The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Why do some of the most powerful governments on earth prove unable to deliver decent living standard for their people? Why did barren spots like Venice and Hong Kong become incredibly prosperous? How do millions of people. who don't know one another, peacefully coordinate their actions to achieve economic wonders of the world?

There is an absolue sense in which machines may be said to have increased the number of jobs. The population of the world is four times as great as in the middle of the 18th century, before the Industrial Revolution had got well under way. Machines may be said to have given birth to this increased population; for without the machines, the world would not have been able to support it. Three out of every four of us, therefore, may be said to owe not only our jobs but our very lives to machines.

The economic goal of any nation, as of any individual, is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with the same labor. It is for this reason that men began putting burden on the backs of mules instead of on their own; that they went on to invent the wheel and the wagon, the railroad and the motor truck. It is for this reason that men used their ingenuity to develop a hundred thousand labor-saving machines.

Exceeded only by the pathological dread of imports that affects all nations is a pathological yearning for exports. Logically, it is true, nothing could be more inconsistent. In the long run imports and exports must equal each other. It is exports that pay for imports, and vice versa.The greater exports we have, the greater importts we must have, if we ever expect to get paid. Without imports we can have no exports, for foreigners will have no funds with which to buy our goods.

The real gain of foreign trade to any country lies not in its exports but in its imports. Its consumers are either able to get from abroad commodities at a lower price than they could obtain tham for at home, or commodities that they could not get from domestic producers at all. Outstanding examples in the United States are coffee and tea. Collectively considered, the real reason a country needs exports is to pay for its imports.

The first thing that happens, for example, when a law is passed that no one shall be paid less than $100 for a forty-hour week is that no one who is not wirth $100 a week to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment.

Bad as the wages were in the X industry, they were the best among all the alternatives that seemed open to the workers in that industry, otherwise the workers would have gone into another. If, therefore, the X industry is driven out of existence by a minimum wage law, then the workers previously employed in that industry will be forced to turn to alternative courses that seemed less attractive to them in the first place. There is no escape from the conclusion that the minimum wage will increase unemployment.

The belief that labor unions can substantially increase real wages over the long run and for the whole working population is one of the great delusions of the present age. This delusion is mainly the result of failure to recognize that wages are basically determined by labor productivity. It is for this reason, for example, that wages in the United States were incomparably higher than wages in England and Germany all during the decades when 'the labor movement' in the latter two countries was far more advanced.

The function of profits is to put constant and unremitting pressure on the head of every competitive business to introduce further economies and efficiencies. Contrary to popular impression, profits are achieved not by raising prices but by introducing economies and efficiencies that cut costs of production. It seldom happens that every firm in an industry makes a profit. The price charged by all firms for the same commodity or service must be the same; those who try to charge a higher price do not find buyers. Therefore the largest profits go to the firms that have achieved the lowest costs of production. These expand at the expense of the inefficient firms with the higher costs. It is thus that the consumer and the public are served.

Saving, in short, in the modern world, is only another form of spending. The difference being that the money is turned over to someone else to spend on means to increase production.

Few people recognize the necessary implications of the economic statements they are constantly making. When they say that the way to prosperity is to increase farm prices, it is like saying that the way to prosperity is to make food dearer for the city worker. When they make it a main objective to increase exports, most of them do not realize that they necessarily make it a main objective ultimately to increase imports.



Economics is the study of choice. It does not tell us what to choose. It only helps us to understand the consequences of our choices.

Market competition leads a self-interested person to wake up in the morning, look outside at the earth and produce from its raw materials, not what he wants, but what others want. Not at the price he dreams of charging, but at a price reflecting how much his neighbors value what he has done.

An individual is the world's foremost expert on what she wants. Nobody else can know better; nobody else can better judge the effects of alternative choices on her achieving what she wants. Therefore, people should look after their own interests.

The earth's temperature has budged only about 1 degree Farenheit in the last century. In addition, some glaciers around the world have actually started spreading rather than shrinking.

David Ricardo showed that people and countries should specialize in whatever leads them to give up the least. This is their comparitive advantage. And the sacrifice they make by not producing a good is their opportunity cost. Thus, specialization is determined by whoever has the lower opportunity cost.

A country is wealthy if it consumes lots of goods and services, not if it stockpiles metals or paper currency with portraits of presidents on them.

Money may not make the world go around, but money certainly goes around the world. To stop it prevents goods from travelling from where they are produced most inexpensively to where they are desired most deeply.

The logic of protection points towards economic stagnation. Most industries and inventions that have raised our standard of living has forced others out of their jobs.

Protectionism by wealthy nations condemns lesser developed countries to stagnation. It seems contradictory to offer millions of dollars in foreign aid and loans, while at the same time planting hurdles in front of recipients.

Would a wealthy man be hurt by trading with a poor man? Should J. Paul Getty have made his own shoes rather than buying them? If not, why would the United States be hurt by buying shoes from Malaysia?

Alfred Marshall's 'Principles' do not argue that all producers act marginally or rationally. But if a product does not, her competitors will be more successful and economic evolution will favor them. Eventually, the irrational firm will fail.

A famous study of advertising and eyeglasses showed that in states that permitted opticians to advertise, eyeglasses sold at prices about 25 to 30% lower than in states that prohibited advertising.

Usually, Alfred Marshall's law of demand reigns. But for some goods, 'Veblen goods', a consumer's demand is detrmined by the use of the good and the price that the consumer thinks other people will think she paid, the expected conspicuous price. If the market price of Gucci handbags falls so that they become available in any department store, we may soon see fewer Gucci bags sold. They will have lost their Veblenesque appeal.

Wealth is measured by the goods and services it can buy, not by numerals. Since one US Dollar can buy thousands of pesos, a Mexican millionaire might be poor compared to a low-income American.

Public Choice economists do not say that all regulations help industry and harm consumers. They do not argue for pure laissez-faire economics. They do, however, urge that people compare the free market result with a realistic model of government regulation rather than a mythical vision that assumes a benevolent government always striving to serve the public interest.

Because deficit spending ignores the future, it harms future generations, James Buchanan asserts. In fact he raises a moral question : Don't deficits resemble taxation without representation? Congressmen today enhance their constituents' present welfare by jeopardizing the welfare of their grandchildren. The unborn cannot vote. Yet each child is born with financial liabilities.

Under the Efficient Market Hypothesis, you cannot beat the average return on stocks by religiously following companies, reading financial returns, or tracing past price movements. The market already efficiently evaluates the future returns. Stocks cannot be "overvalued" or "undervalued". The market price becomes an infallible icon, until new information justifies a new price.

Rational Expectations theorists, including 1995 Nobel laureates Robert Lucas and Thomas Sargeant, state that government has little power over markets. ...If the government buys stock and bids up the price, shareholders will immediately sense that the stock is artificially overvalued and sell. If the government dumps its stock, forcing down the price too far, investors will buy, sensing that the stock deserves a higher price.

The Efficient Market Hypothesis brings up another irony. Stock picking is ineffective because so many people engage in research and stock analysis. The current prices "correctly" reflect expectations because so many people buy and sell on the basis of available information.

A survey revealed that people would prefer to let inflation rise, rather than permit the jobless rate climb from 5 to 10%. Yet, if the question instead asked whether they would prefer higher inflation rather than let the employment rate fall from 95 to 90%, they said "no". The two choices are the same; only the answers are different.


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