United States Slips In Economic Freedom Report

The Cato Institute, partnering with the Fraser Institute of Canada, released the latest Economic Freedom of the World Annual Report. In 2000, the U.S. found itself ranked impressively in terms of a free economy, at number 2. However, with the rest of the world improving their scores, the good ol' U.S has dropped to number 8. According to Cato scholar Ian Vasquez, "The rule of law, government spending, and regulation are the areas where the United States saw the most troubling declines in its ratings this decade." With both presidential candidates talking of funding massive government programs, the Feds bailing out and nationalizing financial establishments, and increasing regulations all across the private sector, could the United States no longer be "the place to do business?"

Market Power!

This is for those of you in Economics courses, to give you an idea of the mentality of many of your classmates. I do not want to criticize those people who have a deep misunderstanding of market force, but just alert you that, while the market may seem obvious, it is not. Let me explain the situation that occurred just the other day...

My Ecological Economics professor asked whether a policy (it doesn't matter the exact situation, but it concerned water rights in California) would encourage economic efficiency. The result of the policy made it rational for an individual living on agricultural land to sell their cheap water to cities at a profit. Of course, you can't really sell "water rights" as much as "land with water beneath it", as Daniel Day Lewis made crystal clear. But the result of this policy was farmers selling off their land to them city folk.

Of course, my class was alarmed. How, they cried, could anyone find this fair? Opportunity for profit was forcing these farmers to sell their land. They had to sell! Explained in more detail, one student (who I consider intelligent, for the record) argued that in her hometown, farmers had the same predicament, selling off their land because they weren't making enough to keep it. Another pointed out the causal agent was the market force of "demand" that basically predetermined individuals' actions.

So here's my list, and I encourage you to add to it, of common mistakes by Economics Students

• Market forces are a summary of individual actions, guided by incentives.
• Market forces themselves do not cause anything; something that causes some effect can be described as a market force. This may seem like the same thing written twice, but it is important to understand that a "market force" does not cause actions, but instead suggests them.
• Since individuals ultimately make the decision, the market has no power of its own. Refer to the first point. The stronger the incentive to make the decision, the more likely that decision is in line with public sentiment. You cannot be against a price system but for democracy.
• "Demand" is a summary of individual wants and needs. Determining who's wants and needs should be prioritized is not a question of Economics but rather of Ethics.

I had a lot of trouble finding a picture that I liked, but this cartoon from 2005 tickled me.