Incentives Matter. (by LearnLiberty.org)

Incentive Matter

http://www.LearnLiberty.org/libertyacademy/economics/economic-way-of-thinking/incentives-matter

Incentives matter. This is the fundamental concept of economics. People respond to incentives. So, in order for us to predict people’s behavior, we need to think about how the incentives have changed.

For example, when gas prices rise, people buy less gasoline. They, probably, don’t stop buying gasoline. But, they find ways to use less. Maybe they combine their errands and they can take fewer trips.

Prices are powerful incentives. Government policy frequently relies on people’s response to incentives, but often fails to consider all the different ways it effects people’s  incentives. For example, there is a strong desire in many corners for people to use less gasoline. One way of the government policy does this is by café standards. These are Government mandates for car manufacturers to sell a fleet of vehicles that have an average fuel efficiency at, or above the standard, for example, 25miles per a gallon. The idea is that if car manufacturers produce more fuel efficient cars, consumers will buy more fuel efficient cars and use less gasoline. Sounds great. This is where economics comes in. As a consumer, what happens to my incentive. I buy a more fuel efficient car. Well, now, before it took me 20 gallons gasoline to drive to visit my parents’. Now, maybe it takes me 18. It lowers the cost of me driving to visit my parents. So, I am going to drive to visit my parents more often. The changing mandate reduces the cost of driving and inducing consumers to drive more miles.

A good economist doesn’t just consider the obvious effect of the policy, the changing mandate leads more fuel efficient cars. A good economist also considers the less obvious effects. The changing mandate lowers the cost of driving inducing consumers to drive more miles with the unintended effects on pollution, and car emissions.

Setting right incentive and avoiding unintended consequences is difficult. Incentives matter, is relatively straight forward concept. What's difficult is to think about all the different ways that policy makers might affect people’s incentives and how that would change people’s behavior.

Subjective Value (LearnLiberty.org)

Subjective Value

http://www.LearnLiberty.org/libertyacademy/economics/economic-way-of-thinking/subjective-value

One of the most crucial insights of economics is that the value is subjective. It means that value ultimately comes from human mind. It doesn’t  in here or in things that we value. I wanna explain that with some T-shirts that I went out and made. I went to the mall recently and bought two t-shirts and I bought some iron ons. Here is one of my t-shirts. It is of a revolutionary who is famous from Cuban Che Guevara. And  another t-shirt’s of one of my heros, Milton Friedman. now these t-shirts both cost me about the same amount of time to make and the same amount of money. So, in terms of what I spent, the resources that went into these t-shirts, it’s the same. But you know what? The value of the Che t-shirt is, in fact, a lot higher to most of people than is the value of Milton Friedman t-shirt. If, for some reasons, Che falls out of favor in the public mind, the value of Che t-shirt falls. If the value of Milton Friedman image rises, if people become to really like Milton Friedman, the value of the Friedman T-shirt increases. But the point is, objectively, physically, these t-shirts, this one and this one, are largely identical. Only difference is the image on the front. Nice things about subjective value, our values do differ. I would not be caught on streets wearing a Che t-shirt because I think he was a scoundrel. I would love to wear Milton Freeman t-shirt, in fact, I am eager to wear this for the first time. I value this t-shirt more highly than do other people. And that's one of beautiful things about understanding subjective value. It is important to understand that the value is not in the thing itself. It doesn’t come like the marketists believe, or even the classical economists believe. From the amount of labor that goes into producing it. Value's not a product of how many other resources went to producing something. Ultimately, things have value only if, only because human beings want those things. The more intensely human beings want those things, the more valuable they are. The classical economists, for all of their wonderful discoveries, did not get subjective value. Economists did not understand subjective value until the middle of 19th century when particularly Carl Menger of the Australian school realized that people pay for things only because they want those things, and they don’t pay for things when they don’t want. And so, the value people have in their minds for the things they buy that value get transmitted through money prices into The market prices of the goods and services. One implication of subjective value is that you cannot tell me that, The fact, I prefer Milton Friedman t-shirt to Che Guevara t-shirt, means that I am wrong. It’s not your preference. perhaps. But it’s my preference. And because you cannot read my mind, I cannot read your mind. The best you can do is to say, if I prefer Friedman t-shirt to Guevara t-shirt, then in fact, Friedman t-shit is to me, more valuable. If you prefer Guevara t-shirt to Friedman t-shirt, the best I can conclude is that Guevara t-shirt to you is more valuable than Friedman t-shirt. Neither of us are right or wrong in some objective sense. Subjective value is just what each of us, how each of us accesses the worth to each of us, of each of these t-shirt. It's one of the things that make the economical world go around we have these different evaluations on different things. We express our evaluation how much we are willing to pay.

The Story of Broke Response (by LearnLiberty.org.)

The Story of Broke Response

http://www.youtube.com/watch?v=B_FncAQsAJg&list=PLD78A4CA3338CFA7E&index=1&feature=plcp

The story of broke is a recent video by the creators of the story of stuff. In it, Annie Leonard says that Government isn’t really broke. She says we actually have plenty of resources to create the future we really want. But the problem is that Government is wasting those resources on THE wrong things. I agree that Government is wasting resources on war and subsidies. War, for example, diverts resources from production to destruction and taking money from taxpayers and giving it to big businesses through subsidies and other programs is both wasteful and wrong. But, I think she makes an important mistake when she says Government subsidies TO  the right companies, we’ll get us A future we all want.

First, how can you argue that there is one vision of future that we all want. It sounds great to say something like everyone should have access to a first rate education. But, who gets to define education? What books count as great literature? How much time should students spend on math? Should biology textbooks have warning levels?  Should economics textbooks? You might think the answers are obvious. But, there are, probably, honest and intelligent people would disagree with you. Who gets to decide and how?  A one size fits all solution arrived at through political process isn’t a solution at all. It ‘s just a decision made by bureaucrats and by politicians electied by some fraction of the voters. And, there is no reason to think that they will make right trade offs.

Second, the story of broke proposes replacing bad subsidies with good subsidies. But, how do we know who to subsidies?  Governments have a terrible track records when it comes to picking winners and losers. Without the prices, profits, and losses that marketS generate, Governments don’t have knowledge necessary for wise choices. People who watched the story of broke are told that jobs will be created by moving to alternative energy sources and bio based materials. But, when Government has tried this in the past, with athinol for example. it hasn’t really worked that well and there have been all kinds of unintended consequences. I agree that we should get rid of sweet heart deals and subsidies for oil companies, and for the rest of what she calls the dinosaur economy. But replacing those with new favored industries is just gonna create new dinosaurs. It’s profits and losses. Not Government handouts that will guide us towards more efficient energy sources.

There is another reason to be aware of subsidies. They attract people who want free stuff from Government. If Special Interest groups and lobbyists are sharks, then the prospect of big juicy subsidies is blood in the water. Even if we agree on the goals the incentives created by political distribution of goodies would draw people into the political game, resulting in transfers of wealth to powerful Special Interests. Once started, subsidies tend to grow.  When our laudible goals aren't reached, Lobbyists and the politicians they've convinced to say it is not a failure of the program, but thatwe just need to spend more.  

The story of broke assumes that power can and will be used wisely, if it is concentrated  in the hands of right people. But power benefits Special Interests and hurts the rest of us. Indeed, we are in our current mess in part because of interventions that were supposed to build better future by making housing and higher education more affordable. The story of broke is right that we can build better future if we stop wasting resources on war, subsidies, and special priviledges for powerful people and powerful firms. But a better future does not come from Government spending. It comes from letting people decide for themselves how to spend their money on things they care about. It coms from billions and billions of people cooperating freely and voluntarily with one another. In other words, it comes from what people do in free markets.  

What you should know about school choice (by LearnLiberty.org)

What you should know about school choice

(by LearnLiberty.org)

http://www.youtube.com/watch?v=GPvotHZNpyE&feature=youtu.be

One reform that people advocate to improve the quality of schooling in the US is to increase school choice. There are private schools, charter schools or mandate schools. Your city may provide a lottery to provide access to other local public schools. Your city or state may provide tax credits, or vouchers to help parents to pay for the cost of private schooling.

Many people are concerned about what increase school choice might look like. Here are four things you should know about school choice. 

First, school choice doesn't require parents to bear the full cost of educating their child. Currently, local state and federal governments both fund and produce schooling. But We can separate these two activities. Governments can fund schooling without producing it. For example, they can fund charter schools run by private organizations. Or, they can provide vouchers to help pay for private school.

Second, school choice lowers the cost of schooling. A lot people think that more choice means more expensive education. But US and international evidence show that areas that has more choice spend less money per a pupil. Providing families with more options about where to send their child to school lowers the cost of educating that child.

Third, school choice raises the quality of schooling. A lot of people are concerned that with more choices, parents may not make good educational choices for their children. But US and international evidence show that areas that have more school choice have the same or higher quality schooling. When families have more choices, parents report being more satisfied and less concerned about their children’s safety. Schools that depend on parents enrolling their children to continue to operate are more likely to provide the educational environment that parents want.

Fourth, low income and minority students are more likely to benefit from school choice programs. Many charter schools, and private schools particularly catholic schools serve low income and minority students. And these students are more likely to benefit from choice programs, presumably, because their public school options are worse. Florida’s special education voucher program is a good example of how more school choice can lower the cost of schooling while maintaining the quality of education for some of our most vulnerable students.

The US school system is failing our children. We have thrown money at the problem for years with little or no effect. School choice lowers the cost of schooling while providing at least as good if not higher quality schooling by providing options for children and their families.