Naked Economics Wheelan, Charles (books to read for 13 year olds TXT) 📖

a serious illness, it is worse to have a serious illness that is also rare. At one point, there were some five thousand diseases considered so rare that drug companies ignored them because they had no hope of recovering their research costs even if they found a cure.2 In 1983, Congress passed the Orphan Drug Act, which provided incentives to make such work more profitable: research grants, tax credits, and exclusive rights to market and price drugs for rare diseases—so-called orphan drugs—for seven years. In the decade before the act, fewer than ten orphan drugs came to market. Since the act, roughly two hundred such drugs have come to market.

Or something as simple as deposits for cans and bottles. Not surprisingly, recycling rates are much higher in states with deposits than in states without. There is also less trash and litter. And if landfill space is at a premium—which it is in most places—shouldn’t we be paying to dispose of our household trash based on the volume we generate? What effect do you think that would have on the quantity of consumer packaging?

Markets don’t solve social problems on their own (or else they wouldn’t be social problems). But if we design solutions with the proper incentives, it feels a lot more like rowing downstream.

Will we have strip malls in 2050? Nothing says that we must accept what the market tosses us. New York Times columnist Anthony Lewis paid homage to the beauty of Italy’s Tuscany and Umbria regions (“The silvery olive groves, the fields of sunflowers, the vineyards, the stone houses and barns”) and lamented that such small farms are not economical in a world of corporate agriculture but says they should be preserved anyway. He wrote, “Italy is evidence that there is more to life—a civilized life—than the unregulated competition of the market. There are values of humanity, culture, beauty, community that may require deviations from the cold logic of market theory.”3 There is nothing in economics that says he’s wrong. We may well collectively decide that we would like to protect a way of life, or something that is aesthetically pleasing, even if it means higher taxes, more expensive food, or less economic growth. To an economist, and to Mr. Lewis, life is about maximizing utility, not income. Sometimes utility means preserving an olive grove or an old vineyard—just because we like the way it looks. As we grow wealthier, we are often more willing to put aesthetics above the pocketbook. We may invest resources in rural America because it’s important to our identity as a nation. We may subsidize small farms in Vermont because they’re beautiful, not because it will make milk cheaper. And so on.

That point comes with several heavy doses of caution. First, we must always make explicit the costs of fiddling with markets, whatever those costs may be. How is the outcome different than it would have been, and who pays? Second, we should take care that these costs fall most heavily on those who enjoy the benefits. Last and most important, we should make sure that one group (such as those of us who think that strip malls are hideously ugly) does not use the political and regulatory process to impose its aesthetic preferences on another group (those who own strip malls and the people who enjoy the cheap and convenient shopping there). That said, there is nothing to stop us from dreaming of a world without strip malls.

Do we really have monetary policy figured out? I asked that question in the first edition of this book, back in 2002. Here is part of the answer: “The Japanese economy—that miracle of the 1980s—remains stubbornly resistant to traditional monetary and fiscal fixes, prompting what the Wall Street Journal has called ‘one of the great economic debates of the age.’”4 Could something similar happen here?

It did, beginning in 2007. That doesn’t make me a genius (as I’ve also predicted that the Cubs will win the World Series on multiple occasions). It does prove that we have not conquered the business cycle (the economic ebb and flow that leads to periodic recessions). We thought we had it tamed, and then the financial crisis nearly took us right off the rails. These swings in the economy take a lot of innocent victims with them.

Ben Bernanke and the Fed seem to have done a lot of things right. What have they done wrong that we don’t know about yet? Remember, Alan Greenspan was a genius (keeping inflation in check) until he wasn’t anymore (because loose money fueled the asset bubbles).

There is a regulatory challenge as well. (The discussions have started, but we’re not anywhere near a solution.) How do we manage the “systemic risk” in an interdependent financial system? The iron law of capitalism is that firms that fail should fail. We did that with Lehman Brothers and it nearly took all of us with them. The global financial system does not look like a textbook model where strong firms thrive in a crisis and weak firms fail; it’s more like a group of mountain climbers tethered together on the edge of a precipice. How do we allow the market to punish wrongdoers without sending all of us spilling down the mountain?

In forty years, will “African tigers” refer to wildlife or to development success stories? Here is an exercise: Find a young child, say age eight or nine, and try to explain to him or her why much of the world lives comfortably, even luxuriously, while millions of people elsewhere on the planet are starving to death and billions more are barely getting by. At some point, the explanation just starts to feel inadequate. Clearly we do not have a silver bullet for economic development. We don’t have one for cancer either, but we haven’t given up. Will the world be significantly less poor in 2050? That answer is not obvious. We can imagine an East Asian scenario in which countries transform themselves in a matter of decades.