1. Gains from trade: In any economic exchange, freely chosen, both parties benefit–at least in their own minds.
2. Subjective value: The value of any good or service is determined by the individual human mind.
3. Opportunity cost: Nothing is free, and the cost of anything is what you give up to get it.
4. Spontaneous order: Society emerges not from top-down intention or planning but from individuals’ actions that result in unplanned outcomes for the whole.
5. Incentives: Individuals act to maximize their own reward.
6. Comparative advantage: Cooperation between individuals creates value when a seller can produce a given item or service at a lower cost than the buyer would spend to produce it himself.
7. Knowledge problem: No one person or group knows enough to plan (and force) social outcomes, because information necessary for social order is distributed among its members and revealed only in human choice.
8. Seen and Unseen: In addition to the tangible and quantifiable effects, there are quite often invisible costs and unmet opportunities to any action or policy.
9. Rules matter: Institutions influence the decisions individuals make. For example, property rights extend from the reality of scarcity which demands that ownership must be vested in individuals and not a collective.
10. Action is purposeful: Each person makes choices with the intention of improving his or her condition.
11. Civil society: Voluntary association permits people of all backgrounds to interact peaceably, create value, cultivate personal character, and build mutual trust.
12. Entrepreneurship: Acting on an opportunity to gather underused, misused, or undiscovered resources and ideas to create value for others.
Are private prisons worse? It’s hard to tell. But if they are, we should all remember that the consumer is king. If there is anyone to blame for the poor state of private prisons, it’s their only customer: the government.
The first lesson to be taught is that when we run across a situation we don’t like – “outrageous exploitation of sick people,” for example – we should start by asking how the situation came about and why it persists. What’s actually going on here? That’s an extremely important lesson: for the dinner table, the conference room, the legislative hall, and the faculty lounge as well as the economics classroom. We all have a tendency, especially when we’re filled with indignation, to begin with the conclusions and subsequently to choose the facts that will enable us to reach our preestablished results. That does little to promote understanding; it merely hardens opinions already held. It does not lead to learning. And it fosters debate rather than discussion. Doesn’t it make far more sense to ask why, if the situation is as intolerable as it seems to be, it continues to exist? Social phenomena are not facts of nature, like mountains. They emerge from the choices individuals make in response to the situations they encounter, situations that are in turn largely created by the choices other people make. If we want to change society, we must first understand it. The first step toward understanding how markets work, and the beginning, I would say, of all social understanding, is the recognition that social phenomena are the product of particular choices in response to particular incentives. Incentives matter! To fix any social problem, we must alter the incentives. To do that, we must first discover what they are.
The good news is that humanity is nowhere near peak everything; the bad news is that we are also nowhere near peak doom.
You may see this trope (tripe?) in Facebook posts and other social media. Like so many of these, it’s pithy enough to fit on a bumper sticker, and takes at least a page to refute.
Berkeley’s Center for Labor Research and Education estimated that the national and state governments paid out $153 billion in 2013 to finance health benefits, food stamps, and cash assistance to people in families containing a breadwinner who works at least part time and at least half the year.
A remarkable feature of the reaction to the report is that many readers interpreted the government aid dollars to represent a subsidy to low-wage employers (for example, here, here, and here). According to this view, government assistance to low-income families constitutes a handout to Walmart, McDonalds, and other low-wage employers. The assistance allows these companies to pay their workers lower wages than would be possible in the absence of the government aid.
For the majority of programs analyzed by the Berkeley researchers, this interpretation of government assistance payments is flatly wrong. Instead of subsidizing low-wage employers, most assistance programs reduce the availability of low-skill adults who are willing to work for low pay and lousy benefits. By shrinking the pool of workers willing to take the worst jobs, the programs tend to push up rather than push down wages at the bottom of the pay scale. Low-wage employers do not receive an indirect subsidy from the programs. Many must pay somewhat higher wages or recruit more intensively to fill their job vacancies.
Most careful analysis of the impact of this kind of means-tested program concludes the programs discourage work. The availability of health insurance, food coupons, and cash assistance when potential breadwinners do not work means that paid employment is less necessary. The fact that government benefits are reduced when the breadwinner’s earnings rise means that work is financially less rewarding. Both these effects tend to reduce, at least modestly, the amount of paid work that eligible breadwinners are willing to do. I do not argue the impact is large or that it affects most adults who are potentially eligible to collect means-tested benefits. On balance, however, benefit programs offering more generous payments to people with zero earnings than to people with comfortable incomes tend to reduce the supply of workers who are willing to accept very low pay.
There are two important exceptions to this generalization: the Earned Income Tax Credit (EITC) and child care subsidies targeted on working parents who earn low incomes. Because benefits under these programs are only payable to low-income families containing a parent who is gainfully employed, this kind of government subsidy encourages adults in eligible families to enter or remain in the job market rather than to drop out of it. By boosting the supply of potential low-wage workers, the two programs can put downward pressure on pay, indirectly benefiting employers who depend on less-skilled workers. Even in these cases, however, the main effect of the aid is to lift the net incomes of breadwinners earning low pay.
It didn’t take Congress or the president to force these changes. It wasn’t the courts (though lawsuits are pending). We didn’t need a new law or regulation. It was the pressure brought by individual consumers and investors acting on their preferences (and self-interest) in a free market.
This is hardly the first time that companies have had to respond to consumers pressure. From both right and left, consumer boycotts, bad media, and shareholder activism have forced companies to improve workers’ rights, product safety, political bias, the treatment of women and minorities, and more. Neither conservatives nor liberals will always agree with the purpose of such campaigns, but no one can deny that they work. Abuse your customers, they won’t buy from you. Abuse your employees, they won’t work for you. Produce a lousy product, someone else will produce a better one and put you out of business. That’s the power of free-market competition. Produce a lousy product, someone else will produce a better one. That’s the power of free-market competition.
Compare this to how government responds when it fails. We are still waiting for the Veterans Administration to change its behavior or punish those responsible for its various scandals over many years. The public schools fail year after year, decade after decade, and their response is to demand more money and try to prevent parents from going elsewhere.
White teachers and administrators discriminate against white students!
Nationally, black junior high and high school students are suspended at a rate more than three times as often as their white peers, twice as often as their Latino peers and more than 10 times as often as their Asian peers.
So white students are 300% more likely to be suspended for misbehavior as Asian students are.
According to former Department of Education Secretary Arne Duncan, the “huge disparity is not caused by differences in children; it’s caused by differences in training, professional development, and discipline policies. It is adult behavior that needs to change.” In other words, the Education Department sees no difference between the behavior of black students and white, Latino and Asian students. It’s just that black students are singled out for discriminatory discipline. Driven by Obama administration pressures, school districts revised their discipline procedures by cutting the number of black student suspensions.
The result of imposing the “behavior change” on teachers and administrators is predictable:
The results of this new policy are: increased violence, drug use and gang activity. Max Eden examines the NYC School Survey of teachers and students and finds that violence increased in 50 percent of schools and decreased in 14 percent. Gang activity increased in 39 percent of schools and decreased in 11 percent. For drug and alcohol use, there was a 37 percent increase while only 7 percent of schools improved.
It’s not just New York City where discipline is worse under the Obama administration’s policy. Max Eden reports: “One Chicago teacher told the Chicago Tribune that her district’s new discipline policy led to ‘a totally lawless few months’ at her school. One Denver teacher told Chalkbeat that, under the new discipline policy, students had threatened to harm or kill teachers, ‘with no meaningful consequences.’ … After Oklahoma City Public Schools revised its discipline policies in response to federal pressure, one teacher told the Oklahoman that ‘[w]e were told that referrals would not require suspension unless there was blood.'”