expand, prices begin to rise, especially if output growth reaches capacity limits. As the public begins to expect inflation, lenders insist on higher interest rates to offset an expected decline in purchasing power over the life of their loans.

Federal Reserve policy is the most important determinant of the money supply. The Federal Reserve affects the money supply by affecting its most important component, bank deposits.

The miracle of German economy

After WW2, observers thought that West Germany would have to be the biggest client of the U.S. welfare state; yet, twenty years later its economy was envied by most of the world. And less than ten years after the war people already were talking about the German economic miracle.

What caused the so-called miracle? The two main factors were currency reform and the elimination of price controls, both of which happened over a period of weeks in 1948. A further factor was the reduction of marginal tax rates later in 1948 and in 1949.

By 1948 the German people had lived under price controls for twelve years and rationing for nine years.In November 1945 the Allied Control Authority, formed by the governments of the United States, Britain, France, and the Soviet Union, agreed to keep Hitler’s and Goering’s price controls and rationing in place. They also continued the Nazi conscription of resources, including labor. The shortage of food forced German people to grow food in their own garden. They also had to barter.

 To clean up the postwar mess, Röpke advocated currency reform, so that the amount of currency could be in line with the amount of goods, and the abolition of price controls.  The currency reform would end inflation; price decontrol would end repression.

After the Soviets withdrew from the Allied Control Authority, Clay, along with his French and British counterparts, undertook a currency reform on Sunday, June 20, 1948. The basic idea was to substitute a much smaller number of deutsche marks (DM), the new legal currency, for reichsmarks. The money supply would thus contract substantially so that even at the controlled prices, now stated in deutsche marks, there would be fewer shortages.

On that same Sunday the German Bizonal Economic Council adopted, at the urging of Ludwig Erhard and against the opposition of its Social Democratic members, a price decontrol ordinance that allowed and encouraged Erhard to eliminate price controls.

Decontrol of prices allowed buyers to transmit their demands to sellers, without a rationing system getting in the way, and the higher prices gave sellers an incentive to supply more.

the reforms “quickly reestablished money as the preferred medium of exchange and monetary incentives as the prime mover of economic activity”

This account has not mentioned the Marshall Plan. Can’t West Germany’s revival be attributed mainly to that? The answer is no. The reason is simple: Marshall Plan aid to West Germany was not that large.Even in 1948 and 1949, when aid was at its peak, Marshall Plan aid was less than 5 percent of German national income. Other countries that received substantial Marshall Plan aid exhibited lower growth than Germany.

3/24/2012

Why GDP is not a good measure of welfare?

consider the definition of GDP: The gross domestic product is the market value of all the final goods produced in the entire country in the course of a year.It is inaccurate in two ways. First, because there is usually no market for the things that government produces (the U.S. Postal Service being one of the exceptions), government spending on goods and services is valued at cost rather than at market prices. Second, because many goods and services are not bought or sold, even though they would have a market value if they were, these goods and services are not counted in GDP.

Many government programs actually destroy value rather than create it. There would still be a major problem with GDP as a measure of wellbeing. That problem arises because GDP does not take into account the value of leisure.Ask yourself whether you would be better off if you could buy the same goods and services as before by working half as much. Here, real GDP understates well-being.

Focusing on GDP can lead us astray from sound economic reasoning. The first discussion was of the wisdom of Keynesian fiscal policy—having the federal government spend money to add to GDP.

If, instead of seeking GDP, we ask of each government policy, "What will it cost and how much value will it create?" we will come up with better policies. The concept of GDP, handled carefully, can be useful. But for many people, and even many good economists, GDP has been used to judge wellbeing even when using it that way leads to highly misleading conclusions.

Errors in Marx's theory


马克思的理论包括下述观点:
革命的爆发总是在被压迫者的生活条件达到其最低点时发生。


事实上,情况并非如此。毋宁说,遭遇最大贫困的人与其说是积极主动的,不如说是冷漠昏庸的,而毫无希望的压迫制造着对暴政的大沉默。



3/22/2012

通向奴役之路3


在一个政府是唯一的雇主的国家里,反抗就等于慢慢地饿死。“不劳动者不得食”这个旧的原则,已由“不服从者不得食”这个新的原则所代替。

在那些没有信心靠自己的奋斗找到前途的人们当中,很难找到独立的精神或坚强的个性。如果人们在过于绝对的意义上理解保障的话,普遍追求保障,不但不能增加自由的机会,反而构成了对自由的最严重的威胁。

在任何一种人们在各种不同行业之间的分配依靠这些人自已来选择的制度下,都必须使这些行业的报酬符合于它们对社会其他成员的有用性,即使这与主观的评价无关,也必须如此。

尽管一个人努力工作,尽管他有特殊的技能,但他都会受到不是他自已的过失造成的收入的急剧减低和痛苦的失望,这无疑是有伤我们的正义感的。那些遭受这种不幸的人要求国家进行干预,以维护他们的合法愿望,这种要求当然是会得到群众的同情和支持的。对于这种要求的普遍赞同的结果是,各地的政府都采取行动,不但保护受到这种威胁的人们免受严重的困苦和贫乏,而且使他们继续获得与从前一样的收入和保护他们不受市场变迁的影响。

然而,如果允许人们有自行选择职业的任何自由的话,那么,就不能够给予一切人以一定收入的保障。并且,如果给一部分人提供这种保障,那它就会成为一种特权,这种特权以牺牲他人利益为条件,因而就必然会减少别人的保障。如果我们要让他们自由选择,如果要让他们能够判断他们应做什么的话,那就必须给他们某种容易理解的准则,使他们可用以来衡量各种职业的重要性。

一个人数众多、有力量而又相当志同道合的集团,似乎在任何社会中部不可能由最好的分子,而只能由最坏的分子来建立,这其中有三个主要原因。照我们的标准,要挑出这样的一个集团所依据的原则几乎完全可以说是消极的。

首先,一般说来,各个人的教育和知识越高,他们的见解和趣味就越不相同,而他们赞同某种价值等级制度的可能性就越少。这或许是事实。其结果必然是,如果我们希望找到具有高度一致性和相似性的观念,我们必须降格到道德和知识标准比较低级的地方去,在那里比较原始的和“共同”的本能与趣味占统治地位。

接下来,是第二个消极的选择原则:即独裁者将能够得到一切温驯的和易受骗的人的支持,这些人没有自已的坚强信念而只准备接受一个现成的价值标准体系,只要大声地、喋喋不休地向他们鼓吹这种体系的话。壮大极权主义政党队伍的,正是那些其思想模糊、不健全并容易动摇的人以及那些感情与情绪容易冲动的人。

人们赞同一个消极的纲领,即对敌人的憎恨、对富人的忌妒,比赞同一项积极的任务要容易些,这看来几乎是人性的一个法则。若要用一个信条将某个集团牢牢地团结在一起以便共同行动的话,那么,将“我们”和“他们”对立起来,即向一个集团以外的人进行共同的斗争,则似乎是这个信条中的重要组成部分。集体主义者哲学的内在矛盾之一是,虽然它将自身建筑在个人主义所发展起来的人本主义道德基础之上,但它只能够在一个比较小的集团里行得通。社会主义只有停留在理论的层面上时,它才是国际主义的,但一经付诸实施,无论是在德国还是在俄国,它就马上会变成强烈的民族主义。

如果“社会”或国家比个人更重要,如果它们自己的目标独立于个人的目标并超越于个人目标的话,那么,只有那些为社会所具有的共同目标而努力的个人才能被视为该社会的成员。这种见解的必然结果就是,一个人只因为他是那个集团的成员才受到尊敬,也就是说,并且只有他为公认的共同目标而工作才受到尊敬,并且他只是从他作为该集团成员的资格中获得他的全部尊严。单纯依靠他作为人的资格却不会带给他什么尊严。其实,人道主义的真正概念,因而也是任何形式的国际主义的真正概念,完全都是人的个人主义观点的产物,而在集体主义思想体系中,它们是没有地位的。

以一个集团的名义去行动,就似乎是将人们从控制着作为集团内部的个人行为的许多道德束缚中解放了出来。想按照一个单一的计划来组织社会生活的那种愿望本身基本上来自一种对权力的要求。把权力分裂或分散开来就一定会减少它的绝对量,而竞争制度就是旨在用分散权力的办法来把人用来支配人的权力减少到最低限度的唯一制度。


在一个极权主义国家里,完全改变了宣传的性质和效果的事实是:一切宣传都为同一目标服务,所有宣传工具都被协调起来朝着一个方向影响个人,并造成了特有的全体人民的想“一体化”。如果所有时事新闻的来源都被唯一一个控制者所有效地掌握,那就不再是一个仅仅说服人民这样或那样的问题。灵巧的宣传家于是就有力量照自已的选择来塑造人们的思想趋向,而且,连最明智的和最独立的人民也不能完全逃脱这种影响,如果他们被长期地和其它一切信息来源隔绝的话。


斥责任何只为活动而活动,没有远大目标的人类行为,这是完全符合极权主义的整个精神的。为科学而科学,为艺术而艺术、是同样为纳粹党徒、为我们的社会主义知识分子和共产党人所痛恨的。每一个活动都必须有一个自觉的社会目标来证明它是正当的。绝不能有任何自发的、没有领导的活动,因为它会产生不能预测的和计划未作规定的结果。它会产生某种新的、在计划者的哲学里未曾梦想到的东西。






3/21/2012

自由主义

公民自由第一个攻击点是专制统治,第一项要争取的自由是按照法律对待的权利。正常的法院是以正常的审判形式对一个人犯下的特定的罪行施加特定的刑罚,专制政府却按照本身的意愿和好恶,采取逮捕、拘留和惩罚等等法律以外的方式。自由的第一步实际上正是要求法治。


普遍自由的第一个条件是一定程度的普遍限制。
没有这种限制,有些人可能自由,另一些人却不自由。

在假定法治保证全社会享有自由时,我们是假定法治是不偏不倚、大公无私的.

宗教自由的主要意义从表面上讲,我认为它包括思想自由和言论自由,另外还有任何一种不伤害他人、不破坏公共秩序的崇拜权利。从内在意义说,宗教自由的精神基于这样一种认识,即一个人的宗教是同他最内心深处的思想感情并列的。它是他本人对生活、对人类、对世界、对他自己的起源和命运所持的态度的最具体表现。那些想从外部以机械手段强使人们改变信仰的人,是对真正的宗教犯下弥天大罪。他们自欺欺人,对他们感受最深的东西的性质一无所知。

一种宗教灌输的仪式如果侵犯他人的自由,或者更广泛地,侵犯他人的权利,这种仪式就不配享有绝对的自由。

关税不仅是自由企业的阻碍,而且还是造成各行业间不平等的缘由。关税的根本性作用是通过使某些工业对消费者不利,把资本和劳力从在某一地点能最有利地使用的对象转移到较少有利地使用的对象。

早期的自由主义必须对付教会和国家的极权统治。自由主义的理论答称人的权利是以自然法则为基础的,而政府的权利则以人的机构为基础。孤立的个人是没有活动能力的。他享有的权利只被他人的相应权利所限制,但是除非机缘使他占了上风,他无法行使这些权利。因此,他觉得,为了相互尊重权利,最好与他人签订协议;为了这个目的,他建立了一个政府来维护他在社会里的权利,并保护社会免受外来攻击。








3/18/2012

通往奴役之路2


最能清楚地将一个自由国家的状态和一个在专制政府统治下的国家的状况区分开的,莫过于前者遵循着被称为法治的这一伟大原则。法治的意思就是指政府在一切行动中都受到事前规定并宣布的规则的约束——这种规则使得一个人有可能十分肯定地预见到当局在某一情况中会怎样使用它的强制权力,和根据对此的了解计划它自己的个人事务。留给执掌强制权力的执行机构的行动自由,应当减少到最低限度。



形式法律事先告诉人们在某种情况下,政府将采取何种行动,这种规则用一般性的措词加以限定,而不考虑时间、地点和特定的人。一件人所共知的事实是,政府“计划”得越多,对于个人来说,计划就变得越困难。


如果我们力求获得金钱,那是因为金钱能提供给我们最广泛的选择机会去享受我们努力的成果。因为在现代社会里,我们是通过货币收入的限制,才感到那种由于相对的贫困而仍然强加在我们身上的束缚,许多人因此憎恨作为这种束缚的象征的货币。如果所有报酬,不是采取提供货币的形式,而是采取提供公开荣誉或特权、凌驾别人之上的有权力的位置、或较好的住宅或较好的食物、旅行或受教育的机会等形式,这只不过是意味着,接受报酬者不再可以自行选择,而任何决定报酬的那个人,不仅决定报酬的大小而且也决定了享用报酬的特定形式。


经济价值对于我们之所以没有许多东西那么重要,正是由于在经济事务上,我们能够自由决定什么对我们比较重要,什么对我们比较次要的缘故。经济计划所引起的问题,并不仅仅是我们是否会按照我们所喜欢的方法满足我们认为是重要或不太重要的需要的问题,而是是否会由我们自已来决定什么对我们是重要的和什么是次要的、或是否这必须由计划者来加以决定的问题。


集中计划意味着经济问题由社会解决而不由个人解决,而这就必然也要由社会,或者更确切地说,由社会的代表们,来决定各种不同需要的相对重要性。


计划者们允诺给我们的所谓经济自由恰恰是指免除我们解决我们自己的经济问题的麻烦,以及是指这种事情常常包含的选择可以由别人为我们代劳了。由于在现代条件下,我们的每一件事几乎都要依赖别人来提供手段,因而经济计划几乎将涉及我们全部生活的各个方面。从我们的原始的需要到我们和家庭、朋友的关系,从我们工作的性质到我们闲暇的利用,很少有生活的哪一个方面,计划者不对之施加“有意识的控制”。


在一个有计划的社会中,当局所掌握的对所有消费的控制权的根源,就是它对于生产的控制。在一个竞争性的社会中,我们的选择自由是基于这一事实:如果某一个人拒绝满足我们的希望,我们可以转向另一个人。但如果我们面对一个垄断者时,我们将唯他之命是听。而指挥整个经济体系的当局将是一个多么强大的垄断者,是可以想象得到的。在一个受指导的经济中,当局监视着人们所追求的各种目的,它肯定会运用它的权力协助某些目的的实现,和阻止其它目的的实现。


如果他们要进行计划,他们就必须控制各种行业和职业的大门,或控制报酬条件,或者两者都控制。计划当局为了简化它的工作一定会定出一套标准,我们大家必须都要遵行。为了使这项莫大的工作可管理,就必须把多样性的人类能力和倾向归纳为几种很容易相互交换的单位,而且有意识地忽视次要的个人差别。虽则公开宣布的计划的目标是,人应当不再仅仅是一个工具,而事实上——由于在计划中不可能考虑到个人的好恶——个人之仅仅作为工具将比以往有过之而无不及,这是一种由当局用来为所谓“社会福利”、“社会利益”之类的抽象观念服务的工具。


可供我们选择的两种制度是,谁应得到什么是由几个人意愿来决定的那种制度以及谁应得到什么至少部分地是靠他们的才能和进取心,部分地是靠难以预测的情况来决定的那种制度。


在竞争的社会里,穷人的机会比富人的机会所受到的限制要多得多,这一事实丝毫也不影响另一事实的存在,那就是在这种社会里的穷人比在另一不同类型的社会里拥有很大的物质享受的人要自由得多。虽然在竞争制度下,穷人致富的可能性比拥有遗产的人致富的可能性要小得多,但前者不但是可能致富,而且他只有在竞争制度之下,才能够单靠自由而不靠有势力者的恩惠获得成功,只有在竞争制度下,才没有任何人能够阻挠他谋求致富的努力。


只是由于生产资料掌握在许多个独立行动的人的手里,才没有人有控制我们的全权,我们才能够以个人的身份来决定我们要做的事情。各种经济现象之间密切的相互依存使我们不容易使计划恰好停止在我们所希望的限度内,并且市场的自由活动所受的阻碍一旦超过了一定的程度,计划者就被迫将管制范围加以扩展,直到它变得无所不包为止。


非人为的力量所造成的不平等比有计划地造成的不平等,无疑地更容易忍受些,其对个人尊严的影响也小得多。政府一旦为了公平的缘故而走上计划的道路,他就要对每个人的命运或地位负责。


对于完全平等的同意,可以解答计划者必须解答的一切价值问题,而达到较大平等的公式实际上却不能答复任何问题。它的内容不比“公共利益”,或者“社会福利”这些用语有更明确的意义。















通往奴役之路


民主在本质上是一种个人主义的制度,与社会主义有着不可调和的冲突,(他在1848年说:)民主扩展个人自由的范围,而社会主义却对其加以限制。民主尽可能地赋予每一个人价值,而社会主义却仅仅使每一个人成为一个工具、一个数字。民主和社会主义除了“平等”一词毫无共同之处。但请注意这个区别:民主在自由之中寻求平等,而社会主义则在约束和奴役之中寻求平等。


我们所属的这一代人现在正从经验中懂得,当人们放弃自由,转而强制性地将其事务加以组织的时候,情况会怎么样。尽管他们期望一种更富裕的生活,但他们在实践中肯定放并了这种期望;随着有组织管理的增加,目标的多样化必定会让位于一体化。这是对有计划的社会和人类事务中独裁主义原则的报应。

社会主义意味着废除私有企业,废除生产资料私有制,创造一种“计划经济”体制,在这种体制中,中央的计划机构取代了为利润而工作的企业家。


有许多人自称为社会主义者,虽然他们关心的只是第一个意义,热烈地信仰社会主义的终极目标,但他们既不关心也不理解这些目标何以才能实现,他们确信的仅仅是这些目标一定会实现,无论其代价如何。


自由主义的论点,是赞成尽可能地运用竞争力量作为协调人类各种努力的工具,而不是主张让事态放任自流。它是以这种信念为基础的:只要能创造出有效的竞争,这就是再好不过的
指导个人努力的方法。它并不否认,甚至还强调,为了竞争能有益地运行,需要一种精心想出的法律框架,而现存的和以往的法律无不具有严重的缺陷。它也不否认,在不可能创造出使竞争有效的必要条件的地方,我们就必须采用其它指导经济活动的方法。然而,经济自由主义反对以协调个人努力的低级方法去代替竞争。它将竞争视作优越的,这不仅因为它在大多数情况下都是人们所知的最有效的办法,而更因为它是使我们的活动在没有当局的强制和武断的干预时能相互协调的唯一方法。确实,赞成竞争的主要论点之一,就是它免除对“有意识的社会控制”的需要,而且,它给予每个人一个机会,去决定某种职业是否足以补偿与其相关的不利和风险。


然而当创造一个合适的框架使竞争得以有利地运行这个任务尚未进行得很彻底时,各国政府却已放弃了这个任务而改用另一种不可调和的原则来代替竞争。问题不再是使竞争得以运行和加以补充,而是完全取而代之。


经济活动的完全集中管理这一观念,仍然使大多数人感到胆寒,这不仅是由于这项任务存在着极大的困难,而更多地是由于每一件事都要由一个独一无二的中心来加以指导的观念所引起的恐惧。


大规模生产的有利条件必定不可避免地导致竞争的消灭这个结论是不能接受的。并且,应当注意,垄断的形成常常是规模大成本低以外种种因素的结果。它通过互相串通的协定而形成并为公开的政策所促进。当这些协定失效和当这些政策扭转过来时,竞争的条件是能够恢复的。


使竞争成为适当的实现这种调节的唯一方法的,正是在现代条件下劳动分工的这种复杂性,而绝不是竞争只适用于比较简单的条件。如果条件是如此简单,以致只要一个人或一个机关就足以有效地观察到所有有关事实的话,那么要实行有效的控制或计划就根本不会有什么困难。只有在必须考虑的因素如此复杂,以致不可能对此得到一个概括的印象的时候,才使分散的权力成为不可避免。


只有竞争普遍发生时,也就是说只有在个别生产者必得调整自己的活动以适应价格的变化但不能控制价格的变化时,价格体系才能完成这种职能。整体越复杂,我们就越得凭借在个人之间的分散的知识,这些个人的个别行动,是由我们叫做价格体系的那种用以传播有关消息的非人为的机制来加以调节的。

值得研究一下的是,为什么这么多的技术专家竟会居于计划者的前列。我们都同意,既有可能又非常适意的好事是多得无比的,但是在我们的一生中只能希望完成其中很少一部分,或者我们只能希望很不充分地去完成它们。正是由于这些专家在自己的领域之内的雄心受到阻碍,才使得他们反抗现存的秩序。眼看着那些人人都会认为是既有需要又有可能的事情无法完成,我们大家都觉得无法忍受。至于这些事并不能同时都做,和要完成这一件事就得牺牲其它的事,这些只有在考虑到属于任何专门业务范围之外的因素时才能看到。


孤立地看,许多事情中的每一件,都可能在一个有计划的社会中完成,这个事实使许多人热衷于计划,他们相信能够把他们对某一特定目标的价值的感观灌输到这个社会的指挥者心里去;而他们当中某些人的希望无疑是能够得到满足的,因为一个有计划的社会肯定地会比现在的情形更能促成某些目标。


专家们幻想在一个有计划的社会中,他最关心的目标将会受到更多的注意;有这种幻想的人并不限于专家们。在我们所偏爱和关心的事情中,在某种程度上我们称是专家。寄托于计划的希望并不是对社会全面观察的结果,而是一种非常有局限性的观察的结果,并且常常是大大夸张了他们所最重视的目标的结果。这些最渴望对社会进行计划的人们,如果允许他们这样做的话,将使他们成为最危险的人——和最不能容忍别人的计划的人。


任何人都只能考察有限的领域,认识有限需求的迫切性。无论他的兴趣以他本人的物质需求为中心,还是热衷于他所认识的每个人的福利,他所能关心的种种目标对于所有的人需求而
言,仅仅是九牛一毛而已。在限定的范围内,应该允许个人遵循自己的而不是别人的价值和偏好,而且,在这些领域内,个人的目标体系应该至高无上而不屈从于他人的指令。就是这种对个人作为其目标的最终决断者的承认,对个人应尽可能以自己的意图支配自已的行动的信念,构成了个人主义立场的实质。所谓“社会目标”不过是许多个人的相同目标——或者说,是个人为了回报他们在满足自身欲望所接受的帮助而愿意有所贡献的那种目标。因而,共同行动局限于人们对共同目标一致同意的那些领域。









Who should issue currency

Under capitalism incomes emerges as a result of market transactions which are indissolubly linked up with production.

An important quality dimension of a currency is the reliability of the redemption pledge—namely, the issuer's promise to exchange it for another money on demand at a specified rate.Privatizing currency means leaving it to commercial banks to issue media of exchange that are claims to the reserve asset that defines the monetary standard, and makes the enforcement of these claims a matter of commercial law rather than of public policy.

The chief weakness of central banks as currency issuers is their inability to bind themselves to their redemption promises.A central bank enjoys "sovereign immunity" from claimholder lawsuits, and legal restrictions on the public's choice in currency mean that the central bank has little fear of losing customers for bad behavior.At the same time, central bankers—especially in developing countries—face political pressure to provide the short-run benefits that surprise monetary expansion can deliver (namely extra revenue to pay the government's bills, extra stimulus to the economy, or extra liquidity for the banking system).The shareholders' incentive to avoid devaluation or default compels them to limit the volume of the bank's liabilities, and makes the bank's redemption commitments credible.

In the United States, the Free Banking Era lasted between 1837 and 1866, when almost anyone could issue paper money. If an issuer went bankrupt, closed, left town, or otherwise went out of business the note would be worthless.

3/16/2012

How democracy goes bad

How can majoritarian politics durably sustain policies harmful to majority interests?

The most popular way to resolve this puzzle is to blame special interests for undermining the democratic process.The main problem with this account, however, is that public opinion research—not to mention everyday conversation—routinely finds that the policies that economists do not like are popular. The plot thickens.

One striking feature of the Bastiat-Mises view is that politicians are actually tightly constrained by public opinion. On their account, democratic competition keeps elected officials in line; if they deviate from majority preferences, they lose elections and their jobs.

[T]he politician must give the people what they wish to get, very much as a businessman must supply the customers with the things they wish to acquire.


According to Bastiat and Mises, systematically mistaken economic beliefs—or, as Bastiat terms them, "sophisms," are widespread. Public opinions are not bright.

Ignorance of opportunity cost. Its members favor wasteful government programs because they fail to consider the alternative uses of wasted resources. They want a large military in peacetime because they implicitly assume that there is nothing else for discharged soldiers to do. They favor fruitless public works projects to "create jobs," not realizing that the taxes required to fund these projects destroy as many jobs as they create.

When one of these fundamental errors... becomes firmly established as a conventional judgment, unquestionably accepted and agreed to by everybody, it tends to proceed from theory to practice, from thought to action.The further the average citizen's views are from the truth, the lower the quality of policy.


Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disaster.


The ultimate foundation of modern protectionism and of the striving for economic autarky(自给自足) of each country is to be found in this mistaken belief that they are the best means to make every citizen, or at least the immense majority of them, richer, totally disregarding comparative advantage and economies of scales.





3/15/2012

National defense

Some defense expenditures may not contribute to such security at all; some expenditures may contribute a great deal; and some expenditures may, by stirring up hornets’ nests, actually reduce security.

Public choice economists (see public choice) have shown that a democratic government acting under a majority decision rule also has an incentive to provide too few collective goods. The reason, in brief, is that the political majority can impose taxes on all citizens—or disproportionate taxes on the political minority—and then reduce spending on collective goods, such as national defense, while increasing spending on private (i.e. noncollective) goods that benefit the majority (or members of the majority coalition) but not the minority. (Example: social security and agricultural subsidy)

Smith’s economic insight is to see that self-interest and capitalism do not generate social conflict. His analysis led him to see that self-interested individuals would mostly engage in win-win transactions—that the profit motive, property rights, divisions of labor, competition, and other features of capitalism would lead to individual prosperity and social harmony. But Smith retained the traditional ethical belief that the good of society as a whole is the moral standard of value.

3/14/2012

"Social" justice?

There is a moral intuition, strong in some and weak in others, that tells the better-off to give to the worse-off.The result is charity.A state of affairs is just if it is the outcome of just acts.


Redress(纠正) can only be effected at the expense of the better- off; but it is not evident that they have committed the injustice in the first place.

The acts of injustice that make some better off than others are the acts of Nature who spreads fortune and misfortune blindly, randomly across the economy. The better-off bear no responsibility for the injustice that strikes the worse-off. Nature is the guilty party. It is her misdeeds that cause the injustice that social justice must rectify.


Health care

Health care is different from other goods and services: the health care product is ill-defined, the outcome of care is uncertain, large segments of the industry are dominated by nonprofit providers, and payments are made by third parties such as the government and private insurers.

Various players in the industry—consumers and providers, to name two—respond to incentives just as in other industries.

Federal and state governments are a major health care spender. Together they account for 46 percent of national health care expenditures, private health insurance pays for more than 35 percent of spending, and out-of-pocket consumer expenditures account for another 14 percent.

Conventional economics argues that the probability of purchasing health insurance will be greater when the consumer is particularly risk averse, when the potential loss is large, when the probability of loss is neither too large nor too small, and when incomes are lower.

Most Americans under age sixty-five receive their health insurance through their employers. This form of employee compensation is not subject to income or payroll taxes, and as a result, the tax code subsidizes employer purchase of employee health insurance.

The previously mentioned tax incentive for the purchase of health insurance increases the chances that health insurance will be purchased. Indeed, the presence of a progressive income tax system implies that higher income consumers will buy even more insurance.

The key effect of health insurance is to lower the out-of-pocket price of health services.Thus, health insurance gives consumers an incentive to use health services that have only a very small benefit even if the full cost of the service (the sum of what the consumer and the insurer must pay) is much greater. This overuse of medical care in response to an artificially low price is an example of “moral hazard".Much spending is on things that have no effect on mortality and little effect on quality of life, and these are encouraged when the patient pays only a fraction of the bill.

There are three reasons why most people under age sixty five get their health insurance through an employer.

(1)employed people, on average, are healthier than those who are unemployed; therefore, they have fewer insurance claims.

(2)the sales and administrative costs of group policies are lower.

(3) health insurance premiums paid by an employer are not taxed.

If insurance premiums increased, on average, by $200, the typical worker spent $104 more on coverage and paid for this by reducing take-home pay by $74 and giving up $30 in other benefits.

These so-called compensating wage differentials, reductions in wages due to higher nonwage benefits, have important policy implications. They imply, for example, that a governmental requirement that all employers provide health insurance will result in lower wages for the affected workers.

Managed care changed the nature of competition among providers. It is true that managed care plans disproportionately attract healthier subscribers.

The health care industry is one of the most heavily regulated industries in the United States. These regulations stem from efforts to ensure quality, to facilitate the government’s role as purchaser of care, and to respond to provider efforts to increase the demand for their services.

All of the above regulations restrict supply and raise the price of health care; interestingly, those who lobby for such regulations are medical providers, not consumers, presumably because they want to limit competition.

Although other countries with more centralized government control over health budgets appear to have controlled costs more successfully, that does not mean that they have produced a more efficient result.Marginal benefits are very hard to measure, but certainly they include more subjective values than the crude measures of morbidity and mortality that are widely used in international comparisons.

The use of tight physician fee schedules gives doctors incentives to reduce their own time and other resources per patient visit; patients must therefore make multiple visits to receive the same total care. But these hidden patient time costs do not appear in standard measures of health care spending.


Externalities

Positive externalities are benefits that are infeasible to charge to provide; negative externalities are costs that are infeasible to charge to not provide. Selfishness leads markets to produce whatever people want; to get rich, you have to sell what the public is eager to buy. Externalities undermine the social benefits of individual selfishness.

Economists measure externalities the same way they measure everything else: according to human beings’ willingness to pay.Externalities are frequently used to justify the government’s ownership of industries with positive externalities and prohibition of products with negative externalities. Economically speaking, however, this is overkill.

Especially when faced with environmental externalities, economists have almost universally objected to government regulations that mandate specific technologies (especially “best-available technology”) or business practices. These approaches make environmental cleanup much more expensive than it has to be because the cost of reducing pollution varies widely from firm to firm and from industry to industry. A more efficient solution is to issue tradable “pollution permits” that add up to the target level of emissions. Sources able to cheaply curtail their negative externalities would drastically cut back, selling their permits to less flexible polluters.

The most accepted examples of activities with large externalities are probably air pollution, violent and property crimes, and national defense.

Other common candidates include health care, education, and the environment, but claims that these are externalities are much less tenable.If the price of aluminum cans fails to spark recycling, that suggests that the cost of recycling—including human effort—is less than the benefit.

Externalities are often blamed for “market failure,” but they are also a source of government failure.


Even from a strictly economic point of view, however, some externalities are not worth correcting. One reason is that many activities have positive and negative externalities that roughly cancel out.

Another economic rationale for government inaction is as follows: sometimes an externality is large at low levels of production but rapidly fades out as the quantity increases. Economies of scales.

Faced with externalities, modern analysts almost immediately inquire about transactions costs.

Coase’s approach is probably the main reason economists are skeptical of antismoking legislation. While it is costly for smokers and nonsmokers to directly negotiate with each other, the owners of bars, restaurants, and workplaces can cheaply balance their conflicting interests.

3/13/2012

School vouchers

A school voucher, also called an education voucher, is a certificate issued by the government, which parents can apply toward tuition at a private school (or, by extension, to reimburse home schooling expenses), rather than at the state school to which their child is assigned.

Under non-voucher education systems, people who currently pay for private schooling are still taxed for public schools; therefore, they fund both public and private schools simultaneously. Via offsetting the cost of private school tuition, vouchers are intended to allow students and families to choose the school that best fits their needs.

What are the canonical justifications for public expenditure and provision of education?

1.Public goods arguments: The major reason offered for taxing everyone then providing schooling for free (say the statists) is that education is a public good in the traditional sense. Since my education produces benefits for other people (e.g. I am a better voter, I commit less crime, etc.) and I cannot capture all of those benefits, then I choose to acquire a suboptimally low level of schooling.

2.Distributional arguments:We need to have publicly funded schools because some people are simlpy too poor to send their children to schools that cost money.

3.Behavioral arguments: Independent of income or free-rider problems, some people are just not sharp enough or unselfish enough to educate their children themselves, or to spend resources on the formal schooling of their children. Thus, without compulsory schooling laws and without free government schools, some children would be confined to lives of idiocy because of the irrationality and selfishness of their parents.

Why they are fallacies:

1.The free-rider argument does not apply here. The argument suggests that I won’t send my kids to school because if everyone else sends their kid to school then I get to consume the benefits of their education without having to send my kid to school at all. But the truth is that no one would refuse to send his child to school. The matriculation is competitive, so public good argument doesn't apply at least in schooling issue.


Private schools have an incentive to teach students and families things that are useful – particularly if they need to compete for students and dollars.


2

3/12/2012

Productivity

If the demand for a product or service is price inelastic—that is, if a given percentage decrease in price results in a lower percentage increase in the quantity demanded—then rapid productivity improvement can result in workers having to leave the industry. This eventually became true for grain farming, but not generally for computers, where the demand has been more price elastic.

Entrepreneurship

An entrepreneur is someone who organizes, manages, and assumes the risks of a business or enterprise.Entrepreneurship is the process of discovering new ways of combining resources.

This error in judgment is part of the entrepreneurial learning, or discovery, process vital to the efficient operation of markets. The profit-and-loss system of capitalism helps to quickly sort through the many new resource combinations entrepreneurs discover.

Successful entrepreneurs expand the size of the economic pie for everyone.

The word “entrepreneur” originates from a thirteenth-century French verb, entreprendre, meaning “to do something” or “to undertake.”

Say stressed the role of the entrepreneur in creating value by moving resources out of less productive areas and into more productive ones.

Schumpeter stressed the role of the entrepreneur as an innovator who implements change in an economy by introducing new goods or new methods of production.

Kirzner’s entrepreneur is a person who discovers previously unnoticed profit opportunities.

Profit

Capitalists earn a return on their efforts by providing three productive inputs. First, they are willing to delay their own personal gratification.Put bluntly, the capitalist provides capital by not consuming. Without capital much less production could occur. As a result, some profits are effectively the “wages” paid to those who are willing to delay their own personal gratification.

Second, some profits are a return to those who take risks. Some investments make a profit and return what was invested plus a profit; others do not.

Third, some profits are a return to organizational ability, enterprise, and entrepreneurial energy. The entrepreneur, by inventing a new product or process, or by organizing the better delivery of an old product, generates profits.

Economists use the word “interest” to mean the payment for delayed gratification, and use the word “profits” to mean only the earnings that result from risk taking and from entrepreneurship.

Although some monopoly profits exist in any economy, they are a very small portion of total profits in any rich society. In rich societies, most consumption consists of either luxuries or products that have close substitutes.

“Market imperfections” provide a second source of profits. Information problem.

Marxism

The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx’s masterpiece, Capital (1867). The theory’s basic claim is simple: the value of a commodity can be objectively measured by the average number of labor hours required to produce that commodity.

If a pair of shoes usually takes twice as long to produce as a pair of pants, for example, then shoes are twice as valuable as pants. In the long run, the competitive price of shoes will be twice the price of pants, regardless of the value of the physical inputs.

Marx argued that the theory could explain the value of all commodities, including the commodity that workers sell to capitalists for a wage. Marx called this commodity “labor power.”Labor power is the worker’s capacity to produce goods and services.Marx, using principles of classical economics, explained that the value of labor power must depend on the number of labor hours it takes society, on average, to feed, clothe, and shelter a worker so that he or she has the capacity to work.

Capitalists, Marx answered, must enjoy a privileged and powerful position as owners of the means of production and are therefore able to ruthlessly exploit workers. Although the capitalist pays workers the correct wage, somehow—Marx was terribly vague here—the capitalist makes workers work more hours than are needed to create the worker’s labor power.

Marx was correct when he claimed that classical economists failed to adequately explain capitalist profits. But Marx failed as well.
Mainstream economists now believe that capitalists do not earn profits by exploiting workers (see profits). Instead, they believe, entrepreneurial capitalists earn profits by forgoing current consumption, by taking risks, and by organizing production.

Marx condemned the free market, for instance, as being “anarchic,” or ungoverned. He maintained that the way the market economy is coordinated—through the spontaneous purchase and sale of private property dictated by the laws of supply and demand—blocks our ability to take control of our individual and collective destinies.

Marx’s notion of alienation rests on a crucial but shaky assumption. It assumes that people can successfully abolish an advanced, market-based society and replace it with a democratic, comprehensively planned society.

Here is the greatest problem with Marx’s theory of alienation: even with the latest developments in computer technology, we cannot create a comprehensively planned system that puts an end to scarcity and uncertainty.

Although capitalist markets have changed over the past 150 years, competition has not devolved into monopoly. Real wages have risen and profit rates have not declined. Nor has a reserve army of the unemployed developed.

Socialist revolutions, to be sure, have occurred throughout the world, but never where Marx’s theory had predicted—in the most advanced capitalist countries. On the contrary, socialism was forced on poor, so-called Third World countries.

3/11/2012

Game theory

On a superficial level the prisoners’ dilemma appears to run counter to Adam Smith’s idea of the invisible hand. When each person in the game pursues his private interest, he does not promote the collective interest of the group. But often a group’s cooperation is not in the interests of society as a whole.

Therefore companies that pursue their own self-interest by cheating on collusive agreements often help the rest of society.

The most common path to cooperation arises from repetitions of the game.

Like the general, a game player must recognize his interaction with other intelligent and purposive people. His own choice must allow both for conflict and for possibilities for cooperation.

The essence of a game is the interdependence of player strategies.

There are two distinct types of strategic interdependence: sequential and simultaneous. In the former the players move in sequence, each aware of the others’ previous actions. In the latter the players act at the same time, each ignorant of the others’ actions.

A general principle for a player in a sequential-move game is to look ahead and reason back. Each player should figure out how the other players will respond to his current move, how he will respond in turn, and so on.

In contrast to the linear chain of reasoning for sequential games, a game with simultaneous moves involves a logical circle. Each must figuratively put himself in the shoes of all and try to calculate the outcome. His own best action is an integral part of this overall calculation.

This logical circle is squared (the circular reasoning is brought to a conclusion) using a concept of equilibrium developed by the Princeton mathematician john nash.

A player can use threats and promises to alter other players’ expectations of his future actions, and thereby induce them to take actions favorable to him or deter them from making moves that harm him. To succeed, the threats and promises must be credible. This is problematic because when the time comes, it is generally costly to carry out a threat or make good on a promise.The general principle is that it can be in a player’s interest to reduce his own freedom of future action. 



State funding education

Before we can confront the subject of the state's role in education, we first ought to address the proper role and justification for government intervention in market activities in general.

It is important to note that simply identifying that private net benefit differs from social net benefit does not automatically justify government intervention.The imperfections of market solutions to public goods problems must be weighed against the imperfections of government solutions. Governments rely on bureaucracy and have weak incentives to serve consumers. Therefore, they produce inefficiently.

not only should government not increase its spending on higher education, but also that the case for subsidizing it at all is very weak.


(1)the crucial assumption that there is a direct, causal relationship between "educational attainment" and income is contrary to readily observed facts.

(2)many people with college degrees work at jobs that call for scant academic preparation, jobs in which they earn little or no premium on their "investment."

The conventional wisdom holds that students who go through college learn a lot that makes them more valuable as workers, but today's college experience often fails to do that.

Now we can see one reason why the income differential between college graduates and non-graduates is so misleading. That statistic includes many people who earned their degrees decades ago, before the erosion of standards.Looking at such statistics does not tell us anything about the probable results of putting a marginal student through college today. Politicians' expectation that simply processing a student through college will automatically bring about a great increase in his human capital and lead to a dramatic boost in his earnings is mistaken.


What does it mean to say that a job "requires" a college degree? It would be natural to think that the work is so demanding that only someone with the training available in a college could perform it. Rarely is that the case.
The degree "requirement" often has nothing to do with any particular knowledge or skills. Rather, the employer is using college credentials as a screening mechanism in lieu of more-direct means of assessing a job applicant's capabilities.Consequently, increasing the number of college graduates is apt only to ratchet up credential inflation.It is evident that the U.S. has already oversold higher education.


To think that college-caliber students should be given zero tuition is to think that smart people should be given wealth at the expense of the less smart.Bear in mind that an end to government subsidization of higher education would not end subsidies. Voluntary subsidies are far more likely to encourage serious academic work than is governments' current policy of automatically subsidizing nearly anyone who feels like going to college.



Discrimination

Concessionaires interested in maximizing their profits will forgo prejudice, hire women, reduce their costs, and increase their profits.Unless government steps in to protect the bigots from competition, market conditions will end up forcing firms to choose between lower profits and hiring women.

An example of the effect of market penalties on prejudicial hiring occurred in South Africa in the early 1900s.In spite of penalties threatened by government and violence threatened by white workers, South African mine owners sought to increase profits by laying off high-priced white workers in order to hire lower-priced black workers. Higher-paying jobs were reserved for whites only after white workers successfully persuaded the government to place extreme restrictions on blacks’ ability to work (see apartheid).

Determined to equalize the representation of various protected groups in all spheres of social activity, they support government-sanctioned discrimination as long as it fosters their version of equality.

In the real world, distinguishing discrimination based on productivity from discrimination based on prejudice can be difficult.

Lacking information about individuals, the concessionaire bases his decision on the average characteristics of the groups with which he has had experience. “statistical discrimination.”

Some myths of income gap:
(1)When education is taken into account, the earnings gap between Asians and whites vanishes, and the black/white wage gap shrinks substantially because whites, on average, have more education than blacks.

(2)Adding geographic location shrinks the black/white wage gap further because a much larger proportion of black men live in the South, and southern wage levels tend to be lower for everyone.

(3)Adding individual achievement test scores, which are a measure of educational quality, erases the black/white wage gap for college graduates.

Conclusion: most of the disparity in earnings between blacks and whites in the labor market of the 1990s is due to differences in the skills they bring to the market, not to discrimination in the market.

The gap between male and female wages narrowed from about 40 percent in 1970 to about 24 percent in 2003. Claims that the 24 percent difference results from bigotry typically ignore the fact that as a group women are more likely to work part time, choose careers in lower-paying fields, work for government or a nonprofit, and have fewer years of labor market experience than men of the same age. These differences could all create a wage gap and may reflect choices made to accommodate family responsibilities.

Along with real or implied hiring quotas, the restrictions created under affirmative action blunt the market mechanisms that make discrimination expensive.

3/10/2012

Immigrants

Immigrants are not a drag on the economy. They don't take jobs from the native born population and they don't depress overall wage rates. Fears of immigrant crime are overblown. Finally, objections to immigration because of the welfare state or public property are misplaced.

Free trade in labor, like trade in goods and services, frees existing Americans to do what's in their comparative advantage.

That immigrants "take our jobs" is probably the most repeated and most economically ignorant objection to immigration. Everyone can see when an immigrant takes a job that used to be held by a native-born worker. But not everyone sees the secondary consequence of the new jobs that are created because native-born labor has been freed up for more-productive uses.5 In the market's process of creative destruction, jobs are created and destroyed all the time.

Those immigrants who increase the supply of labor also demand goods and services, causing the demand for labor to increase. This means that the effect of immigration on wages shifts from being a theoretical question to being an empirical one.

Labor is heterogeneous. When the immigrants have different skills than the native-born population, they complement the native-born labor rather than substitute for them.

Bringing more immigrants into the United States expands our market and allows for greater specialization.

The vast majority of immigrants, legal and illegal, who come to the United States are not criminals or terrorists. Most simply want to work to create a better life for themselves and their families. Some studies report that illegal immigrants are even less likely than the native-born population to commit crimes.

Risk and uncertainty

The distinction between the two is that risk denotes a positive probability of something bad happening, while uncertainty does not necessarily imply a value judgment or ranking of the possible outcomes. Fundamentally, though, in common usage both terms refer to a similar situation, in which some aspect of the future cannot be foreseen.


Frank H. Knight established the economic definition of the terms in his landmark book, Risk, Uncertainty, and Profit (1921):
risk is present when future events occur with measurable probability
uncertainty is present when the likelihood of future events is indefinite or incalculable

The primary attribute of competition, universally recognized and evident at a glance, is the "tendency" to eliminate profit or loss, and bring the value of economic goods to equality with their cost.... But in actual society, cost and value only "tend" to equality; it is only by an occasional accident that they are precisely equal in fact; they are usually separated by a margin of "profit," positive or negative. Hence the problem of profit is one way of looking at the problem of the contrast between perfect competition and actual competition.

Theories of profit developed prior to Knight argued that profit arises because people do not have perfect knowledge about the future. Whenever anything happens to make the outcome of events not match with people's expectations, then the revenues ("values" in the above quote) from the goods or services they produce will not equal costs, and profit will occur.

Uncertainty, which cannot be eliminated or insured against, is for Knight the source of profit.

3/07/2012

Russia

Russia ranks regularly among the most dangerous countries for journalists.

Conflicts of interest are ignored in the KGB state. Up until mid-2011 when President Medvedev outlawed the practice, ministers and regulators could manage, sit on boards of, or be paid by the very companies they controlled. Although some freedom of the print media remains, state or Kremlin-friendly oligarchs own and control television. The TV nightly news features a resolute Putin (or Medvedev) attending patriotic events, congratulating award winners, and seeming to look after the health, safety and welfare of ordinary Russians.

The KGB state has created a thug economy. Its directors use businesses as personal wealth-generating machines; they quash potential competitors and take over legitimate businesses once they become big enough to attract their interest. The directors of the KGB economy have accumulated incredible wealth. Putin himself is said to be the richest of the bunch, with a fortune likely in excess of $30 billion.5 There are more Russian than American billionaires on the Forbes lists, although private wealth in Russia is a tiny fraction of that in the United States.

Three reasons why Russian economy will stagnate:


(1)insecure property rights retard entrepreneurship, investment, and risk taking.


(2)bank loans are allocated to cronies(亲友,有裙带关系的人) and not to their highest-valued uses.


(3)foreign investment is insecure even if approved at the highest levels.

Tax Incidence, Tax Burden, and Tax Shifting: Who Really Pays the Tax?

The true measure of the burden of a tax is the change in peoplersquo;s economic situations as a result of the tax. The changes should be measured as the effects on everyonersquo;s net-of-tax income after all economic adjustments have run their courses. The burden measure should include not only changes in peoplersquo;s after-tax incomes in a single year, but the lifetime consequences of the tax change as well. Unfortunately, policymakers are not presented with this type of comprehensive information on the true burden of taxation and must make policy judgments based on incomplete and misleading statistics.

One cannot tell the true burden of a tax just by looking at where or on whom it is initially imposed, or at what it is called.


What price do we pay for glossing over the true economic burden of a tax? Failure to understand and take account of the economic consequences of taxation leads to a gross misrepresentation of the distribution of the tax burden.This in turn has led to a tax system that, while supposedly promoting social justice, is actually harmful to lower-income workers and savers, as well as damaging to the population as a whole. 


Some Terminology:


(1) The "statutory" or "legal obligation," which refers to the person on whom the law says that the tax obligation falls (which may bear little relationship to who actually feels the pain).

(2) The "initial economic incidence" (or "incidence" for short), which is how the economic supply and demand conditions in the market for the taxed product or service or factor of production allocate the tax among suppliers and consumers of the taxed item (which allocation may be different in the short run and the long run);

(3) The "ultimate economic burden" (or "burden" for short), which measures the changes in peoplersquo;s after-tax incomes after all the economic adjustments to the tax have occurred across all affected markets as consumption behavior, resource use, and incomes shift to their new patterns.


Sell the streets

Privately maintained, operated, and priced roads could solve many problems that plague commuters today.

The problem with the government
Congestion is the most obvious problem.Delayed traffic has increased more than 25 percent since 1995 and 157 percent since 1982.All too often, politicians adopt largely symbolic, if colossally costly, projects like light rails that do little to relieve congestion.Finally, when the government does spend money on roads, it is often not on projects that best serve drivers. When new roads are built, they often are not the ones most needed, and maintenance of existing roads is often sacrificed for the more public demonstration of building new roads.
Congestion, like long lines, is a sign of a shortage at the legal price.We have a shortage of road space because people do not have to pay for road use based on the scarcity of road space relative to demand.


The advantages of private roads
Private ownership creates incentives for owners to build, maintain, upgrade, and innovate their roads in order to maximize their profits. Market prices not only enable owners to gather the necessary information to best manage their roads, but also serve another important function: They cause drivers to take account of the scarcity of road space and economize on its use.

How would a system of private roads operate? Private companies would be allowed to construct major highways, bridges, and tunnels or to purchase existing ones from the government. The companies would then charge tolls to pay for the roads' acquisition and maintenance costs and to make a profit. Because owners would profit by better serving consumers, they would have an incentive to ensure that their roads were safe and fast and that they led to where people wanted to travel most.Flexible pricing causes drivers to account for their contribution to congestion and improves efficiency by allocating scarce road space to those with the highest demand for it.


Accidents between drivers are externalities on government roads. When roads are privatized, though, the externality is internalized to the owners of the road, who will lose profits if their roads are unsafe.

Buy local stuff! Wait...Buy local stuff?

A major flaw in the case for buying local is that it is at odds with the principle of comparative advantage.



Consider the main arguments for buying local.

Argument 1: Buying Local Foods is Good for the Local Economy
The community does not benefit when we pay more for a local tomato instead of an identical non-local tomato because the savings realized from buying non-local tomatoes could have been used to purchase other things. Asking us to purchase local food is asking us to give up things we otherwise could have enjoyed—the very definition of wealth destruction.

If we, as consumers, require that our food be grown locally, we cause the food not to be grown in the most productive, least-cost location. The "keep the dollars local" argument fails to recognize that a dollar sent out of the local economy by buying a non-local food must, eventually, return to the local economy in terms of dollars spent on exports.

Locavores seek to export goods without importing, which can happen only if the exports are given away for free—the equivalent of foreign aid.

Argument 2: Buying Local Foods Is Good for the Environment
Local foods travel fewer miles, but an environmentalist must be concerned with more than the tailpipe emissions from farm to market. Consumers must also travel to buy their food, and the variety of foods offered in supermarkets minimizes the need to make multiple trips. An extra trip by a consumer to the farmers' market is likely to expend more energy than was saved by reducing the distance the food travels. Moreover, fresh local foods often require more at-home preparation, where energy use is less efficient relative to that of large-scale processing facilities.

The truth is that the energy expended transporting food is relatively unimportant.One recent study indicated that over 80 percent of the global-warming impacts of food consumption occur at the farm, and only ten percent are due to transportation.

Argument 3: Local is Fresher and Tastier


people can—and do—make tradeoffs between the higher cost of buying local against the higher freshness. Moreover, freshness need not equate to localness.

Argument 4: Local Food is Healthier and Should be Served in School
If improving nutrition is the objective, why not seek more-nutritious food regardless of where it is grown?

Market power

When firms face the same costs, competition among sellers drives the price of a good down to the production cost of the good, leading to zero economic profits for all competing firms. Any firm that sets the price for its good higher than the competitive price will not sell anything, because customers will go to the firms offering the lower, competitive price. If a firm is able to protect itself against competitive pressures from other firms, it could raise its price higher than the competitive price and secure positive profits for itself.

The implication is that even if there is only one firm in a given market, that firm does not necessarily possess market power. Market power can only exist if there are impediments, called "barriers to entry," that prevent new firms like Sheila's from entering a market and competing on equal terms with firms, like Chris's, already in the market.

Barriers to entry can be divided into two broad categories, those that completely prevent new firms from entering a market, and those that raise the costs of firms that enter a market.

The major barriers to entry confronted by classical economists were government licenses that granted a particular firm or group of firms the exclusive authority to be the only legal seller of a given product.

Governments that were either not aware of or not terribly concerned about the higher prices and lower production that occur under monopolies could sell off a monopoly privilege for substantial revenue because of the high profits that could be generated by a firm with substantial market power.

A temporary form of monopoly granted by governments is the patent.


but many classical and contemporary economists have defended patents as a reward system that generates incentives for innovation.


Other kinds of barriers, which don't totally prevent new producers, but raise their cost to do business in this field.
(1)A local margin monopoly is characterized by the fact that the barrier preventing outsiders from competing on the local market and breaking the monopoly of the local sellers is the comparative height of transportation costs. No tariffs are needed to grant limited protection to a firm which owns all the adjacent natural resources required for the production of bricks against the competition of far distant tile works. The costs of transportation provide them with a margin in which, the configuration of demand being propitious, an advantageous monopoly price can be found.

(2)Other barriers to entry that can raise the costs of firms entering a market are trademarks, brand names, and advertising.The basic argument is that if a product becomes well-known and for whatever reason inspires a certain amount of brand loyalty from its consumers, then those consumers will be willing to pay more than the competitive price for the good, even if a cheaper alternative exists.

Since Knight and Mises wrote on the subject, many economists have come to the conclusion that the main impact of advertising is to improve rather than deter competition, by increasing the amount of information available to consumers.

Barriers to entry that arise due to geographic considerations (transportation costs) or the spending decisions of the producing firms themselves (advertising, brand names, etc.) are only able to impute some additional costs to firms that want to enter a market. Barriers that completely prohibit new firms from entering typically arise on government authority.

Differences between these two kinds of monopolies 
(1) The degree of market power afforded to firms by distance or brand loyalty is likely to be fairly limited. A firm possessing these types of market power still cannot raise its price so high that it becomes feasible for competitors to incur substantial transportation costs, or for loyal consumers to be enticed away from their normal brand to a significantly cheaper rival.

(2) Market power arising outside of the government can be reduced outside of the government. Improvements in the speed, reliability, and safety of transportation lower transportation costs and force a holder of a local margin monopoly to bring his price closer to the competitive price. Development in communication technologies creates new opportunities to target potential customers and establish a new brand's identity. Market power bestowed by an act of government, on the other hand, can usually only be removed by another act of government.


3/06/2012

Capitalism

The heat of these charges makes it urgent to understand at long last that what goes by the name of capitalism in ordinary language is a hybrid system crossbred from liberalism and social democracy, where the freedom of contract is allowed to work in some respects but is stymied in others and where perverse incentives springing from taxation and regulation are mixed with the profit motive that drives competitive markets. It is the performance of this hybrid that draws every man's hostility. But even if it were fully realised that the economy we live by is a brew of freedom and regulatory constraint, market and government, who can really tell whether it tastes bitter by too much market or too much government?

 Every economic system puts some labour and some capital in double harness. What distinguishes capitalism from pre-capitalist and putatively socialist systems is that in capitalism the two factors labour and capital are furnished by separate sets of persons who are linked contractually in a node together by firms.

Some evergreen objections to capitalism:


1.capitalism is socially irresponsible
2.capitalism panders to greed instead of meeting need
3.capitalism is unstable and so the strong hand of the state must hold it on course
4.capitalism fosters reckless risk-taking
5.capitalism needs re-regulation to survive

Argue back:
1. capitalism is socially irresponsible
In the language of political correctness, this is summed up in the phrase that the firm must consider its "stakeholders" and not just its shareholders.


What this argument overlooks is that managers/CEO mostly don't own the company, they are the agents of shareholders. If managers spend money in philanthropy just to satisfied their own sense of altruism, they have betrayed shareholders' benefits by using their property against their wills.

The apparent bias against labour is mostly an optical illusion due to the fact that adversarial bargaining over wages and conditions is highly visible, while no such adversarial bargaining surfaces in the firm's recourse to its shareholders or to the capital market.

2. Capitalism panders to greed rather than meets greed
In any type of organisation, the top dogs are greedy and can exploit for personal gain any latitude they can get away with.The blame lies not with capitalism, but with the wide range of human characters.

If socialism were ever realised, its hopeless inefficiency at meeting needs and its unresponsiveness to wants would no doubt be blamed on its not being capitalism. Any system is liable to be censured for not being another.

3. Capitalism is unstable and so the strong hand of the state must hold it on course

One factor in the vulnerability of the economy to the shock it received in the latter part of 2008 was high indebtedness. It is fair to say that its major cause was government policy.Compulsory "social" insurance and state provision for health care and old age pension weakens the precautionary motive for saving by households.

4. Capitalism fosters reckless risk-taking

Because of the recognition that owners are not necessarily the best managers and may be wise to entrust their assets to others who show expertise in the art and science of making the assets work, the principal-agent problem increasingly penetrates the capitalist economy. The intrinsic conflict of interest can at best be attenuated.


The main way capitalist practice found to do this is to pay corporate executives in leaving the firm bonuses and stock options that are contingent on results achieved by the executive, his team or department, or the whole corporation.

5. Capitalism needs re-regulation to survive

Government can create more severe failure.

3/05/2012

Government should not ban the cigarette advertisement



     Since 1960s’, the Food and Drug Administration (FDA) and various anti-smoking groups have been trying to attack cigarette industry and ban cigarette advertisements. The problems that tobacco manufacturers face are that: smoking can lead to many health diseases; tobacco advertisements are unethical because they advocate the enjoyment of smoking and intend to target teenagers.
   
      In my opinion, it’s wrong for government to ban the cigarette advertisements because it leads to undesirable outcomes, deprives people of individual liberty and creates inequality.

      Consequentialism is a class of normative ethical theories which argues that consequences of one’s deeds are the ultimate basis of judgment about the rightness of the deeds. From the perspective of this theory, government’s banning tobacco advertisements leads to bad consequences. The government’s hostility toward cigarette industry will raise the cost of doing tobacco business and force those less competitive companies out of the market. Smokers will find it more expensive to get cigarette and thus their well-being will be negatively affected. When deprived of the rights to advertise on televisions and radios, tobacco businessmen have to use other methods, like sponsoring sports events, to continue marketing their products. What’s ironic will be that audience, especially teenagers, will get more direct exposure to tobacco advertisements because sports are more popular and influential. Some people may argue that evil tobacco ads should be banned because they advocate enjoyment of smoking and thus mislead people to get a shot. But I don’t think it that way; instead, it may be the case that government regulation incentivizes tobacco industry to advertise more “evil” content. For example, in 1950s’, tobacco industries voluntarily advertised the disadvantages of smoking. They did this not based on altruism; instead, a non-government report which showed that smoking is bad for health gave those initially less competitive tobacco producers an insight to get a big share: produce filtered cigarette. The outcome was that during that time period the number of smoking population dropped and filtered cigarettes were popular. What’s worth noticing was that it was government that stopped tobacco companies from advertising potential health hazards of smoking because market shrinkage led to fewer tax revenues generated from tobacco industry. But now the situation is exactly the opposite: government exerts great effort trying to eliminate smoking phenomenon, but the number of smoking population doesn’t shrink as it has hoped.

       Existentialism, another school of philosophy thoughts, contends that people be free to make choice yet take full responsibility for what they do. In my opinion, what distinguishes man and other animals is that man possesses independent thinking. People have different tastes, and thus it’s up to every single individual to judge which activity is dangerous or not. Letting government to ban cigarette advertisements is like foregoing our rights to think independently and make free choices. If people call for government to ban cigarette because it’s dangerous, why don’t they call for a ban on football or driving? Some may rebuff that cigarette cannot be considered ordinary goods because people get addicted to it. But I think people get addicted to cigarette because they like it and under their own situation, they judge benefits higher than the costs. We can only judge what a person prefers by observing what he has done, and thus forbidding him from doing what he wants is like forcing him to obey other’s opinion and disregarding him as an independent man.
Some people may object that, “But what about the teenagers? They are not mature enough to make cost-benefit analysis and thus are more likely to do harmful things. We should protect them from evil things for the sake of their safety and future. ” The argument is plausible, but it’s parents’ job to take care of their own child, not the government’s. Everyone’s social background and growing path are distinct and it’s thus hard to reach out universal criteria to teach children. Parents have more information about their own children and thus may help them more in their life, but government is not omniscience. I don’t doubt government’s good intention to protect teenagers, but good intentions may lead to bad consequences simply because of a lack of information.

        My opponents will not stop here and may argue from another angle, “So you stick to the point that banning cigarette ads are bad considering well-being of producers and customers? But what about the innocent non-smokers? Smoking is amoral because it imposes external costs, like secondhand smoke, on them.” I do care about non-smokers’ utility, and there are certain ways to cope with externalities. The first way is to let smokers and non-smokers make mutual agreements. If it doesn’t work, then government may step in a little bit. But a total ban doesn’t eliminate the problem. In fact, from the perspective of deontology, which judges the morality of an action based on the actions’ adherence to rules, banning cigarette advertisements creates inequality. Taxation and ban both force smokers to smoke less, but they are different. Taxation on cigarette forces smokers and producers to take into consideration of negative externalities of smoking. If we can judiciously gauge the tax, the final price of cigarette functions as the real trade-off for smoking. But a ban of cigarette is different. It’s like totally sacrificing two groups’ (cigarette manufacturers and smokers) benefits to comfort the third party, non-smokers.

        The advocates of regulation seem to make comparison between imperfect market and perfect government, but in my opinion, government’s regulation leads to undesirable consequences, neglects rights of free choice and creates inequality. Government failure may be even worse than market failure.

3/04/2012

What is capitalism?

Europe's predominant idea of emancipation consisted of changing the concept of man a slave of the absolute state embodied by a king, to the concept of man as a slave of the absolute state embodied by "the people"--i.e. switching from slavery to a tribal chief into slavery to the tribe.

There is no such thing as a "social surplus". All wealth is produced by somebody and belongs to somebody.

Man cannot survive, as animals do, by the guidance of mere percepts. There is no such a thing as a collective brain. Men can learn from one another, but learning requires a process of thought on the part of every individual student. Everything man needs has to be discovered by minds and produced by efforts. Production is the application of reason to the problem of survival. Freedom is the fundamental requirement of mind.


A rational mind doesn't work under compulsion; it doesn't subordinate its grasp of reality to anyone's orders or controls; it does not sacrifice its knowledge, its view of the truth, to anyone's opinions, or "welfare". A gun is not an argument.


A free market is a continuous process that cannot be held still, an upward process that demands the best of every man and rewards him accordingly. The majority learn by demonstration, the minority are free to demonstrate. The mental parasites--the imitators who attempt to cater to what they think is the public's known taste--are constantly being beaten by the innovators whose product raise the public's knowledge and taste to ever higher levels. It is in this sense that the free market is ruled, not by the consumers, but by the producers. The most successful ones are those who discover new fields of production, fields which had not been known to exist.


The moral meaning of the law of supply and demand: by the voluntary consent of those who are willing to trade him their work of products in return.It represents the recognition of the fact that man is not the property nor the servant of the tribe, that a man works in order to support his own life.


Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.


The right to agree with other is not a problem in any society; it is the right to disagree--and thus keeps the road open to the man's most valuable attribute: the creative mind.

Force invalidates and paralyzes a man's judgement, demanding that he act against it, thus rendering him morally impotent.