Principle Example #1 Example #2 Example #3
| #1 Tax it get less of it, Subsidize it, get more of it.
Aka “humans are rational utility maximizers” Aka “incentives matter” Aka Demand curve slopes downward and to the right. And supply curve upward to the right. |
Tax work, get less work. Subsidize non-work get more non-work. No wonder our labor force participation rate is so low. Tax marriage, get less marriage. Subsidize non-marriage get more of it. No wonder single parenthood has skyrocketed. |
Tax savings with negative real interest rates, get less savings. Subsidize speculation with negative real interest, get more speculation. Surprise, surprise. Look at our Savings rate! Look at a pattern of rotating bubbles. |
The minimum wage is a tax on hiring, raise it get less hiring. Rent control is a tax on housing. Rent control leads to housing shortages.
Regulation is a tax on business, reduces number of businesses, favors big companies versus small. |
| #2 The Paradox of the Invisible Hand,
aka the miracle of the equilibrium point in the supply demand curve, aka the free exchange of ideas, goods, and services, tends to to maximize prosperity for all. Minimize state interference. |
This explains the relative prosperity of North versus South Korea.
Ever seen a satellite photo the Asia at night? The more free an economy, the more prosperous the society. Selfishness is paradoxically good for all. |
The relative success of the Soviet Union and Maoist China versus the United States and post-Maoist China.
Communism is great in theory, in practice a nightmare. |
The relative success of Brazil, Mexico, after free market reforms relative to Cuba, Zimbabwe,
and other command and control economies. After all, the way to maximize profits is to meet the needs of others. |
| #3 Government is necessary to prevent monopolies, to provide public goods, and make sure that externalities are priced in. |
The cost of pollution made life in many US cities unlivable in the 1970s. Every time I take a deep breath on the street, I thank God for regulation. |
Without safe streets and law and order, life would be poor, lonely, nasty, brutish and short.
As it is in certain zip codes where these public goods are not provided. |
The key to prosperity long term is productivity growth – the key to which is maximizing human capital through public education. |