Chapter 18
Ten Economic Ideas to
Hold Dear
Life would be a lot better if everyone knew the basics
of economics. In particular, they could keep the politicians under
better control. In this chapter, I give you ten economic ideas to hold dear.
Here are some very nice links to give you some background reading.
Society is Better Off when People Pursue their Own
Interests
As I say in the book, this doesn't mean be selfish and
evil. In this great essay, Professor
Steven
Horwitz of Saint Lawrence University nails down the benefits of---and the
very necessary limitations on---the pursuit of self-interest. Professor
Jerry Z. Muller
also has a great essay on how modern market economies can actually
encourage us to treat each other better, and how they have freed us from the
tyranny of previous epochs, where your place in the economic order (peasant,
craftsman, etc) fully defined and limited you for the rest of your life.
Free Markets Require Regulation
Hernado de Soto is a Peruvian economist who has argued
very forcefully in several great
books
that the only way for the third world
to become as rich as the first world is if it adopts the institutional and
legal structure of the West, in particular the protection of private
property. Here is a great interview in which
Hernando de Soto
explains his ideas.
John D.
Sullivan penned this essay covering how economic grow and freedom
require good institutions, often supported by the government. But
Sheldron Richardson
reminds us that a lot of government regulations are set up not to help
consumers or the general pubic but by special interests, especially businesses
and industries that are good at lobbying the government. Finally, here
is a treasure trove of
World
Bank papers dealing with improving the institutional structures of
economies in order to improve economic performance and enhance freedom and
opportunity.
Economic Growth Depends on Innovation
Here is a short article on economic growth in the USA
during the 1990's that was prepared by the
Joint Economic Committee of
the US Congress. It's nice because it quickly summarizes growth
accounting---the methods by which, when economists see economic growth, they
try to attribute the growth to either using more inputs (of capital and labor) or to
using the same old inputs more efficiently thanks to improved technology.
Any increase in output that you can't attribute to either using more capital
or more labor is attributed to an increase in "Multi-Factor
Productivity," by which economists mean improved technology that lets you use
the two factors of capital and labor (i.e. the "multi-factors") better.
You need to know that little fact before checking out this article that asks
why some OECD countries have done better than others recently in terms of
economic growth. Is it growth in
Multi-Factor Productivity?
Freedom and Democracy Make us Richer
Here's the
one picture you need to
remember. It's on Professor Thorvaldur Gylfason's website. Check
out his full list of
pictures about economic growth.
Education Raises Living Standards
Here's another great picture by Professor Gylfason
showing that more education
leads to higher economic growth rates.
Protecting Intellectual Property Rights Promotes
Innovation
Intellectual Property: A Power Tool for Economic Growth is the
World Intellectual Property Organization's big book summarizing the case
that intellectual property rights are good for economic growth through the
promotion of innovative new technologies. Check out especially Chapter
2. And here is Federal Reserve Chairman
Alan Greenspan explaining that intellectual property rights have been
important for American economic growth.
Weak Property Rights Cause All Environmental
Problems
Here is a
great
essay by Richard L. Stroup and Jane S. Shaw detailing how strong
property rights are the environment's best friend. Here is a nice essay
posted over at the
Commons Blog about the Free Market Environmentalism movement and their
successful policy initiatives to use property rights and markets to help
conserve our natural heritage.
International Trade is a Good Thing
Professor Gylfason once again provides the goods.
Here's a picture that shows that
the more
trade a country does, the faster it grows. By contrast, note that
accepting
foreign aid hurts growth. Also, here's nice paper by Julian Kassum
dealing with how international trade is a good thing. It has the
provocative title, "Standing
Up for Globalization."
Free Enterprise has a Hard Time Providing Public
Goods
Check out this nice essay by Professor
Tyler Cowen on public goods and why private firms have a hard time
providing them---but also why you have to be careful of waste, corruption,
and other problems if you put the government in charge of providing them.
Preventing Inflation is Easy
Just keep money supply growth moderate and you never
get very large inflations. But, as
Michael K. Salemi reminds us, if governments start printing money like
crazy, you get not only an inflation, but often a hyperinflation.
