The Liberal Order

The Ultimate in Tying

Identity theft is I would think is a bad for most people, meaning that it certainly isn't something for which you want to pay. But the Hillsdale, Michigan branch of Cashland is selling ID theft for only $4.95 with a loan. My guess is that the loan provides Cashland the information needed to steal your identity.

Rational or Irrational Voters

Scott Adams reinforces Bryan Caplan's theory.

Three Edicts of Economic Thought

Echoing this explanation by Arnold Kling on three schools of  economic thought, here are three statements that define (at least partially) three schools.

1. The leftists: "That what is is inefficient." Given the abundant examples of oversupply, undersupply, and information problems, (i.e., market disequilibrium), market inefficiencies abound.
2. The Chicago School: "That what is is efficient." There are no market inefficiencies given the perfectly informed and rational actions of individuals. Any oversupply or undersupply or information problems (i.e., market disequilibrium) are efficient responses to transaction costs.
3. The GMU School: "That what is is." The epistemological problem precludes us from ever knowing if there exists a preferred social outcome other than what is - what evolves naturally and spontaneously from individuals freely choosing their preferred outcomes. Seeming inefficiencies are unexploited profit opportunities for entrepreneurs.

Notice that the leftist (or what Dani Rodrik refers to as "second-best" economists) argues for government intervention everywhere since markets obviously fail to bring about some idealized preferred outcome. (Preferred by whom?) Opportunities should then be foreclosed to individuals in order to bring about some socially preferred outcomes.

The second argues that there can be no market failures, notwithstanding the oversupply of automobiles on dealers' lots, the potential lemons markets, etc., since these disturbances are simply rational responses to individuals facing transaction costs. The cost of ameliorating market frictions exceeds the gain to the relevant parties. These market imperfections cannot be resolved any more efficiently through government intervention.

The last says that even if there are inefficiencies or "failures," we can never know them since individuals with disparate tastes amid dispersed knowledge make decisions particular to themselves. The role of institutions, including and especially government, is to expand the opportunities available to individuals, providing them greater opportunities and allowing for entrepreneurs to resolve potentially unfavorable outcomes.

Update: Note that the GMU edict does not negate public goods and other externality problems, only that markets in most instances are more likely to bring about efficient remedies relative to government provision or regulations.

The Top Three Economic Concepts

Greg Mankiw offers the following:

I organized my principles text to put the most important concepts toward the front of the book. If I had limited time to teach a basic course, I would try to get through the first 10 chapters (out of 36 in the book), perhaps skipping chapter 2 on methodology and 5 on elasticity. Summarizing these chapters in three big ideas is hard, but here goes:

1. Comparative advantage and the gains from trade.

2. Supply, demand, and the efficiency of market equilibrium.

3. Market failure, such as externalities, and the role for government.

The lesson is that we can all gain from economic interdependence and that markets are a good, but not always perfect, way to coordinate people in an interdependent world.

Here are my three:

1. Comparative advantage
2. The role of incentives and opportunity costs
3. How markets spontaneously coordinate individual behavior and improve the human condition.

Note that my #3 is not the same as Mankiw's #2.