Naked Economics by Wheelan, Charles (spanish books to read .txt) 📕

more obvious reason to put a giant particle accelerator in Texas. In the end, the government spent roughly $1 billion on the project and then abandoned it.

The private sector allocates resources where they will earn the highest return. In contrast, the government allocates resources wherever the political process sends them. (Consider a front-page headline in the Wall Street Journal: “Industries That Backed Bush Are Now Seeking Return on Investment.”) 2

Is that because Republicans are particularly prone to this kind of money-grubbing political influence? Perhaps. But that wouldn’t explain this more recent New York Times headline: “In Washington, One Bank Chief Still Holds Sway.” The story began, “Jamie Dimon, the head of JPMorgan Chase, will hold a meeting of his board here in the nation’s capital for the first time on Monday, with a special guest expected: the White House chief of staff, Rahm Emanuel. Mr. Emanuel’s appearance would underscore the pull of Mr. Dimon, who amid the disgrace of his industry has emerged as President Obama’s favorite banker, and in turn, the envy of his Wall Street rivals. It also reflects a good return on what Mr. Dimon has labeled his company’s ‘seventh line of business’—government relations.”3

There is nothing inherently wrong with this. Politics is a necessary but imperfect process, and everyone has a right to seek influence. Military bases get built or closed in a way that reflects the makeup of the Senate Armed Services Committee as much as or more than the military needs of the country. A private army is not an option, so this is the best we can reasonably expect. But the less the economy is left to politics, the better. Powerful politicians should not be deciding, for example, who gets bank credit and who does not. Yet that is exactly what happens in autocratic nations like China and in democratic countries like Indonesia where politicians play “crony capitalism.” Projects that have the potential to be highly profitable do not get financing while dubious undertakings sponsored by the president’s brother-in-law are lavished with government funds. Consumers lose in two ways. First, their tax money is squandered when projects that never should have been funded in the first place go bust (or when the whole banking system needs to be bailed out because it is full of rotten, politically motivated loans). Second, the economy does not develop as quickly or efficiently as it might because credit (a finite resource) is channeled away from worthwhile projects: car plants don’t get built; students don’t get loans; entrepreneurs don’t get funding. As a result, resources are squandered and the economy does not perform anywhere near its potential.

Government need not run steel mills or parcel out bank loans to meddle in the economy. The more subtle and pervasive kind of government involvement is regulation. Markets work because resources flow to where they are valued most. Government regulation inherently interferes with that process. In the world painted by economics textbooks, entrepreneurs cross the road to earn higher profits. In the real world, government officials stand by the road and demand a toll, if they don’t block the crossing entirely. The entrepreneurial firm may have to obtain a license to cross the road, or have its vehicle emissions tested by the Department of Transportation as it crosses the road, or prove to the INS that the workers crossing the road are U.S. citizens. Some of these regulations may make us better off. It’s good to have government officials blocking the road when the “entrepreneur” is carrying seven kilos of cocaine. But every single regulation carries a cost, too.

Milton Friedman, who was a delightful writer and an articulate spokesman for a less intrusive government (and a far more subtle thinker than many of the writers who haunt the op-ed pages these days purporting to have inherited his mantle), makes this point in Capitalism and Freedom by recounting an exchange between an economist and a representative of the American Bar Association at a large meeting of lawyers.4 The economist was arguing before the group that admission to the bar should be less restrictive. Allowing more lawyers to practice, including those who might not be the sharpest knives in the drawer, would lower the cost of legal services, he argued. After all, some legal procedures, such as basic wills and real estate closings, do not require the services of a brilliant Constitutional scholar. He argued by analogy that it would be absurd for the government to require that all automobiles be Cadillacs. At that point, a lawyer in the audience rose and said, “The country cannot afford anything but Cadillac lawyers!”

In fact, demanding only “Cadillac lawyers” completely misses all that economics seeks to teach us about trade-offs (for reasons that have nothing to do with the fact that General Motors is a basket case). In a world with only Cadillacs, most people would not be able to afford any transportation at all. Sometimes there is nothing wrong with allowing people to drive Toyota Corollas.

For a striking international example of the effects of regulation on the economy, consider the civil unrest in 2000 in Delhi, India.5 Delhi is one of the most polluted cities in the world. After the Supreme Court of India made a major decision regarding industrial pollution, thousands of Delhi residents took to the streets in violent protest. “Mobs torched buses, threw stones, and blocked major roads,” the New York Times reported. Here is the twist: The protesters were supporting the polluters. The Supreme Court held the city of Delhi in contempt for failing to close some ninety thousand small factories that pollute the area. Those factories employed roughly a million people who would be thrown out of work. The headline on the story nicely encapsulated the trade-off: “A Cruel Choice in New Delhi: Jobs vs. a Safer Environment.”

How about DDT, one of the nastier chemicals mankind has unleashed on the environment? DDT is a “persistent organic pollutant” that works its way into and up the food chain, wreaking havoc along the way.