Category Archive: Economics

  1. Did You Know?

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    Did you know that selling milk for less than the government’s imposed price floor could land you in jail?

    Prison time isn’t the only drawback of minimum prices for milk. Prices are the miraculous mechanism by which complex market information about supply and demand are communicated throughout the economy. When government policies artificially raise or lower prices, those changes in prices can have a wide impact on markets.

    Check out the video below to learn even more about prices.

  2. Social Cooperation: Why Thieves Hate Free Markets

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    In this video Professor Aeon Skoble explains how market competition and spontaneous order result in the emergence of a civil order that discourages stealing and other harmful behaviors. This concept is often overlooked or ignored or just plainly misunderstood by critics of free markets. Can you think of other areas where competitive markets results in superior outcomes than the alternative?

  3. Fight for $15 Needs More Brain Less Brawn

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    This week, another round of fast food protests occurred in major cities nationwide. The protests are part of the broader “Fight for $15” movement that seeks to more than double the existing federal minimum wage to $15 an hour.

    While such a policy sounds like it could help low-wage employees, it would actually end up making many of them worse off. As Duquesne University professor Antony Davies explains in the video below, minimum wage hikes do not force employers to pay higher wages to every employee. They only force employers to pay higher wages to the employees he or she chooses to keep.

    Though it may sound obvious, the fact that employers pay zero dollars to those they lay off or choose not to hire in response to a minimum wage increase is an important and often overlooked distinction in the minimum wage debate.

    Davies explains the minimum wage disproportionately impacts the least-skilled and least-productive employees because they often don’t produce enough income for their employer to justify their mandated higher wage. Therefore, a higher minimum wage “doesn’t help the worker at the expense of the owner,” says Davies. “It helps the more productive workers at the expense of the less productive workers.”

    The most productive employees don’t need the minimum wage; they can get raises no matter what. But for less-skilled employees – the very people minimum wage increases are supposed to help — minimum wages increase unemployment. “Fight for $15” protesters would do well to lay down their boxing gloves and ponder this for a moment.

  4. Hydraulic Fracturing and the Ultimate Resource

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    One of the most valuable economic insights is that human creativity is The Ultimate Resource. (The great economist Julian Simon wrote a book by that name.) It follows that as long as we are free to use our creativity, we don’t have to worry about running out of resources. Truly, human creativity makes resources of mere stuff, because only when people figure out what to do with some particular stuff does it become a valuable resource.

    The world has been experiencing a powerful illustration of this fact with respect to oil.

    For over a century, people have been worrying about running out of oil. The Wall Street Journal published an entertaining report on the subject last September, leading with some noteworthy strong, and wrong, statements by leading experts about how little oil we have left. At this link, click on the circles below the first photograph to see them.

    In our day the United States has become once again the world’s leading oil producer—we now produce more oil than Saudi Arabia—thanks to human creativity that has turned mere stuff into a valuable resource.

    The stuff I mean is rock, shale rock. There are oceans of it down in the ground, miles below the surface. In that rock, oil is trapped, lots and lots of oil. But until about a decade ago, people did not know how to get at that oil; after all, it was trapped in the shale. So shale was not a resource.

    Then came the marriage of two technologies, two techniques developed by human creativity, and married by human creativity: hydraulic fracturing (“fracking”) and horizontal drilling. The first involves breaking the rock by injecting it with water and some sand and chemicals at very high pressure. The sand holds open the tiny fractures so that the trapped oil can escape. This technique has been known since 1949, but it was not especially useful in wells that could only be drilled vertically and hence could break open only a little bit of shale.

    The second technique, horizontal drilling, involves drilling sideways out into the shale from a vertical well. (How they manage to do that I don’t know.) It allows far more shale to be reached and fractured, so that far more oil can escape and rise through the well.

    Voila! Thanks to The Ultimate Resource, human creativity, what was once useless rock far down in the ground has become a valuable natural resource, one able to satisfy human needs “for decades, if not centuries,” according to Matt Ridley.

    I don’t mean to say that, thanks to the shale revolution, we’ll never run out of oil. Definitely not. We’ll never run out of oil because The Ultimate Resource, human creativity, will find a better energy source than oil before we ever run out of it. Saudi oil minister Sheikh Zaki Yamani made this wonderfully insightful statement in the 1970s: “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” The Stone Age ended because of The Ultimate Resource. Barring natural or political catastrophe, the Oil Age will, too.

  5. How Bitcoin Can Help Get Money to Refugees in Need

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    This post by Kevin Boyd originally appeared on R Street on October 19th, 2015. Below is an excerpt.

    Bitcoin and other cryptocurrencies have grown in influence and usage the past few years. People looking for an alternative to government-issued fiat currencies, or who simply don’t trust having their spending tracked by banks, have flocked to them. Bitcoin also has become an interesting method of payment across international borders and a way to avoid transaction fees.

    There is another use for bitcoin that might get some use in these tragic times: as a way to provide relief for refugees. Refugees, by definition, are a mobile population. The explosion of cellphone technology means even many of the world’s poorest have them. The proliferation of microfinance and microbanking has lifted many of these poor cellphone users out of poverty.

    However, a major problem refugees face is lack of access to traditional banks. The banks in their home countries may be out of service. They also likely do not have the proper documents to set up a bank account in their host country. Bitcoin can provide a way to bypass the traditional banking system and give aid to refugees directly.

    Head over to R Street to continue reading.

  6. What Caused the Economic Boom of Wealth?

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    In this video Professor Deirdre McCloskey explains how property rights and economic freedom has resulted in a dramatic explosion in overall wealth. Why then do you think free markets and capitalist are derided so much in society? Let us know what you think in the comments!

  7. Featured On Demand Program of the Week: Does Inequality Matter?

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    If you want to get the full picture of the topic of income equality check out this Learn Liberty On Demand program. We’ve pulled together a list of mind-blowing videos, featuring professors like Sean Mulholland, Steve Horwitz and others who explore the subject from many perspectives. We’ve made sure that each video builds on what was covered in the previous one to make sure you get all the angles. You’ll not only quickly get up to speed on what all the issues are but, more importantly, hear some surprisingly fresh solutions on what we can do to combat poverty.

    This program tackles issues from income inequality and social safety nets to the role the war on drugs plays in creating a permanent underclass. This topic is likely to only increase in importance in the coming years.

    Continue Program

  8. High Prices Convey Information, not Criminality

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    Last month’s record flooding in South Carolina brought renewed crackdowns on price gouging. But higher prices simply convey information – in this case that consumers should conserve and producers should produce. In this way, prices allow the shortages that occur in natural disasters to be alleviated.

    In the new Learn Liberty video below, Towson University professor Howard Baetjer Jr. explains the importance of prices with the example of building a railway in a socialist system where they do not exist. In such an economy, builders do not know whether to, for example, build through a mountain to save track or build around the mountain to save on engineers. Without prices, it’s impossible to know what is more valuable to society, track or engineers, threatening the overuse or misuse of one of them.

    In the words of Ludwig Von Mises, who identified this knowledge problem in command economies, people are left “groping in the dark” about how to proceed. No person is smart enough to know how to use scarce resources for the good of the nation without the information conveyed by prices.

    In a market economy, on the other hand, prices lead people to act in a way that is best for them and best for society. Railway builders, for instance, would choose whether to go through the mountain or around it based on whether track or engineers is cheaper. This uses up less of the resource that is more valuable to society and better used in more important ways.

    In a flood, for instance, the price of clean water may increase dramatically because it has become scarce. This signals people to conserve, preventing a local resident from, say, filling up his winter Jacuzzi during that period. It also signals water producers and salespeople to bring more water to market to take advantage of profits, quench people’s thirst, and bring the price down.

    Only through the market system can we allocate scarce resources to their most valuable and least costly use and satisfy as many human wants as possible. In the words of famed economist Friedrich Hayek, it is truly “a marvel.”

  9. Food for Thought: Protectionism

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    Some countries heavily subsidize companies within their own borders. Does this justify equally large subsidies in America? How else can companies compete internationally if they do not receive government funds, but their rivals do? Let us know what you think in the comments!