Some Econ Homework

How You Don’t Cure Poverty, by Henry Hazlitt, at mises.org. Here are some excerpts from the article:

From the beginning of history sincere reformers as well as demagogues have sought to abolish or at least to alleviate poverty through state action…..The most frequent and popular of these proposed remedies has been the simple one of seizing from the rich to give to the poor…… The wealth is to be “shared,” to be redistributed,” to be “equalized.” In fact, in the minds of many reformers it is not poverty that is the chief evil but inequality….. all schemes for redistributing or equalizing incomes or wealth must undermine or destroy incentives at both ends of the economic scale. They must reduce or abolish the incentives of the unskilled and shiftless to improve their condition by their own efforts, and even the able and industrious will see little point in earning anything beyond what they are allowed to keep. These redistribution schemes must inevitably reduce the size of the pie to be redistributed. They can only level down. Their long-run effect must be to reduce production and lead toward national impoverishment.”

This brings us to the subject of minimum-wage laws. It is profoundly discouraging that in the second half of the twentieth century, in what is supposed to be an age of great economic sophistication, the United States should have such laws on its books, and that it should still be necessary to protest against a nostrum so futile and mischievous. It hurts most the very marginal workers it is designed to help…..I can only repeat what I have written in another place…… We cannot make a man worth a given amount by making it illegal for anyone to offer him less. We merely deprive him of the right to earn the amount that his abilities and opportunities would permit him to earn, while we deprive the community of the moderate services he is capable of rendering. In brief, for a low wage we substitute unemployment.

We come now to the final false remedy for poverty to be considered in this article—outright socialism. By “outright socialism” I refer to the Marxist proposal for “the public ownership and control of the means of production”…..Now the word “socialism” is loosely used to refer to…….the redistribution of wealth or income—if not to make incomes equal, at least to make them much more nearly equal than they are in a market economy. But the majority of those who propose this objective today think that it can be achieved by retaining the mechanisms of private enterprise and then taxing the bigger incomes to subsidize the smaller incomes.”

Why Private Investment Works & Government Investment Doesn’t, at Prager University.

When government tries to pick losers and winners, it typically picks losers. Why? Because in the free market consumers pick winners to leave the losers to Government.”

Another reason Government can’t out perform the free market is because it doesn’t have a tenth of the knowledge that exists in the free market. Also, in the market, when the individual takes the risk he knows he takes the loss if he is wrong. When the Government picks a loser it tries to keep it propped up by subsidizing it with tax dollars. The wasting of scarce resources is kept at a minimal level in the market, because the risk taker stops the unprofitable activity before too long. Resources are liquidated and put toward a more productive use according to consumers desires. Government has no such incentive to stop the nonprofitable activity. They continue wasting scarce resources long after the activity had proven unproductive. If Government bureaucrats were truly in the venture capital business, they would have gone bankrupt years ago.

Economics: It’s Simpler Than You Think, by David Gordan, at mises.org.   From the article:

“…. Skilled entrepreneurs succeed, but many in business fail. The market operates by sorting out of the successful from the failures by the test of profitability. Given this fact, it is as essential that the failures be allowed to fail as it is that those who succeed be allowed to keep their profits. Attempts to prop up failures disable the market.

This vital point can be used to answer a common objection to free trade. Many people object to free trade because, in some cases, foreign competition drives domestic companies out of business, causing unemployment. To the response that expanded trade creates jobs elsewhere in the economy, the reply often given is, what about the workers who do lose their jobs? They are often unable to secure new jobs as good as those they had previously. The fact that others are better off is small solace to them.”…….“In a free economy, capital migrates to talented entrepreneurs eager to pursue profitable opportunities. Innovations like the automobile, computer, and online retail services destroy jobs, but the process leads to better, higher-paying jobs … to create jobs in abundance, we must allow the free marketplace to regularly annihilate them.”

” According to Ben Bernanke, Timothy Geithner, and many others, only the massive bailouts of financial institutions in response to the collapse of the housing market saved the economy from disaster…in the financial crisis of 2008….. but it is essential to the proper working of the market to allow the businesses that had acted recklessly to fail. Had this been done, the economy could have quickly readjusted. “Capitalist societies can rebound from anything. In particular, they can bounce back from bank failures that do not exterminate human capital or destroy their infrastructure. An interfering government is the only barrier to any society’s revival, and that is why the global economy cratered amid all the government intervention in 2008.

 

Related ArticleHere is Some Econ Homework, at austrianaddict.com.

Related ArticleYour Economic Homework, at austrianaddict.com.

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