Economics Week 33 Trade with all Nations

Prompt: “If Americans ‘buy Asian,’ what can Asian exporters do with the dollars?”

Trade between two countries benefits both countries, trade with Asia is a good example of this. If Americans buy Asian goods for dollars, Asians can use these dollars to buy American goods. Both countries grow wealthier. This also creates healthy competition within the countries. If Americans only had access to American goods there would be scarcity, and this would allow the American producers to charge more for their limited goods. But with access to goods from around the world American producers either have to make better quality goods, or sell them for less. Competition saves the consumer money, lessens scarcity, and creates better quality goods.

Economics Week 32 County Borders vs National Borders

Prompt: “Is free trade across a county border economically different from free trade across a national border?”

Technically no. Whether you’re trading with your physical neighbor or trading with someone on the other side of the globe the trade at its core is identical. Its humans producing, wanting to buy the produce, and trading something deemed as equal in value to acquire the produce. The difference comes from the concepts of nationality and cultural difference. People of every nation are raised with a sense of national pride. This pride also subconsciously separates us from people of other nations.

This is why trading across counties or states (but within the same nation) seems harmless and natural, while trading with someone across a national border seems like a bigger deal. If you’re trading across counties it still seems like you’re trading to benefit your home, your nation. The flow of money stays within your nation, and the thought that it will ultimately benefit you and your family stays constant. If you’re trading across national borders it seems less controllable, and you can’t be completely sure the flow of money will come back to benefit your nation.

The truth is both nations will benefit from international trade. The seller will become richer in money and the buyer richer in goods. But because of national borders we subconsciously look at the people of the nation we’re trading with as “other”, and have a harder time trading across national borders than we do across county borders. This (along with in country producers looking out for their own business) is another reason import quotas get created. Its seen as safer to keep the flow of money within our own nations economy instead of taking the risk of trading it out into another nations economy.

Economics Week 31 Import Quotas

Prompt:  “Do import quotas benefit most voters economically?”

Import quotas limit the amount of imported goods legally aloud to be shipped from one nation to the next. The main reason for these is international competition. If a nation outside ours is able to produce higher quality goods for cheaper they are in direct competition with the in nation producers. People will be more likely to buy the goods from outside their country, since they can buy better quality items for less money. But this takes business away from the producers within the country.

The producers in the country work with politicians to create import quotas, making it illegal for citizens to buy more than a certain amount of product from other nations. This is good for the in nation producers business, but limiting to the economy as a whole. Trade benefits the economy. The producer gets richer in money, and the consumer gets richer in goods. Import quotas limit this growth because of international competition, and overall do not benefit most voters economically.

Economics Week 30 Actors and Businessmen

Prompt: “Why do voters accept the riches of movie stars, but resent the riches of businessmen?

There’s different reasons for this, different people hold different opinions. But generally I’d say there’s one big reason. That is the emotion, and the sacred feeling of art and creation. Art in all forms, film included, is often a mirror of someones soul or thought process. It is the creation of something unique, something that can affect people emotionally. Film can inspire people, and often does. In a well made movie the actors behave as a conduit of this inspiration. They are the faces you link to the emotion of the character. If they act well they are the ones bringing the emotional impact into the film.

Business is often very different. Generally the person creating and manufacturing a product is not the face of the business. Even if they are there isn’t the emotional link to the product. It is a physical product or service they are selling, not an emotional one. When somebody buys a television they are not having the same emotional journey that they will have watching a passionate film on the television. The person making the TV may be passionate about making it, but we don’t get to watch their process the same way we watch a characters development in a film.

So it feels more cold, less personal. We have less opportunities to put ourselves in the shoes of the businessman. We have less emotional interaction, and thus there’s less relatability. If a business owner released a documentary about the years of work, the trial and error, the passion and the ambition they had to maintain in order to produce something we would be able to relate more. But when we think of businessmen hidden away in metal skyscrapers it feels much less emotionally deep. So we collectively have less resentment for rich movie stars because they make us feel, while business men make us things.

Economics Week 29 Price Level

Prompt: “If there is no ‘price level,’ how could anyone prove that monetary inflation raises prices?”

Price level is the price of goods and services, and it fluctuates depending on how much currency is in the system. The question makes it out to seem that price level is what causes inflation, but it’s actually the other way around. Inflation is caused by more and more money being printed into the economy. This seems good at first glance, since more people will have access to said money. But what this actually does is make money less rare, and therefore less valued.

For an example lets think of a pure barter economy that trades sea shells as currency. If the amount of sea shells in the economy is consistent then the price level will also be consistent. The sea shells are rare and hard to get, so generally they will have a maintained value. Now lets imagine that all of a sudden the sea pumps out thousands of sea shells out of thin air. Now that once rare and valued asset is flooding the market. Everyone has tons of sea shells, and they aren’t valued as much because everyone has so many.

This is inflation, and the same happens to our paper financial system if money continues to be printed. In a sea shell economy a shoe maker originally sold his shoes for five sea shells, but after the sea pumps out thousands suddenly he needs to sell his shoes for ten. That is how inflation affects prices, and ultimately sets the price level of everything we buy.

Economics Week 28 Tax-Funded Education

Prompt: “Is tax-funded education inherently bureaucratic?”

Public education is funded by taxes. Citizens pay taxes to the government, who put some percentage of those taxes into schools. In most organizations (public schools included), the one providing the funds is the one who ultimately chooses what goes on within the organization. I touched on this in my last essay, customers vote with their dollar for the business’s they prefer. But with schools there are no customers, there is no vote. There is only the government funding. Parents can vote for the school board, and they can donate to the school. But it’s the government who ultimately funds the schools, and it’s the bureaucrats who maintain them.

This is how common core arises. Its the form bureaucratic maintenance takes within public schools. Its the rule book, lesson plans, and educational requirements all teachers are given to work with. He who pays the piper calls the tune. It’s the state which pays the piper, and it’s the state which decides the song. So yes, by being tax-funded public schools are inherently bureaucratic.

Economics Week 27 Profit in the Free Market

Prompt: “How can profit arise in a free market economy if every factor of production is paid what it is worth to customers?”

Trial and error is the most natural way prices and eventual profit arise in the free market. Someone starting a small business will usually have a few years in the beginning where they spend more than they make, or if they’re lucky they may break even. This is healthy for the business, in a lot of ways its the way business’s mature. In these years the business owner learns what form of production works best for them, how to maintain and run the business most efficiently, and what the majority of customers are looking for in their business.

Mises wrote on the topic, “The consumers by their buying and abstention from buying elect the entrepreneurs in a daily repeated plebiscite as it were.” The consumers vote with their dollar, and their vote helps the business owner understand what works best within their business. On a grander scale it helps the economy sift through all the business’s until only the best are left open.

Entrepreneurs hoping to establish a business will have to endure some form of trial and error, Mises sums the process up nicely by saying, “They earn profit not because they are clever in performing their tasks, but because they are more clever or less clumsy than other people are. They are not infallible and often blunder. But they are less liable to error and blunder than other people.” Those who learn from their errors and adjust their business to better them have the best chance at earning profit.

Economics Week 26 Division of Labor

Prompt: Give an example of the division of labor required to create another simple household tool besides a pencil.

The division of labor is a immense web of unrelated laborers unknowingly working towards the same goal. Lets use the example of a sketchbook. First there’s the paper. The timber needs to be gathered by lumberjacks, then it needs to be transported by truck drivers, and finally taken to the sawmill and cut thin by mill workers. Now this may just seem like three professionals working together, but when you take into account the axes the lumberjacks use, the truck driven, the saw used at the mill; each of these have individual chains of labor connected to them. So far a few pieces of paper are all that have been finished.

Next is the metal spiral to hold the paper together. Lets say the raw metal was mined in Asia by a group of miners. Next it was transported by ship, a crew of sailors navigating it to its destination. Once it arrives its unloaded by laborers onto trucks driven by truckers. They use their trucks, and gasoline to travel cross country and bring the raw metal to a modern blacksmith organization, where it is melted down and shaped into a spiral. From there the paper and metal need to make their way together, once again many different truckers unknowingly work together to transport them to the final location where finally factory workers stick them together. Out of this process a basic sketchbook is created.

Whats so amazing about this process is none of the different parties involved know each other, they are all simply individuals working to feed themselves and their family. The miner in Asia has no knowledge of the lumberjacks on the other side of the globe. The truckers don’t personally know the blacksmiths, and the managers of the truckers have no connection to the sailors who transported the raw metal. Yet they all work together, simultaneously working towards the same goal. Out of this system every man made item we use on a daily basis is able to be created.

Economics Week 25 Broken Window Fallacy Taxes

Prompt: Give an example of the broken window fallacy as applied to a government intervention that was not discussed by Hazlitt.

The broken window fallacy describes that which is seen vs that which is unseen. Its been argued that a broken window makes the economy more money, since the owner of the window has to pay others to fix it. The window fixers make money, that is whats seen. What is unseen is where the window owners money would have gone if he didn’t have to spend it on the window.

A government example of this is taxes. Citizens are taxed, and lets say the government uses these taxes to repave a street. The repaved street is the thing seen, the unseen is where that tax money would have gone if the people had been allowed to keep it. It can be argued repaving the street made the economy money, since the government had to pay others to fix it. The ones paving the street made money, that’s what is seen. But the unseen, where the money would have went, can never be known.

Economics Week 24 Minimum Wage

Prompt: “Why wouldn’t someone voluntarily offer you a job at twice today’s minimum wage?”

It all depends on the aspiring employees experience and ability. Someone who has been in the industry for a time, knows the ins and outs, has had practice producing, and is capable and reliable has a much better chance at being offered a salary above the minimum wage. Typically minimum wages are for newer employees, employees just starting out who haven’t completely proved themselves to their employer. Once they have proved themselves to be efficient employees they have a chance at getting a raise.

Starting a new employee out with something above the minimum is a risk, the business has no proof that they’ll be a good fit. But if its a specialist, or someone who has proven themselves as a reliable hard worker may have a chance at getting higher pay. The business may actually seek out someone who’s done well in their field and offer them a higher salary before another business scoops them up. Its all just a matter of experience, reputation, and efficiency. The starting salary often reflects an individuals time and effort previously invested into their line of work.