I just received this e-mail from Nancy Razik and Ralph Neil Doolin. I am going to try this on my class:
>An economics professor at Texas Tech said he had never failed a single student before but had, once, failed an entire class. The class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.
All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little.. The second Test average was a D! No one was happy. When the 3rd test rolled around the average was an F.
The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for anyone else. All failed to their great surprise and the professor told them that socialism would ultimately fail because the harder to succeed the greater the reward but when a government takes all the reward away; no one will try or succeed.
Tuesday, March 31, 2009
Free Trade Petition
Nigel Ashford of the Institute for Humane Studies has sent me the following e-maill about a Free Trade Petition for academics:
>The Atlas Global Initiative for Free Trade, Peace and Prosperity is circulating an international petition in support of free trade available in over 20 languages. The petition will be launched on April 1 at the G20 summit in London. The organizers hope that academics of all disciplines will sign the petition to help avoid an era of harmful economic nationalism. For more details and to sign the petition, see the links below.
http://atlasnetwork.org/tradepetition/
The petition reads as follows
>Free Trade Is the Best Policy
>The specter of protectionism is rising. It is always a dangerous and foolish policy, but it is especially dangerous at a time of economic crisis, when it threatens to damage the world economy. Protectionism’s peculiar premise is that national prosperity is increased when government grants monopoly power to domestic producers. As centuries of economic reasoning, historical experience, and empirical studies have repeatedly shown, that premise is dead wrong. Protectionism creates poverty, not prosperity. Protectionism doesn’t even “protect” domestic jobs or industries; it destroys them, by harming export industries and industries that rely on imports to make their goods. Raising the local prices of steel by “protecting” local steel companies just raises the cost of producing cars and the many other goods made with steel. Protectionism is a fool’s game.
>But the fact that protectionism destroys wealth is not its worst consequence. Protectionism destroys peace. That is justification enough for all people of good will, all friends of civilization, to speak out loudly and forcefully against economic nationalism, an ideology of conflict, based on ignorance and carried into practice by protectionism.
>Two hundred and fifty years ago, Montesquieu observed that “Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities.”
>Trade’s most valuable product is peace. Trade promotes peace, in part, by uniting different peoples in a common culture of commerce – a daily process of learning others’ languages, social norms, laws, expectations, wants, and talents.
>Trade promotes peace by encouraging people to build bonds of mutually beneficial cooperation. Just as trade unites the economic interests of Paris and Lyon, of Boston and Seattle, of Calcutta and Mumbai, trade also unites the economic interests of Paris and Portland, of Boston and Berlin, of Calcutta and Copenhagen – of the peoples of all nations who trade with each other.
>A great deal of rigorous empirical research supports the proposition that trade promotes peace.
>Perhaps the most tragic example of what happens when that insight is ignored is World War II.
You can sign the petition here.
>The Atlas Global Initiative for Free Trade, Peace and Prosperity is circulating an international petition in support of free trade available in over 20 languages. The petition will be launched on April 1 at the G20 summit in London. The organizers hope that academics of all disciplines will sign the petition to help avoid an era of harmful economic nationalism. For more details and to sign the petition, see the links below.
http://atlasnetwork.org/tradepetition/
The petition reads as follows
>Free Trade Is the Best Policy
>The specter of protectionism is rising. It is always a dangerous and foolish policy, but it is especially dangerous at a time of economic crisis, when it threatens to damage the world economy. Protectionism’s peculiar premise is that national prosperity is increased when government grants monopoly power to domestic producers. As centuries of economic reasoning, historical experience, and empirical studies have repeatedly shown, that premise is dead wrong. Protectionism creates poverty, not prosperity. Protectionism doesn’t even “protect” domestic jobs or industries; it destroys them, by harming export industries and industries that rely on imports to make their goods. Raising the local prices of steel by “protecting” local steel companies just raises the cost of producing cars and the many other goods made with steel. Protectionism is a fool’s game.
>But the fact that protectionism destroys wealth is not its worst consequence. Protectionism destroys peace. That is justification enough for all people of good will, all friends of civilization, to speak out loudly and forcefully against economic nationalism, an ideology of conflict, based on ignorance and carried into practice by protectionism.
>Two hundred and fifty years ago, Montesquieu observed that “Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities.”
>Trade’s most valuable product is peace. Trade promotes peace, in part, by uniting different peoples in a common culture of commerce – a daily process of learning others’ languages, social norms, laws, expectations, wants, and talents.
>Trade promotes peace by encouraging people to build bonds of mutually beneficial cooperation. Just as trade unites the economic interests of Paris and Lyon, of Boston and Seattle, of Calcutta and Mumbai, trade also unites the economic interests of Paris and Portland, of Boston and Berlin, of Calcutta and Copenhagen – of the peoples of all nations who trade with each other.
>A great deal of rigorous empirical research supports the proposition that trade promotes peace.
>Perhaps the most tragic example of what happens when that insight is ignored is World War II.
You can sign the petition here.
Friday, March 27, 2009
Hamilton on Pecuniary Bounties
Pecuniary bounties or direct subsidies to private firms have been a hot topic under the Bush and Obama administrations. In his Report on Manufactures of December 5, 1791Secretary of Treasury Alexander Hamilton advocated subsidies or bounties as a useful tool to promote manufacturing. He proposed bounties in the first Congress. But Jefferson's Democratic Republicans opposed them, as did Madison, Hamilton's erstwhile Federalist ally (see Elkins and McKitrick, The Age of Federalism, for a careful description).
Hamilton believed that bounties can subsidize domestic manufacturers with a smaller price increase than tariffs alone. The reason is that while a $1 tariff raises prices of imports by $1, a 50 cent tariff coupled with a 50 cent bounty provides the same subsidy to the manufacturer (the tariff being transferred to the manufacturer) but raises prices by only 50 cents.
He writes* "Bounties are sometimes not only the best but the only proper expedient for uniting the encouragement of a new object of agriculture with that of a new object of manufacture. It is the Interest of the farmer to have the production of the raw material promoted, by counteracting the interference of the foreign material of the same kind. It is the interest of the manufacturer to have the material abundant and cheap."
However (p. 171), "the continuance of bounties on manufactures long established must almost always be of questionable policy. Because a presumption would arise in every such Case, that there were natural and inherent impediments to success. But in new undertakings they are as justifiable, as they are oftentimes necessary."
Thus, while Hamilton would probably have supported the current banking system in accordance with his views on funded debt to stimulate economic activity and his support for other government policies that subsidize business, he might have opposed the bailout as a subsidy to a lost cause, long established businesses like Citigroup and Bank of America that are not capable of managing themselves.
*Alexander Hamilton, "The Reports of Alexander Hamilton", edited by Jacob E. Cooke. New York, Harper and Row, 1964. p. 169.
Hamilton believed that bounties can subsidize domestic manufacturers with a smaller price increase than tariffs alone. The reason is that while a $1 tariff raises prices of imports by $1, a 50 cent tariff coupled with a 50 cent bounty provides the same subsidy to the manufacturer (the tariff being transferred to the manufacturer) but raises prices by only 50 cents.
He writes* "Bounties are sometimes not only the best but the only proper expedient for uniting the encouragement of a new object of agriculture with that of a new object of manufacture. It is the Interest of the farmer to have the production of the raw material promoted, by counteracting the interference of the foreign material of the same kind. It is the interest of the manufacturer to have the material abundant and cheap."
However (p. 171), "the continuance of bounties on manufactures long established must almost always be of questionable policy. Because a presumption would arise in every such Case, that there were natural and inherent impediments to success. But in new undertakings they are as justifiable, as they are oftentimes necessary."
Thus, while Hamilton would probably have supported the current banking system in accordance with his views on funded debt to stimulate economic activity and his support for other government policies that subsidize business, he might have opposed the bailout as a subsidy to a lost cause, long established businesses like Citigroup and Bank of America that are not capable of managing themselves.
*Alexander Hamilton, "The Reports of Alexander Hamilton", edited by Jacob E. Cooke. New York, Harper and Row, 1964. p. 169.
Alexander Hamilton on the Presidential Administration of Barack Obama
"The debt...may be swelled to such a size, as that the greatest part of it may cease to be useful as a Capital, serving only to pamper the dissipation of the idle and dissolute individuals: as that the sums required to pay the Interest upon it may become oppressive, and beyond the means which a government can employ, consistently with its tranquillity, to raise them; as that the resources of taxation to face the debt may have been strained too far to admit of extensions adequate to exigencies which regard the public safety.
"Where this critical point is, cannot be pronounced, but it is impossible to believe that there is not such a point."
----Alexander Hamilton, Report on Manufactures, December 5, 1791.
"Where this critical point is, cannot be pronounced, but it is impossible to believe that there is not such a point."
----Alexander Hamilton, Report on Manufactures, December 5, 1791.
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