Tuesday, August 24, 2004
Economics in one page
1. Self-interest: "The desire of bettering our condition comes with us from the womb and never leaves till we go into the grave" (Adam Smith). No one spends someone else's money as carefully as he spends his own.
2. Economic growth: The key to a higher standard of living is to expand savings, capital formation, education, and technology.
3. Trade: In all voluntary exchanges, where accurate information is known, both the buyer and seller gain; therefore, an increase in trade between individuals, groups, or nations benefits both parties.
4. Competition: Given the universal existence of limited resources and unlimited wants, competition exists in all societies and cannot be abolished by government edict.
5. Cooperation: Since most individuals are not self-sufficient, and almost all natural resources must be transformed in order to become usable, individuals--laborers, landlords, capitalists, and entrepreneurs--must work together to produce valuable goods and services.
6. Division of labor and comparative advantage: Differences in talents, intelligence, knowledge, and property lead to specialization and comparative advantage by each individual, firm, and nation.
7. Dispersion of knowledge: Information about market behavior is so diverse and ubiquitous that it cannot be captured and calculated by a central authority.
8. Profit and loss: Profit and loss are the market mechanisms that guide what should and should not be produced over the long run.
9. Opportunity cost: Given the limitations of time and resources, there are always trade-offs in life. If you want to do something, you must give up other things you may wish to do. The price you pay to engage in one activity is equal to the cost of other activities you have forgone.
10. Price theory: Prices are determined by the subjective valuations of buyers (demand) and sellers (supply), not by any objective cost of production; the higher the price, the smaller the quantity purchasers will be willing to buy and the larger the quantity sellers will be willing to offer for sale.
11. Causality: For every cause there is an effect. Actions taken by individuals, firms, and governments have an impact on other actors in the economy that may be predictable, although the level of predictability depends on the complexity of the actions involved.
12. Uncertainty: There is always a degree of risk and uncertainty about the future because people are often reevaluating, learning from their mistakes, and changing their minds, thus making it difficult to predict their behavior in the future.
13. Labor economics: Higher wages can only be achieved in the long run by greater productivity, i.e., applying more capital investment per worker; chronic unemployment is caused by government fixing wage rates above equilibrium market levels.
14. Government controls: Price-rent-wage controls may benefit some individuals and groups, but not society as a whole; ultimately, they create shortages, black markets, and a deterioration of quality and services. There is no such thing as a free lunch.
15. Money: Deliberate attempts to depreciate the nation's currency, artificially lower interest rates, and engage in "easy money" policies inevitably lead to inflation, boom-bust cycles, and economic crisis. The market, not the state, should determine money and credit.
16. Public finance: In all public enterprises, in order to maintain a high degree of efficiency and good management, market principles should be adopted whenever possible: (1) Government should try to do only what private enterprise cannot do; government should not engage in businesses that private enterprise can do better; (2) government should live within its means; (3) cost-benefit analysis: marginal benefits should exceed marginal costs; and (4) the accountability principle: those who benefit from a service should pay for the service.
Monday, August 16, 2004
Sunday, July 25, 2004
Friday, July 23, 2004
I'm confused over this Abu Raja character.
Tuesday, July 20, 2004
"The garbage will soon, like, take over the whole world and, like, kill everybody"
The Newcastle golf course in Seattle. A former landfill site.
Hat-tip for picture: andriki
An New York Times article by John Tierney, Recycling Is Garbage, is one of the best fallacy-buster that I have read in some time. In the article he starts describing an environmental talk in a local school in New York. One of the millions of me-save-the-world pundits was scaring a bunch of shool kids into recycling obedience. "The garbage will soon, like, take over the whole world and, like, kill everybody". Well, this is something you can tell 10 year olds, and add a slide show full of half-truths and misconceptions, you have won the day. The lecture she held, and many other similar talks all have one thing in common. They only count the benefits and forget much or all of the costs. It is easy to say, hey, if we had not recycled, then we would not have this bottle and this paper that we can use again. This is of course true. If you recycle something, chances are that it will be of some use to someone. The catch is that recycling costs. It costs time, energy and manpower, and thus has some economic costs.
Every time a sanitation department crew picks up a load of bottles and cans from the curb, New York City loses money. The recycling program consumes resources. It requires extra administrators and a continual public relations campaign explaining what to do with dozens of different products- recycle milk jugs but not milk cartons, index cards but not construction paper. (Most New Yorkers still don't know the rules.) It requires enforcement agents to inspect garbage and issue tickets. Most of all, it requires extra collection crews and trucks. Collecting a ton of recyclable items is three times more expensive than collecting a ton of garbage because the crews pick up less material at each stop. For every ton of glass, plastic and metal that the truck delivers to a private recycler, the city currently spends $200 more than it would spend to bury the material in a landfill. City officials hoped to recover this extra cost by selling the material but the market price of a ton has never been anywhere near $200. In fact, it has rarely risen as high as zero. Private recyclers usually demand a fee because their processing costs exceed the eventual sales price of the recycled materials. So the city, having already lost $200 collecting the ton of material typically has to pay another $40 to get rid of it.
Good economics is a difficult to achieve, but it is a start to count the costs as well as the benefits. But there is always an mental escape for believers, an high ranking Scandinavian official was heard saying that when it comes to the environment then economics do not mater.
Monday, July 19, 2004
Rationing and Germany and Famine
So much for rationing policy. Is it possible that the fertile land of Germany could only sustain half the calories that an adult needs to stay healthy? A third or a quarter of what an athlete needs? This is so close to famine, really.
This was 1946 and what happend two years of unnecessary suffering later, when the price controls were discontinued and the foundations of the modern (but now degenerative) economic system was laid down on recommendation of few Austrian-style economist:
The effect on the German economy was electric. Wallich wrote: "The spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the streets in their everlasting search for food came to life. - David R. Henderson
This is the same old story. Mess around with the market and you will induce human suffering.
Pic borrowed from The CounterRevolutionary.
Sunday, July 18, 2004
New template. Interesting blogs
Some interesting blogs:
Order from Chaos, I got a link from David Peterson. A nice libertarian blog.
Another libertarian blog, common knowledge.
Catallarchy on price controls.
Report of positive effects of 'global warming' in Samizdata. I concurr.
The doc shares my admiration of the rude fallacy-busting magicians, Penn and Teller.
The absence of a central government in Iceland
"Now I ask thee, Hall of the Side, and thee Runolf of the Dale,and thee Hjallti Skeggi's son, and thee Einar of Thvera, and thee Hafr the Wise, that I may be allowed to make an atonement for theslaying of Hauskuld on my son's behalf; and I wish that those menwho are best fitted to do so shall utter the award." - Njáll Þorgeirsson.
A long time ago bunch of outcasts from Norway settled in Iceland. The society in Iceland did not have an executive branch of government, the courts were private and there was no such thing as a government property as Thomas Whiston explains:
"Iceland did not have an executive branch of government. Instead of a king they had local chieftains. One permanent official in their system was the "logsogumadr" or law-speaker. His duties included the memorization of laws, the provision of advice on legislative issues, and the recitation of all legislative acts one time while in office. Instead of a judicial branch of government there were private courts that were the responsibility of the godar. To solve disputes, members of this court system were chosen after the crime happened. The defendant and plaintiff each had the right to pick half the arbitrators. There was another level of courts called the Varthing. This was a Thing court in which the judges were chosen by the godar of the Thing. David Friedman has found that these courts were rarely used and not much is known about them.  Then there was the National Assembly or the Althing. Each quarter was represented by their own Althing. If a dispute was not settled by the private courts, the dispute would go up the ladder to the next highest court until the dispute was resolved. There was no public property during the era of the Vikings in Iceland, all property was privately owned."
This system was in place for nearly 300 years and apparently functioned sufficiently well. The documentation comes from the Icelandic Sagas that were written after that era and there is no way of ascertaining how well the system brought justice to the inhabitants of Iceland. But here is a well documented case of a society that functioned well without a central government with well developed and sophisticated legal system.