Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't by John Jr. (books that read to you TXT) 📕

to spend more on schools. But our discussion raises a few doubts about this precept, as public schooling has always been aimed, at least partially, at instilling government values. Thus it should not be too surprising to learn that totalitarian states on average spend twice as much on education per student as do free countries with the same total income.

This isn’t because totalitarian countries generally care more about their children. In fact, on average, totalitarian states have spent less money on health care than freer countries have,115 and they have lower immunization rates of children against tuberculosis, DPT, polio, and tetanus. Thus, when Communism collapsed in Eastern Europe and the Soviet Union, education spending fell sharply in the newly free countries while health care spending soared.116

Governments have always used public education as a form of indoctrination, and the more authoritarian a regime is, the more constraints we find against private education. It’s interesting to note that countries with socialized medical care usually allow much more competition between government hospitals or doctors than they allow between schools.117 If patients can pay to travel a long distance to see a certain doctor, they’re typically allowed to do so. Students, however, can’t so easily choose which public school to attend. The reason for this is clear in light of the above discussion: while competition between hospitals or doctors produces better health care, competition between government schools reduces the effectiveness of government indoctrination efforts.

Parting Thoughts

Altruism is a noble quality—but in a large economy, it only goes so far. Adam Smith had it right: individuals, by pursuing their own self-interest, enrich society. Smith understood the fundamental principle of economics: when you make something more costly, people will do less of it. In other words, incentives matter. Studying the incentives that underlie our everyday decisions shows us that economic, criminal, and political policies work best when they direct individuals’ natural motivations toward a common good. These are policies that allow people the freedom to profit from their own work, that create meaningful and fair disincentives to committing crimes, and that carefully consider what factors encourage people to participate in our democracy by voting.

In a free market, those who only see the incentives of professionals and corporations to rip off their consumers are only considering one type of incentive. They miss the complex and fascinating process of how markets tend to evolve to solve cheating problems without government intervention. They fail to see not only that reputations matter, but that there are great incentives for the continual evolution of new mechanisms to guarantee the quality of products and services. As technology improves, these mechanisms become ever more efficient and creative.

It is easy to point to some area of economic dissatisfaction, claim that the market is failing, and demand that the government step in. Whether forcing insurers to give discounts for LoJacks, lobbying for government subsidies for honey producers, or mandating professional licenses to ensure the quality of professionals, advocates of government intervention fail to understand that consumers and producers tend to find solutions themselves when their own money is at stake. Solutions to free-riding problems that seem so simple and obvious today, such as advertising on radio, almost didn’t come along in time before the government stepped in. Because a modern economy is so complex, the wise men tasked with devising regulations frequently create more problems than they solve.1

There will always be some duplicity in the free market. But there is also an ever-present incentive ingrained in the system for individuals and companies to behave honestly. If someone can make a buck by treating his customers better than someone else, eventually someone will try it. Political markets also have their own mechanisms to limit cheating, resulting in the election of politicians who, by and large, accurately represent their constituents.

The free market isn’t perfect, but that isn’t the right standard by which to judge it. The government is hardly perfect either.

Markets not only increase our wealth, they also increase our freedom. And so long as people have the freedom to act on their own incentives, the U.S. economy will continue to embody the best, most creative, and—I would dare say—the most honest aspects of our society.

Acknowledgments

This book has more than the usual share of people to thank because it is based on my academic research, much of which I coauthored with other scholars. The coauthors whose work is touched on here include: Bruce Bender, Stephen Bronars, Michael Davis, Andrew Dick, Gertrud Fremling, Robert Hansen, Kevin Hassett, Gi-Ryong Jung, Jonathan Karpoff, Larry Kenny, William Landes, Richard Manning, Tim Opler, Robert Reed, Russell Roberts, Eric Wehrly, and John Whitley. Bronars, Hansen, Karpoff, Kenny, and Roberts have worked with me on up to five papers each, and I am especially indebted to them. I also must express my gratitude for the useful comments I received from numerous faculty members at hundreds of academic seminars, presentations, and conferences held around the world.

Jack Langer, my editor at Regnery, has been extremely helpful, dedicating a large amount of time to this project and offering consistently excellent advice. I would also like to thank Bob Hansen, Peter Hartley, and Jon Karpoff for allowing me to bounce ideas off them, and Gertrud Fremling, Craig Newmark, and Maxim Lott for reading and commenting on the manuscript.

The list of hardworking research assistants who helped in the production of all my academic papers is too long to fully elaborate here, but from the last five years, I’d like to thank Brian Blasé, James Knowles, Maarten Burggraaf, Ilyse Fishman, Michael Roth, Jack Soltysik, Drew Johnson, Jill Yablonski, Jill Farias (formerly Jill Mitchell), Soojin Kim, Refael Lav, Benjamin Berthomieu, Gregory D’Angelo, Alykhan Velshi, and Lydia Regopoulos. My three oldest sons, Maxim, Ryan, and Roger, also provided me with many hours of valuable research assistance.

This book is largely a statement of my personal views on economics, but I could not have written it without the influence of others. The thinking and writing of my teachers have had a