First papers

First papersFirst papers

Ok, what’s up Ok, what’s up with all those with all those scrawls on scrawls on my paper??my paper??

MLAMLA

2000 Ford Mustang GT2000 Ford Mustang GT

Mint, mint, mint!Mint, mint, mint! Low miles... 81,000Low miles... 81,000 Think how quickly you can get from Think how quickly you can get from

SCTI to Meadowlands Worship SCTI to Meadowlands Worship CenterCenter

Price:Price:

2000 Ford Mustang GT2000 Ford Mustang GT

Mint, mint, mint!Mint, mint, mint! Low miles... 81,000Low miles... 81,000 Think how quickly you can get from Think how quickly you can get from

SCTI to Meadowlands Worship SCTI to Meadowlands Worship CenterCenter

Price: Price: only $145,000!!!!!!!!!!!!!!!!!only $145,000!!!!!!!!!!!!!!!!!

Is that the Is that the price?price?

Bonus: did you Bonus: did you see an F/E on see an F/E on

preceding slides?preceding slides?

PresentingPresenting

The Pricing The Pricing Players Players

In a world-premier production of In a world-premier production of

PricesPrices

““Since we know that the Since we know that the key task facing any key task facing any economy is the allocation economy is the allocation of SRTHAU, the next of SRTHAU, the next question is: How does an question is: How does an economy do that?”economy do that?”

PricesPrices

PricesPrices No one person or bureaucracy -- No one person or bureaucracy --

whether in Moscow, Beijing, whether in Moscow, Beijing, Tallahassee or Washington -- can Tallahassee or Washington -- can possibly effectively coordinate all the possibly effectively coordinate all the millions of economic transaction that millions of economic transaction that occur each minute in a complex occur each minute in a complex societysociety

PricesPrices No one person or bureaucracy -- No one person or bureaucracy --

whether in Moscow, Beijing, whether in Moscow, Beijing, Tallahassee or Washington -- can Tallahassee or Washington -- can possibly effectively coordinate all the possibly effectively coordinate all the millions of economic transaction that millions of economic transaction that occur each minute in a complex occur each minute in a complex societysociety

Example of USSR food system Example of USSR food system compared to Britain’scompared to Britain’s

PricesPrices No one person or bureaucracy -- whether No one person or bureaucracy -- whether

in Moscow, Beijing, Tallahassee or in Moscow, Beijing, Tallahassee or Washington -- can possibly effectively Washington -- can possibly effectively coordinate all the millions of economic coordinate all the millions of economic transaction that occur each minute in a transaction that occur each minute in a complex societycomplex society

Example of USSR food system compared Example of USSR food system compared to Britain’sto Britain’s

Gorbachev with “little understanding of Gorbachev with “little understanding of economics” as leader of the biggest nationeconomics” as leader of the biggest nation

Primary Roles of PricesPrimary Roles of Prices


Convey terms of financial Convey terms of financial transactions among consumers, transactions among consumers, producers, retailers, workers, producers, retailers, workers, landlord, etc.landlord, etc.


Convey terms of financial Convey terms of financial transactions among consumers, transactions among consumers, producers, retailers, workers, producers, retailers, workers, landlord, etc.landlord, etc.

Prices help determine how much of Prices help determine how much of each resource get used, where it each resource get used, where it gets used, and how the resulting gets used, and how the resulting products are distributedproducts are distributed


Convey terms of financial transactions Convey terms of financial transactions among consumers, producers, retailers, among consumers, producers, retailers, workers, landlord, etc.workers, landlord, etc.

Prices help determine how much of each Prices help determine how much of each resource get used, where it gets used, resource get used, where it gets used, and how the resulting products are and how the resulting products are distributeddistributed

Provide incentives to affect behavior in Provide incentives to affect behavior in the use of resources and their resulting the use of resources and their resulting productsproducts

““Prices are like Prices are like messengers messengers

conveying news”conveying news”

Why is that?Why is that?

PricesPrices Why does Dr. Sowell compare prices Why does Dr. Sowell compare prices

to the worldwide web?to the worldwide web?


to the worldwide web?to the worldwide web? Prices connect you to anyone, Prices connect you to anyone,

anywhere where prices operate anywhere where prices operate freelyfreely


to the worldwide web?to the worldwide web? Prices connect you to anyone, Prices connect you to anyone,

anywhere where prices operate anywhere where prices operate freelyfreely

Price-coordinated markets enable Price-coordinated markets enable people to signal to other people how people to signal to other people how much they want and what they’re much they want and what they’re willing to paywilling to pay

PricesPrices Why does Dr. Sowell compare prices to Why does Dr. Sowell compare prices to

the worldwide web?the worldwide web? Prices connect you to anyone, Prices connect you to anyone,

anywhere where prices operate freelyanywhere where prices operate freely Price-coordinated markets enable Price-coordinated markets enable

people to signal to other people how people to signal to other people how much they want and what they’re much they want and what they’re willing to paywilling to pay

VW JettaVW Jetta

Profits & LossesProfits & Losses

Why are losses as important as Why are losses as important as profits to businesses in a free market profits to businesses in a free market economy?economy?



Profits provide incentives to use Profits provide incentives to use scare resources more efficiently scare resources more efficiently because decisions are guided by because decisions are guided by pricesprices



Profits provide incentives to use Profits provide incentives to use scare resources more efficiently scare resources more efficiently because decisions are guided by because decisions are guided by pricesprices

Losses tell producers what to stop Losses tell producers what to stop producingproducing

Prices and Central Prices and Central PlanningPlanning

Countries with socialist or Marxist Countries with socialist or Marxist economic systems rely on central economic systems rely on central planners to set prices and determine planners to set prices and determine what goods are produced and wherewhat goods are produced and where

Prices and Central Prices and Central PlanningPlanning

Countries with socialist or Marxist Countries with socialist or Marxist economic systems rely on central economic systems rely on central planners to set prices and determine planners to set prices and determine what goods are produced and wherewhat goods are produced and where

Importantly: at no point in history can Importantly: at no point in history can we find an example where central we find an example where central planning has consistently produced planning has consistently produced more prosperity than allowing prices more prosperity than allowing prices to fluctuate via supply and demandto fluctuate via supply and demand

Growing U.S. Central Growing U.S. Central PlanningPlanning


Health care reform (aka Obamacare) Health care reform (aka Obamacare) creates 159 new federal agenciescreates 159 new federal agencies



Financial reform act (aka Dodd-Financial reform act (aka Dodd-Frank) creates dozens of new Frank) creates dozens of new agencies to do everything from set agencies to do everything from set credit card interest, ATM fees and credit card interest, ATM fees and dictate % of minorities/women in dictate % of minorities/women in financial businessesfinancial businesses

Growing U.S. central Growing U.S. central planningplanning


Financial reform act (aka Dodd-Frank) Financial reform act (aka Dodd-Frank) creates dozens of new agencies to do creates dozens of new agencies to do everything from set credit card interest, everything from set credit card interest, ATM fees and dictate % of ATM fees and dictate % of minorities/women in financial businessesminorities/women in financial businesses

All federal agencies such as EPA and SEC All federal agencies such as EPA and SEC aggressively expanding regulationsaggressively expanding regulations

“ “No matter how much we wish to No matter how much we wish to organize everything rationally, without organize everything rationally, without waste, no matter how passionately we waste, no matter how passionately we wish to lay all the bricks of the economic wish to lay all the bricks of the economic structure tightly, with no chinks in the structure tightly, with no chinks in the mortar, it is not yet within our power.”mortar, it is not yet within our power.”

Nikolai Shmelev & Vladimir PopovNikolai Shmelev & Vladimir Popov

USSR economistsUSSR economists

Consequences Consequences matter more than matter more than

____________

Consequences Consequences matter more than matter more than

intentionsintentions

Prices and CostsPrices and Costs

Prices become economic realities Prices become economic realities only if others are willing to pay themonly if others are willing to pay them



Not up to us to decide pricesNot up to us to decide prices



Not up to us to decide pricesNot up to us to decide prices Up to other producers selling same Up to other producers selling same

goods and services goods and services andand what others what others are willing to payare willing to pay

Gordon Gekko: ‘Greed is Gordon Gekko: ‘Greed is good’good’

Do high prices reflect Do high prices reflect greed?greed?


Competition is what limits what you Competition is what limits what you can charge and still make salescan charge and still make sales



Alex Rodriquez, New York YankeesAlex Rodriquez, New York Yankees

$231 million in earnings so far$231 million in earnings so far



Alex Rodriquez, New York Yankees, Alex Rodriquez, New York Yankees,

$231 million in earnings so far$231 million in earnings so far Retail clerk: $15,000-$20,000 yearRetail clerk: $15,000-$20,000 year



Alex Rodriquez, New York Yankees, Alex Rodriquez, New York Yankees,

$231 million in earnings so far$231 million in earnings so far Retail clerk: $15,000-$20,000 yearRetail clerk: $15,000-$20,000 year What news do those figures bring What news do those figures bring

us?us?

How do prices allocate How do prices allocate SRTHAU?SRTHAU?


The price one producer is willing to The price one producer is willing to pay becomes the price that other pay becomes the price that other producers must pay for that same producers must pay for that same SRTHAU... e.g., milk. woodSRTHAU... e.g., milk. wood



Therefore, resources tend to flow to Therefore, resources tend to flow to their most valued usestheir most valued uses



Therefore, resources tend to flow to Therefore, resources tend to flow to their most valued usestheir most valued uses

The cost of anything is the value that The cost of anything is the value that it has in alternative usesit has in alternative uses


The price one producer is willing to pay The price one producer is willing to pay becomes the price that other producers must becomes the price that other producers must pay for that same SRTHAU... e.g., milk. woodpay for that same SRTHAU... e.g., milk. wood

Therefore, resources tend to flow to their Therefore, resources tend to flow to their most valued usesmost valued uses

The cost of anything is the value that it has in The cost of anything is the value that it has in alternative usesalternative uses

This efficient allocation of SRTHAU This efficient allocation of SRTHAU determines how well or badly millions of determines how well or badly millions of people livepeople live

Adam Smith on pricesAdam Smith on prices

“ “Everything is interconnected in the Everything is interconnected in the world of prices so that the smallest world of prices so that the smallest change in one element is passed change in one element is passed along the chain to millions of along the chain to millions of others.”others.”

Supply, demand and Supply, demand and needneed

People tend to buy more at a lower People tend to buy more at a lower price and less at a higher priceprice and less at a higher price



Producers tend to supply more at a Producers tend to supply more at a higher price and less at a lower higher price and less at a lower priceprice



Producers tend to supply more at a Producers tend to supply more at a higher price and less at a lower higher price and less at a lower priceprice

Dr. Sowell contends there is no Dr. Sowell contends there is no “fixed” supply of oil or of most other “fixed” supply of oil or of most other things... why??things... why??

A few final thoughts on A few final thoughts on pricesprices


People tend to do more for their own People tend to do more for their own benefit: Kibbutz example, USSR benefit: Kibbutz example, USSR factory managers, faminesfactory managers, famines


People tend to do more for their own People tend to do more for their own benefit: Kibbutz example, USSR benefit: Kibbutz example, USSR factory managers, faminesfactory managers, famines

Horses and buggies: under current Horses and buggies: under current administration we probably would administration we probably would have government owned buggy whip have government owned buggy whip companiescompanies


People tend to do more for their own People tend to do more for their own benefit: Kibbutz example, USSR factory benefit: Kibbutz example, USSR factory managers, faminesmanagers, famines

Horses and buggies: under current Horses and buggies: under current administration we probably would have administration we probably would have government owned buggy whip government owned buggy whip companiescompanies

Prices “tie together a vast constellation Prices “tie together a vast constellation of economic activities among people too of economic activities among people too widely scattered to know each other”widely scattered to know each other”

Assignments for 9/14/10Assignments for 9/14/10

Read and STUDY chapter 3 of Read and STUDY chapter 3 of Basic Basic EconomicsEconomics: “Price Controls”: “Price Controls”

Assignments for 9/14/10Assignments for 9/14/10

Read and STUDY chapter 3 of Read and STUDY chapter 3 of Basic Basic EconomicsEconomics: “Price Controls”: “Price Controls”

THEN: Write a 250-word essay: The city THEN: Write a 250-word essay: The city of Sarasota has proposed rent controls of Sarasota has proposed rent controls for all people making less than $25,000 a for all people making less than $25,000 a year. Effective immediately, they could year. Effective immediately, they could only be charged 33% of their monthly only be charged 33% of their monthly income for rent. In light of Dr. Sowell’s income for rent. In light of Dr. Sowell’s teachings, discuss the viability of this teachings, discuss the viability of this proposal and the results if implemented.proposal and the results if implemented.

First papers

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Transcript of First papers