The Class of Extraordinary Examples

More Basic Economic Principles
ex: 1914, U.S. banned drugs --> ends up increasing the potency, incr. hypdermic needles -->AIDs epidemic
ex: Social Security, when installed only had to cover a few people. Later, it as people lived longer, incentives changed, seniors get a check each month, why bother saving?

Law of Unintended Consequences
-Failure when simple rules try to regulate a complex system (even physical systems)
-People have problems with: limited information, time matters (ex, reelection). little feedback, poorly aligned incentives
-Not restricted to gov't
  -> fire suppression, make forest fires more likely and damages more serious
-When regulation pushes against incentives, incentives will push back
  -->Never know how people will respond
ex: Protect People w/ Disabilities
-decrease in amnt of disabled workers
-->employer may be concerned whether able to discipline or fire later b/c worried taken to court from discrimination
-effort to protect fails


*Trade is not zero sum
-One side doesn't "win" at the expense of the other
-"pie fallacy" -> thinking of fixed amnt of wealth in the world
-gains from trade actually aren't thrilling

successful transaction = no one hurt, both sides benefit

Almost axiom: market selfish; price on everything ? fragmented society
-we are selfish and greedy
-no one plans, runs system -->still, people see the market as a way to dominate

Commercial Prudence Based- civilizing; post Commercial Revolution, true explosion of trade

Consequence of Pie Fallacy
1)Retards economic growth
2)believes losers, believe poor oppressed
3)penalize work, risk taking, innovation
4)often invokes notion of power

Wealth vs. Income, Stocks and Flow
Are we Poorer Because Bill Gates Is So Rich?
-Gates didn't take, he PRODUCED that stuff
-Compare to Cong. get loads of $ have WAY more $$ than Gates
-Don't like Windows? Don't use it. Don't like policy? Vote against it if you can..

ex: The Beatles on Ed Sullivan
-imagine all the viewers had $1 worth of pleasure from watching performance
-today, worth $4.4 billion. JUST that one show
-Beatles each captured only a fraction of the wealth they created for the US