Category Archive: Economics
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Prices ensure your demands are supplied- even in times of scarcity. But who decides prices? Manufacturers and stores play a role, of course. As Professor Don Boudreaux explains, though, the biggest decider in determining prices is you, the consumer. Prices reflect the value consumers think the products are worth. Whether it’s the price of a bottle of ketchup or a Hermes Birkin purse, the price tag is the end result of a “global chain of cooperation.”
The economist Friedrich Hayek first discovered and articulated the importance of prices. You can learn more about him and his work at www.essentialhayek.org.
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Income inequality in America is a serious issue. People are worried about a widening gap between the rich and the poor in the United States. But is the global story the same?
Professor Tyler Cowen tells how, globally, income inequality worldwide is on the decline. Thanks to globalization and free trade, the world is richer, and billions of people have escaped from poverty through the global economy. This is evidenced by the amazing growth of the economies in China and India.
When we talk about income inequality in America, we mustn’t forget that, worldwide, globalization and free trade are the forces that have the potential to eliminate income inequality and bring billions out of poverty.
Can Bitcoin help alleviate poverty? In developed countries with easy access to credit and banking, Bitcoin is still used mostly by criminals and early adopters–but in developing countries where credit and banking are difficult, if not impossible to access, Bitcoin helps workers not just to store their money, but also to cheaply and effectively send remittances home to help their families.
Thousands of people die in the US every year because there’s a shortage of willing kidney donors. Some people are saved by the generosity of friends and family, but many more suffer because no willing & compatible donors come forward. As in most countries, it is illegal to compensate donors in the US for donating a kidney. Prof. Caplan argues that we should allow a market: if donors could be paid to donate a kidney through a reputable hospital, they could earn money and save a life in the process. Such a system would encourage many more donors, and save many more lives. But most people are uncomfortable with the idea that individuals or companies would make money by solving that kind of problem. They equate making a profit with selfish intentions, and bad results. Economics professor Bryan Caplan calls this “anti-market bias.” He argues that most people (and voters) are prone to this bias, leading to harmful policies. Another example Caplan gives is air pollution. While most economists think that markets could help curb pollution, most regular people reject the idea. Perhaps this is partly because for many problems we face, it is difficult to imagine how markets and profit could help us find a solution. Caplan argues that this makes allowing markets even more important: they incentivize people to find new & creative ways of solving problems, many of which we never could have predicted in advance.
People tend to think the world is much worse off than it actually is. Bad news gets a lot more attention than good news. Professor Bryan Caplan calls this “Pessimistic Bias,” and argues that it affects the policies people vote for. Despite the amazing economic gains of the past 100 years and even the past decade, most people are under the impression that things are just getting worse. But Prof. Caplan argues that even with all the tough problems in the world, there is reason for optimism; contrary to most people’s expectations, he contends that the best is yet to come.
Hat tip to Louis C.K.
For nearly all of human history, most people were very, very poor. But something happened after 1800. Average wages began to rise. For example, in the past 200 years, the average wage in the United States has gone from $3.00 per day to over $120.00 per day—and that’s adjusted for inflation. Why the sudden change? Prof. Deirdre McCloskey explains her theory.
Some argue that it is exploitation. Perhaps the wealthy are accumulating more at the cost of the poor. The problem with this argument is that exploitation has been occurring in the world throughout history, but it never caused economic growth of the kind we’ve seen after 1800. Others argue that the key was investment. But Prof. McCloskey says that’s wrong too. Instead, she says this incredible amount of economic growth has been brought about by new ideas & innovation.
That still leaves the question of why innovation didn’t cause great growth prior to the 1800s. Prof. McCloskey argues that two changes in Holland and England gave rise to the incredible burst of innovation we saw: first, an increase in economic liberty for trade and commerce, and second, the possibility of social honor for inventors, merchants, and manufacturers. These professions had previously been considered dishonorable. These changes resulted in the tremendous burst of innovation that had earlier been discouraged because innovators weren’t free and they weren’t honored.