Richard Stroup

THE ECONOMIC APPROACH

Publisher Summary This chapter discusses the economic approach. Scarcity and choice are the essential ingredients of an economic topic. Goods are scarce because desire for them outstrips their availability from nature. Scarcity and poverty are not the same thing. Absence of poverty implies that some basic level of need has been met. Absence of scarcity would mean that all of the desires for goods have been met. Someday, poverty could be eliminated, but scarcity would always be there. Economics is a method of approach and a way of thinking. Individuals make decisions purposefully, always seeking to choose the option they expect to be most consistent with their personal goals. Purposeful decision making leads to economizing behavior. Economizing individuals would seek to accomplish an objective at the least possible cost.

Measurement of Employment Discrimination according to Sex

Women have become an increasingly prominent part of the labor force in the United States. As their participation rate has grown, their market work and earnings have gained in social, political, and economic importance. Surface investigation of the economic status of females relative to males reveals two rather startling facts. First, income differences according to sex are large indeed, much larger than income differences on the basis of color. Second, the data reveal not only a large differential but they also show that income differences according to sex have been expanding. This paper presents evidence suggesting that differences in employee preferences according to sex contribute to the explanation of both of these phenomena. Section I develops a theoretical framework for investigating the importance of preferences as an explanatory variable of differences in money income and wages according to sex. Evidence is presented which suggests that the employment preferences of males and females are most similar for singles and most divergent for those married with spouse present. To isolate the importance of the employee preference factor, Section II presents evidence on female/ male (F/M) adjusted income ratio according to marital status. The F/M income ratio is highest for never-married persons, the group expected to possess the most simi-

Media Coverage and EPA Pesticide Decisions

In this paper, we analyze the effect of media coverageon EPA pesticide decisions. We hypothesize that mediacoverage influences the distribution of opinions inthe general public and that EPA decision makersrespond to these opinions. We develop a revealedpreference model that includes media coverage andpublic opinion. We test the model by extending theanalysis of Cropper et al. (1992) to include mediacoverage. We find that the media coverage ofpesticides has a non-linear effect on EPA pesticidedecisions.

Free Riders and Collective Action Revisited

The free rider problem associated with public goods was recognized by David Hume, even before the time of Adam Smith’s writings. Each citizen who can enjoy the benefit of a public good has the incentive to try to lay the whole burden of provision on others, whenever the exclusion of non-payers is costly or impossible. Hume recommended in 1739 that government could provide the goods in question, such as bridges (Musgrave [1985] 729). Two and a half centuries later, economists typically recommend a similar solution (Arrow [1970], Atkinson and Stiglitz [1980], Auerbach and Feldstein [1985], Cornes and Sandler [1986], Nicholson [1989], and Samuelson [1954]).

Choice, faith, and politics: The political economy of hutterian communes

throughout the northern Great Plains of the United States and Canada. From their initial three small settlements established in the Dakota Territories in the 1870s, they have, without benefit of converts, expanded to a population of over 20,000, their population and per capita capital holdings nearly doubling each sixteen years. Their life style is marked by extreme simplicity and frugality but not hard work by North American agricultural standards. We find them interesting for at least two reasons. First, the Hutterians apparently comprise the only known traditional society that has absorbed modern technology without significantly disrupting their ascriptively sanctified social and cultural patterns. Second, while the life expectancy of communal orders is brief indeed, the Hutterite communes of North America have persisted and prospered for nearly a century. In addition to the establishment of a collectively run, viable economic system, the commonly disruptive centrifugal effects generated by political conflict have been managed without the cost of collective paralysis. This paper attempts a partial accounting of the viability of the Hutterite communes.1 Communal societies are commonly begun in an effort to avoid interpersonal or relational problems. A significant set of these problems are thought to originate from the holding of property in private hands. Hence, a strategy to reduce these problems could involve the elimination of private property.

Cooperation or conniving: How public sector rules shape the decision

To what extent will decision makers in the economy use their time, energy, and imagination to cooperate in production and productive exchange? To what extent will they instead devote their efforts toward simply redividing the economic pie to arrange bigger slices for themselves at the expense of others, and ultimately at the expense of the size of the pie? This paper explains the case to be made that added collectivization since 1960, embodied in the growth industries of regulation and tax collection, have significantly shifted entrepreneurial efforts nationally toward pie redividing and away from pie enlarging activities. Empirical evidence is provided to support this assertion.

1 – THE ECONOMIC APPROACH

Publisher Summary This chapter provides an overview on the recent economic turmoil, the ideas that undergirded it, the policies that contributed to it, and the possible directions that can now be taken to escape its grasp. Economics is about people and the choices they make. The unit of analysis in economics is the individual and individuals group together to form collective organizations such as corporations, labor unions, and governments. However, the choices of individuals still underlie and direct these organizations. Economic theory is developed from fundamental postulates about how individual human beings behave, struggle with the problem of scarcity, and respond to change. A good that is scarce is an economic good. That common ground is economic theory, developed from basic postulates of human behavior. Theory has a reputation for being abstract and difficult, but this need not be the case. Economic theory, somewhat like a road map or a guidebook, establishes reference points, indicating what to look for and what can be considered significant in economic issues. It helps us understand the interrelationships among complex and often seemingly unrelated events in the real world.

17 – GAINING FROM INTERNATIONAL TRADE

Publisher Summary This chapter provides an analysis of the impact of foreign trade on the price, consumption, and domestic production of goods. The effects of trade restrictions, such as tariffs and quotas, will also be considered. International trade is an area of economics where fallacies seem to abound. Indirect effects are often ignored. The size of the international sector relative to GNP may actually understate the importance of trade. The structure of U.S. trade has changed during the last decade. Agricultural products (wheat, corn, and rice) and high-technology manufacturing products (for example, aircraft, computers, and machine tools) have comprised an increasing share of our total exports. Foreign producers have supplied more and more import products to our domestic markets in such established industries as steel, textiles, automobiles, and, of course, crude petroleum. Both international trading partners can gain if they specialize in those things that they do best. It is easy to see why trade and specialization expand joint output and lead to mutual gain when the resource bases of regions differ substantially. However, even when resource differences among nations are less dramatic, mutually advantageous trade is usually possible.

13 – MONEY, EMPLOYMENT, INFLATION, AND A MORE COMPLETE KEYNESIAN MODEL

Publisher Summary This chapter presents the Keynesian view of monetary policy and indicates how it can be used to influence the level of employment, prices, and output. The speculative demand for money is strongly affected by the existing and expected level of interest rates. When interest rates are high, the opportunity cost of holding idle money balances is greater. High interest rates induce people to hold less money, whereas low interest rates have the opposite effect. Money is the most liquid form of holding wealth. Unlike land or houses, it can be quickly traded for other assets. Thus, people may want to hold some money so that they can quickly respond to a profit-making opportunity. When the money market is in equilibrium, the quantity of money demanded at the existing interest rate will just equal the quantity supplied. Monetary policy can influence the rate of interest, at least in the short run. High interest rates make it expensive to hold money balances that generally do not pay interest, at least not as high an interest rate as could be derived from bonds, stocks, and savings accounts.

12 – MONEY AND THE BANKING SYSTEM

Publisher Summary This chapter explains the operation of the banking or finance system and to analyze the determinants of the money supply. To many economists, analyzing the determinants of national income without considering money is like playing football without a quarterback. The central moving force has been excluded. Although the majority would assign a somewhat lesser role to money, almost all economists believe that money, and therefore monetary policy, matters a great deal. Of course, money today is issued and controlled by governments, but the use of money arose thousands of years ago, not because of government decree, but because money simplified exchange. Money performs three basic functions, namely 1) money serves as a medium of exchange, 2) serves as an accounting unit, and 3) used as a store of value. Neither currency nor checking-account deposits have significant intrinsic value. A dollar bill is just a piece of paper. Checkable deposits are nothing more than accounting numbers. Coins have some intrinsic value as metal, but it is considerably less than their value as money.