Post Lesson 38/Pre Lesson 39

It is really important to keep in mind the difference between claims or value judgments (normative) and statements of reality (postive) especially when evaluating an argument. Arguments rest on premises and draw to conclusions based on logic. That logic should take you from the facts to the conclusions and you should constantly be evaluating whether there is another alternative to the proposed logic. This is a life skill not just a skill relating to economics. If you have further questions PLEASE come see me.

Secondarily, identifying those normative statements which may be intended to "frame" an argument or discussion by taking certain tradeoffs off the discussion table are important. So, for example, this often occurs when the words 'fairness,' 'greed,' or 'exploitation' are used. It is not that none of those things may occur but rather that we should be sceptical that those words will not merely be used to avoid a conversation about the opportunity cost of an action. The best current examples I can think of come from sequestration. So many of the arguments against sequestration go something like: you can't cut funding from there itll cost lives! The idea being that you should never do something which may, however indirectly, result in death. Of course what often gets left out is that funding that project may cost lives in other areas, so that spending money on airline safety might actually result in fewer dollars allocated to vehicular safety and actually result in far more deaths. In any case, we need to be aware of this.

For next time, in addition to your paper, write out two questions you would put on the final and answer them. Your final 15 IP points will be based on this submission.

Post lesson 37/Pre Lesson 38

The problems of government and business solutions to "unethical" practices as the same. Both government and business involve men, who, if given the wrong sets of incentives, may act in ways that ARE selfish AND at the expense of others. Such situations TRANSFER rather than CREATE wealth. This is something worth thinking about because economics is all about the ways we better allocate resources to CREATE wealth.

Just like in Smith's argument, someone who earns money by producing something has benefitted himself but he likely has also benefited someone else. The key here is that he will have benefited someone else if he is in a competitive market. Generally, markets will police, on their own, any attempt for an individual to be greedy, selfish, unfair etc and in the case where they do not, while governments may be able to help, they often won't for similar reasons because governments do not generally face competition.

In the last part of the discussion about Smith v. Marx v. Keynes I wanted to point out two crucial things. First, all of the above were focused on trying to allocate resources most efficiently. The fact that they came up with different answers is somewhat a result of the different circumstances they saw around them. Second, it is important to know how economists ended up where they are and to value what Smith and economics actually says. Economics does not say that being selfish is the way to get ahead, what it does say is that competition will allow for incentives that align acting in self-interest with service to others.

Next time we'll focus on normative and positive statements. You need to read BE 570-571, 596-603, and 608-612. Then bring an article which addresses an issue you believe needs to be corrected because of greed/fairness/equality etc. Finally, separate this list of statements into normative and positive:

• Higher interest rates cause people to save more
• High income taxes discourage effort
• High taxes on cigarettes discourage smoking
• Road-use charges would increase traffic
• People are more worried about inflation than global warming.
• People should save more
• Government should tax the rich to help the poor
• Smoking should be discouraged
• The tax system should be used to reduce traffic
• Technical change is a bad thing because it puts some people out of work
• Government should do more to reduce carbon emissions in order to save the planet from global warming

Post Lesson 36/Pre Lesson 37

Next time,

1. Read BE 621-627 and 634-637.
2. Then, think about what makes scrooge so unbearable to you. What stands out about Adam Smith's arguments, at least as Sowell tells them? How is this similar or different from Keynes' arguments?
3. Finally respond to this quote in your journal: "It is not from the benevolence of the butcher, the brewer, or the baker that we can expect our dinner, but from their regard to their own interest." Does this quote imply that we only get ahead by being selfish?

You will turn in your journal after this class.

I hope you enjoyed the discussion and review that Maj Ackerman did with you. Different perspectives are always helpful.

Next time we'll discuss both journals and sets of readings.

Post Lesson 35/Pre Lesson 36

Folks,

I want you to read the short 6 page section of conscious capitalism I emailed to you. In your journal please explain why you want to be an Air Force officer…why would you potentially risk your life for others…and what you think, if anything, that has to do with economics and business.

Last time we wrapped up the section on macroeconomics. In particular most classes played a game involving the role of government in society. We saw that different constructs provide different incentives to work or not work and thus provide different outcomes. Government has a crucially important role in both ensuring that free trade can occur (most notably by protecting property rights) but also in keeping itself from preventing trade (or avoiding onerous regulation).

The important things:

1. Property Rights (no one stealing your work after the fact)
2. Stucture of Laws
3. Competitive Markets
4. Efficient Capital Markets (ability to get more papers, staplers, workers etc)
5. Limited Regulation
6. Low Taxes
7. Monetary Stability (your work is worth roughly the same across time)
8. Free Trade

Government can either allow for these things to occur or keep them from occuring through being either too involved or not involved enough.

Post lesson 33/Pre Lesson 34

Takeaways:

1. Productivity and Growth, these are the goals...the best use of our scarce resources which are normally acheived via prices. As a result we focus on Unemployment and Inflation which INDICATE whethere we are truly becoming more productive. We use fiscal and monetary policy to respond to changes in either.
2. THE fundamental purpose of government is to establish laws and rights that encourage free trade so that individuals become more productive. The government can, for example, improve on current uses of resources when externalities are present or when lack of ownership results in poor outcomes (ie overfishing). In either case the intervention occurs because prices dont actually convey the aggregate (macroeconmic) price of an action.

No reading. Next time we'll watch a video and I'll have updated grades.

Final Paper

Assignment: You will use no more than 2000 (~4 pages) words to reflect on the topic below. Your writing should reflect an economic thought process and utilize economic principle(s) to support your explanation. Emphasis is especially on developing a sound premise and logic and in logical evaluation of the costs and benefits of potential solutions or conclusions.

Topic
Choose one of the following:

1. Uncover the arguments behind the main competing views about the role of monetary and fiscal policy in the business cycle. I do not want you to pick a side and hail it as the answer; rather, I want you to evaluate the basis for each set of views by using the basic principles where applicable. Note how the priniciples inform each view and where you see contradiction or questions that remain in your mind. I especially hope that you address both pros AND cons of either position in your paper with a mind to the principles. To frame your discussion watch the videos here: http://econstories.tv/category/videos/ starting with "Fear the Boom and Bust" and then use other sources.

2. Discuss how and when income inequality becomes a problem with a focus on the relationship between inequality and the basic principles. It would be useful to think about the relationship between inequality and the economic principles, the different causes of inequality, and the role that government may play in either minimizing or furthering inequality. For example, when is inequality "good" or "bad" and how might the government’s role differ in either case? Or, what role are the economic principles playing or what role are they failing to play when inequality is "bad"? Use these two articles to frame your response: http://businessjournal.gallup.com/content/165716/bad-income-inequality.aspx and http://www.forbes.com/sites/hbsworkingknowledge/2013/08/19/how-income-inequality-affects-individual-behavior/.
Academic Resources: You may discuss the topic with each other but once writing begins in earnest the work should be solely your own. A documentation statement, as always, is required.

Post Lesson 32/Pre Lesson 33

Folks,

Today we talked about three things: banks, money, and the FED. The FED has the role of setting monetary policy. Like fiscal policy, it is one tool to try to "smooth" the cycles we often experience. In particular the FED tries to keep unemployment and inflation stable. This is a constant trade off between the two and sometimes fails to work. It can work in the short run but expanding the money supply leads to inflation in the long run. In other words, decreasing unemployment today will mean higher prices tomorrow.

Remember the purpose of banks and the roles of money as well as how the FED changes the money supply.

For next time please read the pdf file that I am emailing along with your final paper assignment and answer this question:

Why is national defense often the responsibility of the government? Is there a better arrangement?

We'll talk about this and about the major unifying concepts of this whole block.