Anyone running for office – and anyone who plans on voting – should do the right thing and at least try to learn a little about basic economics. The good news is that if you know where to go on the Internet, you can get a pretty darn good lesson online.
A while back the Heritage Foundation’s “The Insider” publication ran an article called “Ten Key Elements of Economics,” by James Gwartney, Richard L. Stroup, andDwight R. Lee.
Here are the ten elements on their list, along with a sentence or two of the contents that follows each:
1. INCENTIVES MATTER. All of economics rests on one simple principle: that incentives matter. Altering incentives, the costs and benefits of making specific decisions, alters people’s behavior.
2. THERE IS NO SUCH THING AS A FREE LUNCH. [A] good can be provided free to an individual or group if others foot the bill. But this merely shifts the costs; it does not reduce them.
3. DECISIONS ARE MADE AT THE MARGINS. If we want to get the most out of our resources, we should undertake actions that generate more benefits than costs and refrain from actions that are more costly than they are worth.
4. TRADE PROMOTES ECONOMIC PROGRESS. It is difficult to exaggerate the importance of trade in our modern world. Trade makes it possible for most of us to consume a bundle of goods far beyond what we would be able to produce for ourselves.
5. TRANSACTION COSTS ARE AN OBSTACLE TO TRADE. Frequently transaction costs are high because of political obstacles, such as taxes, licensing requirements, government regulations, price controls, tariffs, or quotas…Resources spent in this way… [are] an obstacle to the creation of wealth.
6. PROFITS DIRECT BUSINESSES TOWARD ACTIVITIES THAT INCREASE WEALTH. If we are going to get the most out of the available resources, projects that increase value must be encouraged, while those that use resources less productively must be discouraged.
7. PEOPLE EARN INCOME BY HELPING OTHERS. People who earn large incomes do so because they provide others with lots of things that they value. If these individuals did not provide valuable goods or services, consumers would not pay them so generously.
8. ECONOMIC PROGRESS COMES PRIMARILY THROUGH TRADE, INVESTMENT, BETTER WAYS OF DOING THINGS, AND SOUND ECONOMIC INSTITUTIONS. Investment and improvements in technology do not just happen. They reflect the actions of entrepreneurs, people who take risks in the hope of profit.
9. THE “INVISIBLE HAND” OF MARKET PRICES DIRECTS BUYERS AND SELLERS TOWARD ACTIVITIES THAT PROMOTE THE GENERAL WELFARE. As Adam Smith noted, the remarkable thing about an economy based on private property is that self-interest will further the general prosperity of a community or nation.
10. TOO OFTEN, LONG-TERM CONSEQUENCES, OR THE SECONDARY EFFECTS, OF AN ACTION ARE IGNORED. When seeking political favors, interest groups and their hired representatives, lobbyists, have an incentive to put the best spin on their case. They will exaggerate the benefits (most of which they will capture if the policy is enacted) and minimize the costs (most of which will be borne by others).
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To improve the economy we need leaders who understand economics
Clear thinking about economic progress and the role of government
©2008 John F. Biver