Democracy vs. Markets & Cooperation vs. Coercion in a Free Society

From:
http://cafehayek.com/2013/02/quotation-of-the-day-550.html

"In fact, of course, the alternative to governance by democratic majorities is not limited to subjection to the dictates of a nondemocratic tyrant such as a Chairman Mao. Another alternative is individual governance: each of us living our lives as we each choose, governed – through the laws of property, contract, and tort – in our dealings with strangers by the economic 'law' in such a free society that requires each person who wishes to improve his or her lot in life to assist others, through markets, in their efforts to improve their lots in life."

Population, Economic Growth, & Natural Resource Prices

One of the most missed questions in my principles class straight from the textbook - T/F: the prices of most natural resources have remained stable or decreased:

http://www.aei-ideas.org/2013/01/julian-simon-still-more-right-than-lucky-in-2013/


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Nash Equilibrium - from A Beautiful Mind

The Role of Economics in Policy Analysis

 From  the Mercatus Center
 
"Economics is everywhere. It's at the gas pump, in foreign aid, in the fluctuation of currency values. Economics is not just graphs and charts. It's real-world knowledge about the decisions people make and the effects of those decisions.

Incentives affect the choices people make. Some basic social and political structures facilitate prosperity. These are some of the core economic concepts that policy makers must understand to be effective. Unfortunately, a gap often exists between economic understanding and real-world decision making. Policy decisions miss their targets and create unintended and sometimes harmful consequences."

Price Gouging and the Knowledge Problem

 If we should make price gouging illegal, then we have to ask, how do we solve the 'knowledge' problem? i.e.

Is there a 'more appropriate' price that should be charged? How do we find a price that ensures that the intensity of your desire/need for a generator is consistent with my willingness to provide one? Should we rely on market forces and prices at all or simply have some authority distribute generators based on some set of rules? Rules based on what criteria? How many generators are required and how do we make sure that they get to the people that have the greatest need/desire for them? i.e. how do we know if generators are allocated to the most highly valued use? What lessons can we learn from Hurricane Katrina about the government's ability to mobilize resources during a natural disaster? See also:

The use of knowledge in disaster relief: http://www.independent.org/publications/tir/article.asp?a=628

The Government's Response to Hurricane Katrina- A Public Choice Analysis: http://www.peterleeson.com/hurricane_katrina.pdf
The Problem with Price Gouging Laws-Regulation Spring 2011: http://www.cato.org/pubs/regulation/regv34n1/regv34n1-1.pdf

The Knowledge Problem - blog posts related to price gouging: http://knowledgeproblem.com/tag/price-gouging/ 

Environmental Economics blog post related to price gouging: http://www.env-econ.net/2009/06/mike-giberson-on-antiprice-gouging-laws.html 

Models and Assumptions: Efficient Markets, Imperfect Information, Rationality, and Prices

“The relevant question to ask about the “assumptions” of a theory is not whether they are descriptively “realistic,” for they never are, but whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.” – Milton Friedman, Essays in Positive Economics 

"The great free market economic thinkers from Adam Smith to F. A. Hayek never argued that individuals were hyper-rational actors possessed with full and complete information, operating in perfectly competitive markets.... Efficient markets are an outcome of a process of discovery, learning, and adjustment, not an assumption going into the analysis." - http://theeuropean-magazine.com/348-boettke-peter/349-the-legacy-of-smith-and-hayek

 “the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan. Of course, these adjustments are probably never "perfect" in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world” – Hayek, The Use of Knowledge in Society

"I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge" - F.A. Hayek, The Pretense of Knowledge

 “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Frederick Hayek, The Fatal Conceit

“Neither all ends pursued, nor all means used, are known or need to be known to anybody, in order for them to be taken account of within a spontaneous order.” - Hayek, The Fatal Conceit

 "The financial crisis invalidated a naïve notion of "efficient markets," but the most sophisticated version is still viable. Whereas the invalidated version holds that markets never err and always adjust instantaneously, the sophisticated version, associated with the ideas of Adam Smith and F. A. Hayek, holds that markets mobilize individuals to realize gains from trade and to innovate and thereby produce generalized prosperity." http://www.independent.org/publications/tir/article.asp?a=762

Robert Murphy points out in his textbook 'Lessons for the Young Economist': "When we look at the world and try to make some sense of it, one of the most basic and crucial distinctions we all make—usually without even realizing it—is the difference between purposeful action versus mindless behavior...The lessons in this book apply to purposeful actions performed by conscious people who have goals in mind… The economic principles in this book are not confined to “perfectly rational people.” The lessons in these pages apply to real people who use their minds to make exchanges in the real world every day."

 Economics deals with the real actions of real men. Its [laws] refer neither to ideal nor to perfect men, neither to the phantom of a fabulous economic man (homo oeconomicus) nor to the statistical notion of an average man. . . . Man with all his weaknesses and limitations, every man as he lives and acts, is the subject matter of [economics]. —Ludwig von Mises, Human Action (Auburn, Ala.: Ludwig von Mises Institute, 1998), pp. 646–47

Job Creators? OR In Praise of Consumerism and Materialism?

The following video praises consumerism and materialism as drivers of job creation and economic growth. The policy implication is that higher tax rates on entrepreneurs and high income earners should have little impact on job creation and economic growth if consumerism and materialism (i.e. Keynesian aggregate demand) are key drivers of prosperity.
 However, their is quite a bit of empirical evidence to the contrary.

See: Can tax cuts impact entrepreneurial activity and job creation?