Difference between revisions of "Common Sense Economics"
(→Part IV: Twelve Key Elements of Practical Personal Finance: Add category.)
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[[:Business, Investing, Finance]]
Revision as of 06:11, 3 June 2008
|Author||James Gwartney, Richard L. Stroup, Dwight R. Lee|
|Publisher||St. Martin's Press|
|Pages||208p. (first edition, hardback)|
|ISBN||ISBN 031233818X (first edition, hardback)|
Part I: The Key Elements of Economics
- Incentive matter.
- People care about personal costs and benefits.
- Applies to economical, political and social situations, selfish and altruistic acts.
- There is no such thing as a free lunch.
- Everything has a cost, direct or opportunity cost.
- Decisions are made at the margin.
- The cost and benefit of “one-more”.
- Trade promotes economic progress.
- Trade moves goods from people who value them less to people who value them more.
- Trace makes larger outputs and consumption levels possible because it allows each of us to specialize more fully in the things that we do best.
- Voluntary exchange makes it possible for firms to achieve lower per-unit costs by adopting mass production methods.
- Transaction costs are an obstacle to trade.
- Not all middlemen are obstacles; sometimes they reduce transaction costs by brokering deals.
- Profits direct businesses toward activities that increase wealth.
- People earn income by helping others.
- Economic progress comes primarily through trade, investment, better ways of doing things, and sound economic institutions.
- Investments in productive assets (e.g. tools and machines) and in the skills of workers enhance our ability to product goods and services.
- Improvements in technology spur economic progress.
- Improvements in economic organization can promote growth.
- The “invisible hand” of market prices directs buyers and sellers toward activities that promote the general welfare.
- Too often long-term consequences, or the secondary effects, of an action are ignored.
Part II: Seven Major Sources of Economic Progress
- Legal system: The foundation for economic progress is a legal system that protects privately owned property and enforces contracts in an even-handed manner.
- Private ownership encourages wise stewardship.
- Private ownership encourages eople to use their property productively.
- Private owners have a strong incentive to develop things that they own in ways that are beneficial to others.
- Private ownership promotes the wise development and conservation of resources for the future.
- Competitive markets: Competition promotes the efficient use of resources and provides a continuous stimulus for innovative improvements.
- Competition places pressure on producers to operate efficiently and cater to the preferences of consumers.
- Competition gives firms a strong incentive to develop better products and discover lower-cost methods of production.
- Competition also discovers the business structure and size of firms that can best keep the per-unit cost of a product or service low.
- Limits on government regulation: Regulatory policies that reduce trade also retard economic progress.
- Many countries impose regulations that limit entry into various businesses and occupations.
- Regulations that substitute political authority for the rule of law and freedom of contract will tend to undermine gains from trade.
- The imposition of price controls will also stifle trade.
- An efficient capital market: To realize its potential, a nation must have a mechanism that channels capital into wealth-creating projects.
- Monetary stability: Inflationary monetary policies distort price signals, undermining a market economy.
- Low tax rates: People will produce more when they are permitted to keep more of what they earn.
- High tax rates discourage work effort and reduce the productivity of labor.
- High tax rates will reduce both the level and efficiency of capital formation.
- High marginal tax rates encourage individuals to consume tax-deductible goods in place of nondeductible goods, even though the nondeductible goods may be more desirable.
- Free trade: A nation progresses by selling goods and services that it can produce at a relatively low cost and buying those that would be costly to produce.
- The people of each nation benefit if they can acquire a product or service through trade more cheaply than they can produce it domestically.
- International trade allows domestic producers and consumers to benefit from the economies of scale typical of any large operations.
- International trade promotes competition in domestic markets and allows consumers to purchase a wider variety of goods at lower prices.
Part III: Economic Progress and the Role of Government
- Government promotes economic progress by protecting the rights of individuals and supplying goods that cannot be provided through markets.
- Government is not a corrective device.
- The costs of government are not only taxes.
- There is the loss ofprivate-sector output that could have been produced with the resources that are now employed producing the goods supplied by the government.
- There is the cost of resources expended in the collection of taxes and the enforcement of government mandates.
- There is the cost of price distortions resulting from taxes and borrowing.
- Unless restrained by constitutional rules, special interest groups will use the democratic political process to fleece taxpayers and consumers.
- Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively.
- Government slows economic progress when it becomes heavily involved in trying to help some people at the expense of others.
- The costs of government income transfers are far greater than the net gain to the intended beneficiaries.
- An increase in government transfers will reduce the incentive of both the taxpayer-donor and the transfer recipient to earn income. Economic growth will thereby be retarded.
- Competition for transfers will erode most of the long-term gain of the intended beneficiaries.
- Programs that protect potential recipients against adversity arising from their imprudent decisions encourage them to make choices that increase the likelihood of the adversity.
- Central planning replaces markets with politics, which wastes resources and retards economic progress.
- Central planning merely substitutes politics for market verdicts.
- The incentive of government-operated firms to keep costs low, be innovative, and efficiently supply goods is weak.
- There is every reason to believe that investors risking their own money will make better investment choices than central planners spending the money of taxpayers.
- There is no way that central planners can acquire enough information to create, maintain, and constantly update a plan that makes sense.
- Competition is just as important in government as in markets.
- Constitutional rules that bring the political process and sound economics into harmony will promote economic progress.
Part IV: Twelve Key Elements of Practical Personal Finance
- Discover your comparative advantage.
- Be entrepreneurial. In a market economy, people get ahead by helping others and Discovering better ways of doing things.
- Providing others with goods and services that are highly valued compared to their cost is the key to financial success.
- Spend less than you earn. Begin a regular savings program now.
- Don’t finance anything for longer than its useful life.
- Two ways to get more out of our money: Avoid credit-card debt and consider purchasing used items.
- Begin paying into a “real-world” savings account every month.
- Put the power of compound interest to work for you.
- Diversify—don’t put all of your eggs in one basket.
- Indexed equity funds can help you beat the experts without taking excessive risk.
- Invest in stocks for long-run objectives; as the need for money approaches, increase the proportion of bonds.
- Beware of investment schemes promising high returns with little or no risk.
- Teach your children how to earn money and spend it wisely.