nations

Naked economics: undressing the dismal science

An important question is how much we need to fight income inequality. Is it fair to have 35% growth in the upper class and 3% growth in the lower class? Where is a good balance? We have grown a lot richer since the Industrial Revolution, because we’ve become more productive. Wealth is not a zero-sum game. Globalization is good because it allows us to buy cheaper, better products. We can offset short-run job loss by paying or giving human capital to those who lose their jobs to globalization Policies often don’t do what we intend them to do, because they change people’s decisions for the involved choice. Often, the best way to do policy is to incentivize the appropriate decision. E.g. Tax the purchase of inefficient cars on a scale, so car makers want to produce cheaper efficient cars to compete. Do that instead of simply banning cars with 18 mpg or less. The Fed’s job is to control the availability of credit through setting their interest rates, so banks who borrow from them can adjust their interest rates accordingly. It’s really hard with so many factors, but Bernanke et. al. did an outstanding job. Things that help an economy or nation develop: effective government institutionsproperty rightsno excessive regulationhuman capitalgeography (countries between the tropics have more diseases and less productive crops)openness to traderesponsible fiscal and monetary policy(natural resources don’t matter)democracypeaceinclusion of women in economic production We can help underdeveloped countries, but the question of how is complicated. Certainly, we should open our borders to their products.Jeffrey Sachs – all these countries need is capital, so developed countries should invest in them (e.g. through comprehensively fighting AIDS)William Easterly – We can’t measure effectiveness based on inputs. That’s like rating Hollywood movies by budget size. “Instead we should do small, context-sensitive projects with measurable benefits.“But most of the developing world’s problems come from bad government policy.