Ten Key Principles of Economics

1. Everything has a cost. There is no free lunch. There is always a trade-off.
2. Cost is what you give up to get something. In particular, opportunity cost is cost of the tradeoff.
3. One More. Rational people make decisions on the basis of the cost of one more unit (of consumption, of investment, of labor hour, etc.).
4. Incentives work. People respond to incentives.
5. Open for trade. Trade can make all parties better off.
6. Markets Rock! Usually, markets are the best way to allocate scarce resources between producers and consumers.
7. Intervention in free markets is sometimes needed. (But watch out for the law of unintended effects!)
8. Concentrate on productivity. A country’s standard of living depends on how productive its economy is.
9. Sloshing in money leads to higher prices. Inflation is caused by excessive money supply.!!
10. Caution: In the short run, falling prices may lead to unemployment, and rising employment may lead to inflation.



Tuesday, July 27, 2010

Bring Back The Draft

1. Wheelan proposes a modified draft. In what ways is his proposal like the deductible on your auto insurance policy? Do we need another conscription tax to put a check on our troop commitments in times of humanitarian crisis?

2. How is deficit financing (issuing government bonds instead of collecting taxes) like the moral hazard problem surrounding foreign intervention and invasion by the U.S. military?

3. In what way is Wheelan's proposal subject to the same criticism Friedman leveled against the draft nearly 40 years ago?

4. Despite enlistment bonuses and aggressive recruiting, the U.S. military has had difficulty increasing manpower during the Iraq war. Politicians and the electorate cannot decide to invade or intervene if would-be soldiers won't enlist. Do you think the free market for military labor that Friedman championed provides enough of a check on the moral hazard of a volunteer army? Or do you agree with Wheelan that some form of conscription is needed to discourage hazardous decision making?
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