Naked Economics Chapter Summary
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Naked Economics
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Government is a monopoly wherein people only have one option when it comes to things such as the Department of Motor Vehicles. The government should not be the sole provider of a good or service unless there is a compelling reason to believe that the private sector will fail in that role. Suitable areas include public health, national defense. Governments that run steel mills, coal mines, banks, and airlines lose the benefits of competition. Citizens are made worse off. The private sector allocates resources where they will earn the highest return while governments allocate resources wherever the political process sends them. When government funds are directed by lobbyists the economy does not develop as quickly or efficiently because credit is channeled away from worthwhile projects.
Regulation can disturb the movement of capital and labor, raise the cost of good and services, inhibit innovation and otherwise shackle the economy. This can all result from regulations with good intentions. At worst, regulation can become a powerful tool for self-interest as firms work the political system to their own benefit. Studies show that compliance in nations with heavy regulation is lower, while the regulation does not reduce pollution or raise health levels. In this case, everyone is worst off. Taxation can discourage investment.
Taxes make investments less attractive because they are a cost. The higher the tax on investments, the less attractive they become. Government has the potential to enhance the productive capacity of the economy and make us much better off as a result. The notion that smaller government is always better is simply wrong. Statistical discrimination includes assuming that a female candidate wants a family, will take maternity leave, and may leave shortly after taking leave. Ways to solve these rational discrimination issues includes: 1 Structuring maternity leave to be paid back if an employee leaves within a certain period of time and 2 doing background checks on all applicants. This helps both parties because the information is now known and statistical discrimination is alleviated, if that was all there was at hand.
Markets tend to favor the party that knows more but if the imbalance of information becomes too large then markets can break down entirely. Branding helps provide an element of trust that is necessary for a complex economy to function. Producers of branded goods create a monopoly for themselves—and price their products accordingly—by persuading consumers that their products are like no other. Information matters. Economists study what we do with it, and, sometimes more important, what we do without it. Human capital is the sum total of skills embodied within an individual including education, intelligence, charisma, creativity, work experience, entrepreneurial vigor, even the ability to throw a baseball fast.
It is what you would be left with if someone stripped away all of your assets and left you on a street corner with only the clothes on your back. The labor market is no different from the market for anything else, some kinds of talent are in greater demand than others. The more nearly unique a set of skills, the better compensated their owner will be. The most insightful way to think about poverty, in this country or anywhere else in the world, is as a dearth of human capital. People are poor in America because they cannot find good jobs. But that is the symptom, not the illness. The underlying problem is a lack of skills, or human capital. Human capital also embodies perseverance, honesty, creativity—virtues that lend themselves to finding work. Highly skilled workers are more mobile than their low-skilled peers.
The lump of labor fallacy is the mistaken belief that there is a fixed amount of work to be done in the economy and every new job must come at the expense of a job lost somewhere else. Rising levels of human capital enabled an agrarian nation to evolve into places as rich and complex as Manhattan and Silicon Valley. Technology displaces workers in the short run but does not lead to mass unemployment in the long run.
High levels of human capital leads to well-educated parents who invest heavily in the human capital of their children. Low levels of human capital have just the opposite effect. Human capital is inextricably linked to one of the most important ideas in economics: productivity. Productivity is the efficiency with which we convert inputs into outputs. The more productive we are, the richer we are. The day will always be twenty-four hours long; the more we produce in those twenty-four hours the more we consume, either directly or by trading it away for other stuff. We are better off today than at any other point in the history of civilization because we are better at producing goods and services than we have ever been.
We work less and produce more. In , the typical household required 1, hours of labor just to acquire its annual food supply; today, it takes about hours of work. If million people in India became more productive and moved from poverty to the middle class, we would become richer in America too. If they were wealthier, they could. Productivity growth depends on investment in physical capital, human capital, research and development, and things like more effective government institutions. Investments require that we give up consumption in the present in order to be able to consume more in the future. High taxes, bad government, poorly defined property rights, or excessive regulation can diminish or eliminate the incentive to make productive investments.
As the advantages of having more children declined, people began investing their rising incomes in the quality of their children, not merely the quantity. One of the most potent weapons for fighting population growth is creating better economic opportunities for women, which starts by educating girls. The growing wage gap between high school and college graduates will motivate many students to get college degrees. The spectacular wealth earned by entrepreneurs provides an incentive to take the risks necessary for leaps in innovation, many of which have huge payoffs for society.
Economics is about incentives, and the prospect of getting rich is a big incentive. Many economists argue that we should not care about the gap between rich and poor as long as everybody is living better. Economic development is not a zero-sum game. The world does not need poor countries in order to have rich countries, nor must some people be poor in order for others to be rich. Economics tells us that there is no theoretical limit to how well we can live or how widely our wealth can be spread. Human capital creates opportunities. It makes us richer and healthier. It enables us to live better while working less.
Human capital separates the haves from the have-nots. The demand everywhere will be for ever higher levels of human capital. Basic economics provides us with a basic set of rules to which decent investment advice must conform:. All else equal, small, well-organized groups are most successful in the political process because the costs of favors they get from the system are spread over a large, unorganized segment of the population. The costs are spread over the remaining 98 percent of us. A tax shelter is some kind of investment or behavior that would not make sense in the absence of tax considerations.
If nominal GDP climbs 10 percent in but inflation is also 10 percent, nothing more has actually been produced. When consumers sustain a shock to their income, they spend less, which spreads the economic damage. My decision to curtail my advertising budget or to buy a car next year instead of this year—may cost you your job, which will in turn hurt my business! Indeed, if we all believe the economy is likely to get worse, then it will get worse. And if we all believe it will get better, then it will get better. Our decision to spend or not to spend is conditioned on our expectations which can quickly become self-fulfilling.
Recessions may be good for long-term growth because they purge the economy of less productive ventures. The only way to ration that excess demand is with higher prices. The result is inflation. To economists, money is quite distinct from wealth. Wealth consists of all things that have value including houses, cars, commodities, and human capital. Money, a tiny subset of that wealth, is merely a medium of exchange, something that facilitates trade and commerce. Money serves as a means of exchange and unit of account so that the cost of all kinds of goods and services can be measured and compared using one scale.
The value of modern currency is that it has purchasing power. Dollars have value because people peddling things will accept them. They accept them because they are confident that other people peddling other real things will accept them, too. A dollar is a piece of paper whose value derives solely from our confidence that we will be able to use it to buy something we need in the future. The way to think about inflation is not that prices are going up, but that the purchasing power of the dollar is going down.
A dollar buys less than it used to. With hyperinflation, fixed-rate loans become impossible because no financial institution will agree to be repaid a fixed quantity of money when that money is at risk of becoming worthless. Moderate inflation can eat away at our wealth if we do not manage our assets properly. Any wealth held in cash will lose value over time. Inflation is bad. Deflation, steadily falling prices, is much worse.
Falling prices cause consumers to postpone purchases. Prices are falling because the economy is depressed, now the economy is depressed because prices are falling. A government that deliberately keeps its currency undervalued is taxing consumers of imports and subsidizing producers of exports. An overvalued currency does the opposite, making imports artificially cheap and exports less competitive with the rest of the world. A single currency across Europe and in the fifty states reduces transaction costs and promotes price transparency. The goal of global economic policy should be to make it easier for nations to cooperate with one another.
The better we do it, the richer and more secure we will all be. A modern economy is built on trade. Our standard of living is high because we are able to focus on the tasks that we do best and trade for everything else. When different countries are better at producing different things, they can both consume more by specializing at what they do best and then trading. Productivity is what makes us rich. Specialization is what makes us productive. Trade allows us to specialize. Cutting off trade leaves a country poorer and less productive, which is why we tend to do it to our enemies. Economists reckon that the tariffs on Brazilian oranges and juice limit the supply of imports and therefore add about 30 cents to the price of a gallon of orange juice.
Workers willing to accept a dollar or two a day because it is better than any other option they have. Human capital is what makes individuals productive, and productivity is what determines our standard of living. All countries that have had persistent growth in income have also had large increases in the education and training of their labor forces. Higher rates of education for women in developing countries are associated with lower rates of infant mortality. Skills are what matter for individuals and for the economy as a whole. Skilled workers usually need other skilled workers in order to succeed. Productivity growth gives us choices. We can continue to work the same amount while producing more, produce the same amount by working less, or strike some balance.
The easiest and most effective way to get something done is to give the people involved a reason to want it done. Although we recognize this as obvious, many of our policies are designed in ways that do the opposite. Our public school system that does not reward teachers and principals when their students do well or punish them when their students do poorly. If we design solutions with the proper incentives, its a lot more like rowing downstream. Overborrowing always ends badly, whether for an individual, a company, or a country.
During the first decade of the new millennium, three parties borrowed heavily: consumers, financial firms, and the U. So far, two have paid a huge price for that leverage. Economics offers insight into areas such as wealth, poverty, gender relations, the environment, discrimination, politics and many more. Naked Economics has given me a greater understanding economics, human nature and the world in general. This book is definitely worth your time. Below I summarize some notes: Chapter 1 - The Power of Markets The free market aligns self interest with improving the overall standard of living for most members of society. Economy is the art of making the most out of life. Economics is the study of how we do that. Gregoriou and Karyn L.
No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save. Chapter Use this Learning Outline as you read and study this chapter. Taylor and Frank and Lillian Gilbreth. Pepper in this new packaging beginning in early July through early September. However, in chapter two a detailed analysis of PepsiCo competitors in such matrices, models and graphs like porter's model, strategic groups and Completive profile matrix CPM.
Annual Report. Background 3 II. Vision 6 III. Mission 6 IV. Values 8 V. Objectives 9 VI. Financial Analysis 15 i. Liquidity Ratios 15 ii. Activity Ratios 16 iii. Debt Ratios 19 iv. Profitability Ratios 20 v. Market Ratios 23 Phase Two I. Even if you disagree with the implications, the book is very convincing that: 1. The richer you are, the more you have benefited from economic changes over the past 30 years. The poorer you are, the worse your economic life has become over the past 30 years.
