Further, he appears blind to his own biases, falsely championing himself as a “radical centrist.” For example, he notes public spending as a percentage of GDP as his gauge of government size, assuming spending should grow in proportion to the rest of the economy. As economist Robert Higgs has said, “that doesn’t make a lot of sense.” We don’t assume the cost of other items should follow such a pattern.

Government can be used to create the foundations for a vibrant market economy or to stifle highly productive behaviour. The wisdom, of course, lies in telling the difference.” When a sale is made, firms and individuals connect and maximize their utility against each other. “Utility” can be thought of as happiness, and maximizing it means making yourself as well-off as possible. In a sale, firms look to make as much money as possible, while individuals look to satisfy a need or desire by purchasing something. People react to incentives and disincentives. The right incentives align the interests of various parties so they act towards a common desired outcome.

Protectionism may save jobs in the short term, but it ultimately slows down economic growth. This is because protectionism does not favor specialization. As a result, globalization favors specialization. We’ll also look at how economies of different countries are measured and compared, how recessions happen, and how governments can work with financial markets to manage recessions. Good policy incentivizes people to behave in a way that leads to the desired outcome, while bad policy either doesn’t take incentives into account or fails to predict how people will change their behavior in response to them. For example, a perverse incentive can lead to the Indian snake infestation problem.

Financial markets function like all other markets – capital flows to where it can earn the best return, given available information. Financial Instruments & Investment Principles Economics still awaits its Darwin. Keynes came close, but not close enough. Keen comes closer still. Economics, like biology used to be, remains mostly faith-based. No book poses a bigger threat to that faith than the second and expanded edition of Debunking Economics. The market economy can make our lives better, because the only way firms make profits is by delivering what we want to buy. One way to grasp the gradual splintering, confusion, and manipulation within the field is to consider two disparate books for the layman: Economics in One Lesson (1946) and Naked Economics (2002). The former, by Henry Hazlitt, has for many years been familiar to me as a canon of both economics and liberalism. The latter was recommended reading for my MBA program at Rice University.More stories, this time about incentives. Why they matter and why it is hard to fix markets that have bad outcomes because of bad incentive structures. He repeats Steven Levitt's story about real estate brokers. On p. 33 (bottom) " Economics teaches us how to get incentive right." but the whole chapter is stories about how attempts to change incentives have failed. In the private sector, markets show us where it is most beneficial to invest our resources because this is where they will be of the most value. However, when governments get involved and interfere with that process, it creates problems. The USSR was able to beat the United States in the Space Race because the government decided to invest its resources into that enterprise, even though it was not what the people would have preferred.

Increasing productivity through specialization: Trade frees people up to focus their efforts where they can be most effective. For example, if you buy a car that someone else built rather than building a car for yourself, you will not only get a better car, but you will have time to do other things that you’re better skilled at. A highly ideological piece masquerading as a non-controversial introduction to economics. Wheelan proclaims that economics is amoral and apolitical, and then goes on to give very detailed political descriptions about what government should be. He also seems attached to the false dichotomy of 'free' markets vs. communist state economies - though he does recognize that the neoconservative vision that markets will operate efficiently without government is, as he puts it, 'nonsense.'But is the market always rational? No, because humans are prone to making behavioral errors. However, over time these inefficiencies tend to correct themselves. Sure, I might quibble with the book here and there. Some of Wheelan’s policy prescriptions are dubiously supported, and some of his facts are wrong. He confuses the existence of the administrative state with the rule of law. It is not true that the now-canceled Superconducting Super Collider particle accelerator was located in Texas because George H.W. Bush was President—that decision was made in the 1980s, and if a politician mattered, it was the corrupt Democratic Speaker of the House, Jim Wright. Nor did Arthur Laffer originate the idea that tax cuts might increase revenue—that idea was well known to Calvin Coolidge, who carefully tested it in practice. It is also not true that “trading [securities] on any information not available to the public is against the law.” But none of these minor problems erode Wheelan’s basic analysis The challenges of economics as an academic field are vast and will continue to be a pertinent topic in my financial writing. In particular, the trend towards less theoretical and more empirical economics is becoming obvious, as are the consequences. As documented by Econ Journal Watch, progressive ideology and central-banking biases have long been undermining classical economics, polluting the field, and orienting it towards policy interventionism.

A market economy is really just a name for the transaction of buying and selling goods and services, and the scarcer the goods and services and the more demand, the more people are willing to pay for them. This explains in part why LeBron James makes more money than I do. There are fewer people who play basketball exceptionally well than can teach, which is what I do (and remember, teachers are not paid on a sliding scale where the better teachers make more for their outstanding performance). So LeBron James's skills are scarcer, mine are not. Note, by the way, this is not making a value judgment. It is an explanation of the pay disparity. And it is unlikely that the demand would be there for LeBron James's basketball talents were we living in the 18th century, in which case I would have more human capital than someone who can put a ball in a hoop. Naked Economics: Undressing the Dismal Science is written by Charles Wheelan— an American economist, author and speaker. He founded The Centrist Party in the US and was an unsuccessful Democratic candidate. Wheelan graduated from Dartmouth College, where he’s a member of Alpha Delta fraternity. He has worked as a correspondent for The Economist, & contributed to several papers & radio shows. Naked Economics Quotes Information, and who has access to it, has an outsized influence on how smoothly an economy runs. A free flow of information allows for easy and smart transactions. Information imbalances—when one party knows more than the other party in a transaction—put one party at a disadvantage to the other: Markets generally favor the party who has more information.

About the contributors

Firms can refer to a person (e.g. a doctor, artist) or a multinational company. The second economic assumption is that firms aim to maximize profits (i.e. revenue less costs). Individuals will go where they are paid the most for their talents, and firms will do businesses that make them the most money in the long run. Wheelan explains how entry barriers and prices influence behaviours. How the Market Works?