Con­sump­tion is the sole end and pur­pose of all pro­duc­tion; and the in­terest of the pro­du­cer ought to be at­ten­ded to, only so far as it may be ne­ces­sary for pro­mot­ing that of the con­sumer.

Have you ever wit­nessed the an­ger of the good shop­keep­er, James Good­fel­low, when his care­less son has happened to break a pane of glass? If you have been present at such a scene, you will most as­suredly bear wit­ness to the fact that every one of the spec­tat­ors, were there even thirty of them, by com­mon con­sent ap­par­ently, offered the un­for­tu­nate own­er this in­vari­able con­sol­a­tion—“It is an ill wind that blows nobody good. Every­body must live, and what would be­come of the glazi­ers if panes of glass were nev­er broken?”

Now, this form of con­dol­ence con­tains an en­tire the­ory, which it will be well to show up in this simple case, see­ing that it is pre­cisely the same as that which, un­hap­pily, reg­u­lates the great­er part of our eco­nom­ic­al in­sti­tu­tions.

Sup­pose it cost six francs to re­pair the dam­age, and you say that the ac­ci­dent brings six francs to the glazi­er’s trade—that it en­cour­ages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reas­on justly. The glazi­er comes, per­forms his task, re­ceives his six francs, rubs his hands, and, in his heart, blesses the care­less child. All this is that which is seen.

But if, on the oth­er hand, you come to the con­clu­sion, as is too of­ten the case, that it is a good thing to break win­dows, that it causes money to cir­cu­late, and that the en­cour­age­ment of in­dustry in gen­er­al will be the res­ult of it, you will ob­lige me to call out, “Stop there! Your the­ory is con­fined to that which is seen; it takes no ac­count of that which is not seen.”

It is not seen that as our shop­keep­er has spent six francs upon one thing, he can­not spend them upon an­oth­er. It is not seen that if he had not had a win­dow to re­place, he would, per­haps, have re­placed his old shoes, or ad­ded an­oth­er book to his lib­rary. In short, he would have em­ployed his six francs in some way, which this ac­ci­dent has pre­ven­ted.⁽⁷⁾

Every in­di­vidu­al is con­tinu­ally ex­ert­ing him­self to find out the most ad­vant­age­ous em­ploy­ment for whatever cap­it­al he can com­mand. It is his own ad­vant­age, in­deed, and not that of the so­ci­ety which he has in view. But the study of his own ad­vant­age nat­ur­ally, or rather ne­ces­sar­ily, leads him to prefer that em­ploy­ment which is most ad­vant­age­ous to so­ci­ety. He in­tends only his own gain, and he is in this, as in many oth­er cases, led by an in­vis­ible hand to pro­mote an end which was not part of his in­ten­tion.⁽⁸⁾

…must trace not merely the im­me­di­ate res­ults but the res­ults in the long run, not merely the primary con­sequences but the sec­ond­ary con­sequences, and not merely the ef­fects on some spe­cial group but the ef­fects on every­one.⁽¹⁰⁾

[A] private prop­erty re­gime makes people re­spons­ible for their own ac­tions in the realm of ma­ter­i­al goods. Such a sys­tem there­fore en­sures that people ex­per­i­ence the con­sequences of their own acts. Prop­erty sets up fences, but it also sur­rounds us with mir­rors, re­flect­ing back upon us the con­sequences of our own be­ha­vi­or.⁽²⁰⁾

Com­pet­i­tion is con­du­cive to the con­tinu­ous im­prove­ments of in­dus­tri­al ef­fi­ciency. It leads pro­du­cers to elim­in­ate wastes and cut costs so that they may un­der­sell oth­ers. It weeds out those whose costs re­main high and thus op­er­ates to con­cen­trate pro­duc­tion in the hands of those whose costs are low.⁽²³⁾

It is not from the be­ne­vol­ence of the butcher, the brew­er, or the baker that we ex­pect our din­ner, but from their re­gard to their own self-in­terest. We ad­dress ourselves not to their hu­man­ity but to their self-love, and nev­er talk to them of our own ne­ces­sit­ies, but of their ad­vant­ages.⁽²⁴⁾

Taxes are paid in the sweat of every man who labors. If those taxes are ex­cess­ive, they are re­flec­ted in idle factor­ies, in tax-sold farms, and in hordes of hungry people tramp­ing streets and seek­ing jobs in vain.

Free trade con­sists simply in let­ting people buy and sell as they want to buy and sell. Protective tariffs are as much ap­plic­a­tions of force as are block­ad­ing squad­rons, and their ob­ject­ive is the same—to pre­vent trade. The dif­fer­ence between the two is that block­ad­ing squad­rons are a means whereby na­tions seek to pre­vent their en­emies from trad­ing; pro­tect­ive tar­iffs are a means whereby na­tions at­tempt to pre­vent their own people from trad­ing.⁽⁴¹⁾

A wise and frugal Gov­ern­ment, which shall re­strain men from in­jur­ing one an­oth­er, which shall leave them oth­er­wise free to reg­u­late their own pur­suits of in­dustry and im­prove­ment, and shall not take from the mouth of labor the bread it has earned. This is the sum of good gov­ern­ment, and this is ne­ces­sary to close the circle of our fe­li­cit­ies.

People of the same trade sel­dom meet to­geth­er, even for mer­ri­ment and di­ver­sion, but the con­ver­sa­tion ends in a con­spir­acy against the pub­lic, or in some con­triv­ance to raise prices.

The first les­son of eco­nom­ics is scarcity: there is nev­er enough of any­thing to fully sat­is­fy all those who want it. The first les­son of polit­ics is to dis­reg­ard the first les­son of eco­nom­ics.⁽⁵⁵⁾

The at­tract­ive­ness of fin­an­cing spend­ing by debt is­sue to the elec­ted politi­cians should be ob­vi­ous. Bor­row­ing al­lows spend­ing to be made that will yield im­me­di­ate polit­ic­al pay­offs without the in­cur­ring of any im­me­di­ate polit­ic­al cost.⁽⁶⁰⁾

The tool of polit­ics (which fre­quently be­comes its ob­ject­ive) is to ex­tract re­sources from the gen­er­al tax­pay­er with min­im­um of­fense and to dis­trib­ute the pro­ceeds among in­nu­mer­able claimants in such a way to max­im­ize the sup­port at the polls. Polit­ics, so far as mo­bil­iz­ing sup­port is con­cerned, rep­res­ents the art of cal­cu­lated cheat­ing or, more pre­cisely, how to cheat without be­ing caught.⁽⁶⁵⁾

A demo­cracy can­not ex­ist as a per­man­ent form of gov­ern­ment. It can only ex­ist un­til the voters dis­cov­er that they can vote them­selves lar­gesse from the pub­lic treas­ury. From that mo­ment on, the ma­jor­ity al­ways votes for the can­did­ates prom­ising the most be­ne­fits from the pub­lic treas­ury with the res­ult that a demo­cracy al­ways col­lapses over loose fisc­al policy...⁽⁶⁸⁾

Man, like all so­cially-or­gan­ized be­ings, has a nat­ur­al pas­sion for idle­ness. There are, however, two in­cent­ives to work: the need to live and the de­sire to im­prove con­di­tions of life… Any meas­ure which es­tab­lishes leg­al char­ity on a per­man­ent basis and gives it an ad­min­is­trat­ive form thereby cre­ates an idle and lazy class, liv­ing at the ex­pense of the in­dus­tri­al and work­ing class.⁽⁷⁴⁾

1. Even the defin­i­tion of “poverty” is of­ten con­fus­ing. When some people talk about poverty, they are think­ing “ab­so­lute poverty,” which means that an in­di­vidu­al or fam­ily does not have suf­fi­cient re­sources to pur­chase a pre-de­term­ined “min­im­um bas­ket of goods and ser­vices.”
2. Oth­ers refer to “re­l­at­ive poverty,” where an in­di­vidu­al or fam­ily is defined as poor if their in­come falls be­low a pre-de­cided po­s­i­tion in the in­come dis­tri­bu­tion (say is lower than half of the so­ci­ety’s me­di­an in­come).
3. Re­l­at­ive poverty relates to, but is not the same as, in­equal­ity. Sup­pose you had two so­ci­et­ies with four fam­il­ies in each. In­comes in the first so­ci­ety are $1,000,000, $50,000, $50,000, and $4,000 while in­comes in the second were $51,000, $50,000, $50,000, and $24,999. Both so­ci­et­ies would have the same re­l­at­ive poverty rate (25%) but very dif­fer­ent levels of in­equal­ity.
4. Poverty meas­ures are some­times presen­ted without tak­ing ac­count of taxes (which re­duce in­come) and trans­fers (which in­crease in­come). Which is be­ing used? The first defin­i­tion of­ten finds twice as many people in poverty as the lat­ter.
5. Stand­ards of what con­sti­tutes a min­im­um con­sump­tion level vary widely across coun­tries and over time. In middle and up­per in­come coun­tries today, so­ci­et­al ex­pect­a­tions for reas­on­able stand­ards of liv­ing in­clude goods and ser­vices un­ima­gin­able for pre­vi­ous gen­er­a­tions. (Think cell­phones or tele­vi­sion sets.)
6. Fi­nally, it is im­port­ant to dis­tin­guish between poverty at a giv­en time com­pared to over a life­time. Hav­ing a low in­come as a stu­dent is very dif­fer­ent from be­ing poor year after year.

The man of sys­tem is apt to be very wise in his own con­ceit. He seems to ima­gine that he can ar­range the dif­fer­ent mem­bers of a great so­ci­ety with as much ease as the hand ar­ranges the dif­fer­ent pieces upon a chess-board; he does not con­sider that the pieces upon the chess-board have no oth­er prin­ciple of mo­tion be­sides that which the hand im­presses upon them; but that, in the great chess-board of hu­man so­ci­ety, every single piece has a prin­ciple of mo­tion of its own, al­though dif­fer­ent from that which the le­gis­lature might choose to im­press upon it. If those two prin­ciples co­in­cide and act in the same dir­ec­tion, the game of hu­man so­ci­ety will go on eas­ily and har­mo­ni­ously, and is very likely to be happy and suc­cess­ful. If they are op­pos­ite or dif­fer­ent, the game will go on miser­ably, and the so­ci­ety must be at all times in the highest de­gree of dis­order.⁽⁷⁷⁾

If man is not to do more harm than good in his ef­forts to im­prove the so­cial or­der, he will have to learn that in this, as in all oth­er fields where es­sen­tial com­plex­ity of an or­gan­ized kind pre­vails, he can­not ac­quire the full know­ledge which would make mas­tery of the events pos­sible. He will there­fore have to use what know­ledge he can achieve, not to shape the res­ults as the crafts­man shapes his handi­work, but rather to cul­tiv­ate growth by provid­ing the ap­pro­pri­ate en­vir­on­ment, in the man­ner in which the garden­er does this for his plants.⁽⁷⁸⁾

• The fed­er­al gov­ern­ment of the United States pays some farm­ers not to pro­duce grain products, and at the same time, provides oth­ers with sub­sid­ized ir­rig­a­tion pro­jects so they can grow more of the very same grain products. Sim­il­ar European Uni­on sub­sidies have res­ul­ted in surplus pro­duc­tion of many ag­ri­cul­tur­al products, lead­ing to the pop­u­lar ex­pres­sion “but­ter moun­tain.”
• United States gov­ern­ment pro­grams for dairy farm­ers keep the price of milk high, while gov­ern­ment sub­sid­izes the school lunch pro­gram to make the ex­pens­ive milk more af­ford­able.
• In­dia’s food sub­sidy pro­gram tries to be­ne­fit con­sumers as well as pro­du­cers. As a res­ult, In­dia has ac­com­plished the ex­traordin­ary feat of ra­tion­ing grain to con­sumers at ar­ti­fi­cially low prices, while sim­ul­tan­eously suf­fer­ing ex­cess sup­ply, be­cause farm­ers are paid high prices. (Farm­ers are also sub­sid­ized via ag­ri­cul­tur­al in­puts—elec­tri­city, wa­ter, and fer­til­izer—to the det­ri­ment of the en­vir­on­ment.) The gov­ern­ment has pur­chased huge stock­piles of rot­ting rice and wheat, while the lim­ited amount avail­able to con­sumers is al­loc­ated in ways that are cor­rupt and in­con­sist­ent with the stated goal of help­ing the poor.⁽⁷⁹⁾
• Around the world, coun­tries spend $30 bil­lion a year on fish­er­ies sub­sidies, 60 per­cent of which dir­ectly stim­u­lates un­sus­tain­able, de­struct­ive prac­tice. In 2012, the res­ult­ing mar­ket dis­tor­tion had a cost of $83 bil­lion to the glob­al eco­nomy.⁽⁸⁰⁾
• In 2015 and 2016, the G7 gov­ern­ments gave at least $81 bil­lion in fisc­al sup­port and $20 bil­lion in pub­lic fin­ance each year for pro­duc­tion and con­sump­tion of oil, gas, and coal, while sim­ul­tan­eously ex­tens­ively sub­sid­iz­ing wind and sol­ar en­ergy pro­duc­tion. In 2019, the United King­dom was ex­pec­ted to spend €12bn in sup­port of fossil fuels, and €8.3bn in sup­port of com­pet­ing re­new­able en­ergy sources.
• Re­turn­ing to In­dia, a Com­pre­hens­ive Ac­tion Plan to deal with pol­lu­tion pre­pared by the En­vir­on­ment Pol­lu­tion Con­trol Au­thor­ity (EPCA) says that Com­pressed Nat­ur­al Gas (CNG) should not be pro­moted be­cause it “is one of the ma­jor con­trib­ut­ors of Ni­trous Ox­ides and is also ex­pec­ted to in­crease Par­tic­u­late Mat­ter (PM1) in the air.” This po­s­i­tion is in dir­ect op­pos­i­tion to the Cent­ral Pol­lu­tion Con­trol Board’s 42-point Ac­tion Plan (2015) for Del­hi, which re­quired the city to in­dic­ate how it would be­gin to shift pub­lic trans­port to a CNG mode as rap­idly as pos­sible.

There is enorm­ous in­er­tia—a tyranny of the status quo—in private and es­pe­cially gov­ern­ment ar­range­ments. Only a crisis—ac­tu­al or per­ceived—pro­duces real change. When that crisis oc­curs, the ac­tions that are taken de­pend on the ideas that are ly­ing around. That, I be­lieve, is our ba­sic func­tion: to de­vel­op al­tern­at­ives to ex­ist­ing policies, to keep them alive and avail­able un­til the polit­ic­ally im­possible be­comes polit­ic­ally in­ev­it­able.⁽⁸³⁾

• Voters have little in­cent­ive to cast well-in­formed votes.
• When gov­ern­ment moves bey­ond the pro­tec­tion of in­di­vidu­al rights and be­comes heav­ily in­volved in the al­loc­a­tion of scarce re­sources, elec­ted polit­ic­al of­fi­cials have a strong in­cent­ive to cater to the views of well-or­gan­ized in­terest groups.
• Polit­ic­al fa­vor­it­ism will en­cour­age waste­ful rent-seek­ing.
• The polit­ic­al pro­cess tends to be short­sighted (of­ten just un­til the next elec­tion), which res­ults in ex­cess­ive use of debt and un­fun­ded prom­ises that are dif­fi­cult, if not im­possible, to keep.

1. De­cent­ral­iz­a­tion such that eco­nom­ic policy de­cisions are, to the max­im­um ex­tent pos­sible, made at the level of gov­ern­ment closest to those af­fected
   Some­times re­ferred to as subsidiarity, this prin­ciple is found in the Tenth Amend­ment to the United States Con­sti­tu­tion, which states, “The powers not del­eg­ated to the United States by the Con­sti­tu­tion, nor pro­hib­ited by it to the States, are re­served to the States re­spect­ively, or to the people.” Sub­si­di­ar­ity is also “a gen­er­al prin­ciple of European Uni­on law” un­der the 1992 Treaty of Maastricht. As mod­i­fied by the Lis­bon Treaty of 2009 “un­der the prin­ciple of sub­si­di­ar­ity, in areas which do not fall with­in its ex­clus­ive com­pet­ence, the Uni­on shall act only if and in so far as the ob­ject­ives of the pro­posed ac­tion can­not be suf­fi­ciently achieved by Mem­ber States, either at the cent­ral level or at the re­gion­al or loc­al level…”
   The lo­gic of sub­si­di­ar­ity stems from sev­er­al sources. The more dir­ect con­tact between gov­ern­ment and cit­izens at the loc­al rather than na­tion­al (or supra­na­tion­al) level al­lows bet­ter dis­cov­ery of needs and de­sires. As dis­cussed earli­er, com­pet­i­tion among gov­ern­ments res­ults in in­cent­ives to bet­ter serve cit­izens. As a res­ult of dif­fer­ent loc­al groups of cit­izens be­ing in­centiv­ized to ad­dress com­mon prob­lems, the di­versity of ap­proaches to prob­lems util­ized by dif­fer­ent loc­al­it­ies will in­crease the odds that ef­fect­ive policies will be dis­covered and ad­op­ted by oth­er gov­ern­ment­al units.
   While the spe­cif­ic term “sub­si­di­ar­ity” arose from Pope Pius XI’s en­cyc­lic­al Quad­rages­imo anno in the early twen­ti­eth cen­tury, the idea was un­der­stood well be­fore the term came into wide use. Ob­serving early nine­teenth-cen­tury Amer­ica, Alex­is de Toc­queville con­cluded:

   De­cent­ral­iz­a­tion has, not only an ad­min­is­trat­ive value, but also a civic di­men­sion, since it in­creases the op­por­tun­it­ies for cit­izens to take in­terest in pub­lic af­fairs; it makes them get ac­cus­tomed to us­ing free­dom. And from the ac­cu­mu­la­tion of these loc­al, act­ive, per­snick­ety freedoms, is born the most ef­fi­cient coun­ter­weight against the claims of the cent­ral gov­ern­ment, even if it were sup­por­ted by an im­per­son­al, col­lect­ive will.⁽⁸⁴⁾

2. Checks and bal­ances that keep gov­ern­ment­al power clearly di­vided across in­de­pend­ent units
   Gov­ern­ments typ­ic­ally have three areas of activ­ity:
   1. A le­gis­lat­ive branch that makes the laws.
   2. An ex­ec­ut­ive branch that ad­min­is­ters the laws.
   3. A ju­di­cial (court) branch that in­ter­prets the laws.
   There are, however, a very large num­ber of in­sti­tu­tion­al ar­range­ments of these three ba­sic func­tions. Ig­nor­ing mon­arch­ies, dic­tat­or­ships, and mil­it­ary jun­tas (which may have the trap­pings of more demo­crat­ic re­gimes but are, in fact, dom­in­ated by a single in­di­vidu­al or small clique), the ba­sic types of sys­tems can be clas­si­fied as:
   1. Par­lia­ment­ary, in which ex­ec­ut­ive power is held by a lead­er (typ­ic­ally called a “Prime Min­is­ter”) se­lec­ted by the par­lia­ment, and par­lia­ment through the Prime Min­is­ter se­lects the cab­in­et of min­is­ters. In such sys­tems the Prime Min­is­ter serves at the will of the par­lia­ment and can be re­moved at any time. Such coun­tries may have a fig­ur­at­ive head of state (a mon­arch such as the Queen of Eng­land) or a Pres­id­ent with lim­ited powers (as in Ger­many).
   2. Pres­id­en­tial, in which the ex­ec­ut­ive is se­lec­ted dir­ectly by the voters and ap­points his or her cab­in­et, typ­ic­ally sub­ject only to ap­prov­al by the le­gis­lat­ive body. The United States is a good ex­ample of such a sys­tem.
   3. Semi-Pres­id­en­tial or Mixed, in which the voters se­lect the Pres­id­ent, who has lim­ited but mean­ing­ful powers, but the Cab­in­et (min­is­ters) is ac­count­able to the par­lia­ment. Such a sys­tem can be found in France.
   In ex­amin­ing par­lia­ment­ary sys­tems, spe­cif­ic in­sti­tu­tion­al factors are im­port­ant. Are elec­tions run in small dis­tricts that elect a single mem­ber or in lar­ger dis­tricts that elect mul­tiple mem­bers? In the lat­ter case, are seats al­loc­ated on the basis of share of the votes and what is the min­im­um share ne­ces­sary to enter the le­gis­lature?
   The ma­jor­ity of post-com­mun­ist trans­ition coun­tries (about 60 per­cent) have ad­op­ted a mixed sys­tem. Thirty per­cent have a par­lia­ment­ary sys­tem and the re­mainder a Pres­id­en­tial sys­tem. Over time, some coun­tries—in­clud­ing Geor­gia in 2004, the Czech Re­pub­lic in 2012, and Ar­menia in 2015—have switched from par­lia­ment­ary to mixed sys­tems. The powers of the Pres­id­ent in these mixed sys­tems vary a great deal across coun­tries. Ukraine has been es­pe­cially un­stable, with re­vi­sions in the re­l­at­ive power of the Pres­id­ent and Par­lia­ment in 1994, 1996, 2004, 2010, and 2014. Such in­stabil­ity of ba­sic in­sti­tu­tions clearly makes plan­ning on the part of in­vestors ex­tremely dif­fi­cult.
   While there are ad­vant­ages and dis­ad­vant­ages to all of the above types, re­search sug­gests that Pres­id­en­tial sys­tems tend to have smal­ler gov­ern­ments. This may be due to the fact that par­lia­ment­ary sys­tems are more likely to be co­ali­tion gov­ern­ments where mul­tiple parties make de­mands for their con­stitu­ents and pri­or­it­ies in or­der to sup­port the gov­ern­ment. On the oth­er hand, par­lia­ment­ary sys­tems across the world seem to grow faster than Pres­id­en­tial ones. In post-com­mun­ist sys­tems, however, Pres­id­en­tial sys­tems seem to have an ad­di­tion­al dis­ad­vant­age and be of lar­ger size due to a tend­ency to cent­ral­ize power, even to the ex­tent of be­com­ing auto­crat­ic states with only a façade of demo­cracy. An ex­cel­lent sum­mary of the ad­vant­ages and dis­ad­vant­ages of vari­ous forms of gov­ern­ment struc­ture in the con­text of a post-com­mun­ist coun­try has been provided by eco­nom­ists Ro­ger My­er­son, Ger­ard Ro­land, and Ty­mofiy Mylovan­ov.⁽⁸⁵⁾
   Ro­ger My­er­son, who won the No­bel Prize in Eco­nom­ics in 2007, has else­where sug­ges­ted a prac­tic­al struc­ture that re­spects the concept of checks and bal­ances. Giv­en the ex­tens­ive prob­lems with cor­rup­tion in trans­ition eco­nom­ies, one lo­gic­al solu­tion is to di­vorce re­spons­ib­il­ity for op­er­at­ing the gov­ern­ment from re­spons­ib­il­ity for in­vest­ig­at­ing and pro­sec­ut­ing crim­in­al activ­ity. The former could be ves­ted in the Prime Min­is­ter and the lat­ter in the Pres­id­ent’s of­fice. The ba­sic prin­ciple is that even in a long-es­tab­lished leg­al sys­tem, but es­pe­cially in newly demo­crat­iz­ing coun­tries, hav­ing an in­de­pend­ent power source in charge of in­vest­ig­at­ing cor­rupt acts sig­ni­fic­antly re­duces the abil­ity of such act­ors to sub­vert justice.
3. An in­de­pend­ent ju­di­ciary
   While con­trol of ju­di­cial ap­point­ments is im­port­ant, it is not the only factor that con­trib­utes to the leg­al sys­tem func­tion­ing as a check and bal­ance. Eco­nom­ic re­search has shown, over and over, that the in­de­pend­ence of the ju­di­ciary is an im­port­ant de­term­in­ant of eco­nom­ic prosper­ity. It must be clear that by “in­de­pend­ence” we mean real in­de­pend­ence (de facto—or in­de­pend­ence in fact), and not merely what is form­ally writ­ten in the law but which can be avoided (de jure—or in­de­pend­ence in law).⁽⁸⁶⁾ Prin­ciples that con­trib­ute to such a ju­di­ciary in­clude the fol­low­ing:
   1. Sep­ar­a­tion of powers. The ju­di­ciary must not have any con­tact with polit­ic­al parties—es­pe­cially the party in power—and must lim­it con­tact with the ex­ec­ut­ive branch to se­cur­ity, fin­an­cial, and ad­min­is­trat­ive mat­ters.
   2. Se­cur­ity of re­mu­ner­a­tion. The salary of judges should be fixed and se­cure.
   3. Guar­an­teed ten­ure un­til re­tire­ment or ex­piry of of­fice. Judges should be re­moved or sus­pen­ded only for reas­ons of “in­ca­pa­city” or “be­ha­vi­or that renders them un­fit to dis­charge their du­ties.” Such be­ha­vi­or would en­com­pass things such as ac­cept­ing bribes.
   4. An open court. Mem­bers of the pub­lic should have the right to enter the court at any time a tri­al is in pro­gress and have ac­cess to de­cisions. Guidelines and prin­ciples should be ap­plied to the me­dia with max­im­um free­dom about what they can re­port in or­der to en­sure fair tri­als.
   5. A re­quire­ment to com­mu­nic­ate the law to the pub­lic. Even a con­cerned and in­volved cit­izen­ship can­not hold polit­ic­al lead­ers and gov­ern­ment or­gans re­spons­ible for their ac­tions (or lack of ac­tions) if they do not know what be­ha­vi­or is ac­tu­ally re­quired of their lead­ers in both loc­al and in­ter­na­tion­al law.
   6. A ju­di­cial se­lec­tion pro­cess that is fair. The se­lec­tion of judges should be made from people with “in­teg­rity” and “abil­ity,” with “ap­pro­pri­ate train­ing and qual­i­fic­a­tions” and without dis­crim­in­a­tion.
   This last prin­ciple should ap­ply wheth­er the se­lec­tion pro­cess is made by ap­point­ment or elec­tion. In­deed, giv­en the com­plex re­quire­ments in­volved in qual­ity ad­ju­dic­a­tion and the fact that judges should not at­tempt to make policy from the bench, se­lec­tion of judges by largely un­in­formed voters is likely to be es­pe­cially prob­lem­at­ic.
4. An in­de­pend­ent cent­ral bank
   One dis­ad­vant­age of a demo­crat­ic sys­tem (al­though cer­tainly one that does not off­set its many ad­vant­ages) is that politi­cians fa­cing a con­tested elec­tion may make de­cisions that cre­ate be­ne­fits now but im­pose much lar­ger costs in the fu­ture when they will no longer be in of­fice. This short time ho­ri­zon can lead to high pub­lic spend­ing without in­creased taxes to pay for such spend­ing. Faced with this di­lemma, politi­cians are of­ten temp­ted to “pay for” their spend­ing by or­der­ing the cent­ral bank to cre­ate money. As we saw in Part 2, Ele­ment 5, ex­cess­ive cre­ation of money will lead to a high level of in­fla­tion, per­haps even hyper­in­fla­tion. Both eco­nom­ic the­ory and past evid­ence say that by chan­ging in­cent­ives and in­tro­du­cing un­cer­tainty that makes plan­ning for the fu­ture dif­fi­cult, such in­fla­tion will lower eco­nom­ic growth and cit­izens’ well-be­ing in years to come. When Cent­ral Banks have the in­de­pend­ence to res­ist pres­sure from politi­cians, the res­ults have been lower and more stable prices and high­er growth rates.
5. Pro­tec­tion of prop­erty rights
   The philo­soph­er John Locke, writ­ing in the late sev­en­teenth cen­tury, claimed that the right to own and use private prop­erty was a “nat­ur­al right” and that the “pre­ser­va­tion of prop­erty” was the “great and chief end” for which hu­man be­ings cre­ated gov­ern­ments. Al­most every con­sti­tu­tion makes men­tion of the pro­tec­tion of prop­erty. Ex­amples in­clude:
   1. The European Charter of Fun­da­ment­al Rights, which says: “Every­one has the right to own, use, dis­pose of and be­queath his or her law­fully ac­quired pos­ses­sions. No one may be de­prived of his or her pos­ses­sions, ex­cept in the pub­lic in­terest and in the cases and un­der the con­di­tions provided for by law, sub­ject to fair com­pens­a­tion be­ing paid in good time for their loss.”
   2. The United States Con­sti­tu­tion, which con­tains the widely quoted phrase: “No per­son shall be … de­prived of life, liberty, or prop­erty, without due pro­cess of law; nor shall private prop­erty be taken for pub­lic use, without just com­pens­a­tion.”
   3. The Con­sti­tu­tion of the Rus­si­an Fed­er­a­tion, which is even more spe­cif­ic: “The right of private prop­erty shall be pro­tec­ted by law. Every­one shall have the right to have prop­erty and to pos­sess, use and dis­pose of it both in­di­vidu­ally and jointly with oth­er per­sons. Nobody may be de­prived of prop­erty ex­cept un­der a court or­der. Forced ali­en­a­tion of prop­erty for State re­quire­ments may take place only sub­ject to pri­or and fair com­pens­a­tion.”
   Un­for­tu­nately, many of these words are, as the say­ing goes, “not worth the pa­per they are prin­ted on.” Gov­ern­ments fre­quently erode the pro­tec­tions of prop­erty. Phrases like “pub­lic in­terest,” “just com­pens­a­tion,” or “fair com­pens­a­tion” are sub­ject to in­ter­pret­a­tion. Gov­ern­ments fre­quently use reg­u­la­tions to take or con­trol private prop­erty without com­pens­a­tion, even though the prop­erty own­er had vi­ol­ated the rights of no one. Courts have gen­er­ally al­lowed such tak­ings of private prop­erty as long as a le­gis­lat­ive body deemed that the ac­tion was “in the pub­lic in­terest,” or that the tak­ing did not deny the own­er all uses of his or her prop­erty. This is­sue of ef­fect­ive tak­ing (deny­ing many uses of the prop­erty while tech­nic­ally not chan­ging own­er­ship) is es­pe­cially prob­lem­at­ic. What does it mean, for ex­ample, for an in­di­vidu­al to “own” a piece of beach­front prop­erty if there is a reg­u­la­tion that it can­not be built on?
   In sum, simply writ­ing prop­erty rights into law or even con­sti­tu­tions is not suf­fi­cient to pro­mote eco­nom­ic growth. Such rights must be cred­ible and be­lieved by po­ten­tial in­vestors. Eco­nom­ic re­search has shown that the ef­fect of prop­erty rights on growth is much stronger when com­bined with ju­di­cial in­de­pend­ence and a great­er level of checks and bal­ances in gov­ern­ment struc­ture.
6. Guar­an­tees of free­dom of speech and the press
   While, as dis­cussed above, checks and bal­ances with­in the struc­ture of gov­ern­ment are im­port­ant, they need to be sup­ple­men­ted with ex­tern­al mon­it­or­ing. This is es­pe­cially the case for what is known as “col­lus­ive cor­rup­tion” in which both the pay­er of a bribe and the re­cip­i­ent are leg­ally pun­ish­able, mean­ing that it is hard to gath­er evid­ence since no one in­volved has an in­cent­ive to be­tray the oth­er. While there are more soph­ist­ic­ated stat­ist­ic­al tests, the link between a free press and the over­all ef­fect­ive­ness of gov­ern­ment (and re­lated great­er eco­nom­ic suc­cess) is clear from a simple graph such as the one be­low. It is no won­der that in an au­thor­it­ari­an gov­ern­ment, journ­al­ists are threatened with cen­sor­ship, ar­rest, and even murder.

   

   Source: Aymo Bru­netti, Be­atrice Weder, “A free press is bad news for cor­rup­tion,” Journ­al of Pub­lic Eco­nom­ics, (2003), 87(7): 1801–1824, 10.1016/S0047-2727(01)00186-4.

   Tech­no­lo­gic­al ad­vances over the past 20 years have massively in­creased cit­izens’ abil­ity to mon­it­or gov­ern­ments and hold them ac­count­able. Again, a simple graph makes the con­nec­tion between In­ter­net pen­et­ra­tion and low cor­rup­tion ob­vi­ous (here Face­book is used simply as a stand-in for all so­cial me­dia):

   

   Source: C.K. Jha, & S. Sarangi “Does so­cial me­dia re­duce cor­rup­tion?”, In­form­a­tion Eco­nom­ics and Policy, Volume 39 (June, 2017): 60–71.

   The im­port­ance of the “Great Fire­wall of China” in con­trolling Chinese so­ci­ety is ob­vi­ous, as is the role of so­cial me­dia in en­abling cit­izen protests to hold gov­ern­ments ac­count­able in many trans­ition eco­nom­ies. Some re­cent ex­amples in­clude the #RejectSerzh protests in Ar­menia in the spring of 2018 and Eur­omaidan in Ukraine in 2013-2014.⁽⁸⁷⁾
   Press free­dom means more than simply not sup­press­ing out­lets or threat­en­ing journ­al­ists. Gov­ern­ments con­trolling and us­ing tele­vi­sion for pro­pa­ganda is a prob­lem in many coun­tries. An ad­di­tion­al dis­turb­ing tend­ency is for rich politi­cians to pur­chase their own news­pa­pers, and tele­vi­sion sta­tions and ra­dio sta­tions. While in­ter­fer­ing with private own­ers is al­ways ques­tion­able, this is one area where sound pub­lic policy may well re­quire lim­it­a­tions.
7. Free­dom of move­ment, in­vest­ment, and trade
   The free­dom of in­di­vidu­als to com­pete in busi­ness and en­gage in vol­un­tary ex­change activ­it­ies is a corner­stone of both eco­nom­ic free­dom and pro­gress. Price con­trols, busi­ness and oc­cu­pa­tion­al entry re­straints, laws re­strict­ing the ex­change of goods and ser­vices across na­tion­al bound­ar­ies, and oth­er gov­ern­ment reg­u­la­tions that re­strain trade are not sound eco­nom­ics. Oc­cu­pa­tion­al li­cens­ing (which re­quires gov­ern­ment ap­prov­al to en­gage in an oc­cu­pa­tion such as, to take an ex­treme but real ex­ample, hair braid­ing) is a ma­jor an­ti­com­pet­it­ive device that re­stricts work op­por­tun­it­ies, in­clud­ing those of many of the least well-off mem­bers of so­ci­ety. When there is con­cern about pro­tect­ing the pub­lic, cer­ti­fic­a­tion (which provides in­form­a­tion about an in­di­vidu­al’s train­ing but leaves con­sumers free to eval­u­ate the rel­ev­ance of that train­ing) provides a su­per­i­or op­tion. With cer­ti­fic­a­tion, buy­ers are provided with the in­form­a­tion to make sound choices without clos­ing off the op­por­tun­ity for oth­ers to prove that they are cap­able pro­viders. Pre­dict­ably, li­cens­ing will be used to re­strain trade and provide ex­ist­ing sup­pli­ers with mono­poly power.
   The free­dom to trade is a ba­sic hu­man right, just like free­dom of speech and free­dom of re­li­gion. There is no reas­on why cit­izens should not be per­mit­ted to buy from, and sell to, who­ever will give them the best deal, even if the trad­ing part­ner lives in an­oth­er coun­try.
   Some­what sur­pris­ingly, while re­cip­roc­al free trade (where both part­ners are open to buy­ing and selling from each oth­er) is clearly ad­vant­age­ous, the con­sensus among eco­nom­ists is that re­cipro­city is not es­sen­tial. In al­most all cases a coun­try will im­prove the lives of its cit­izens if it drops bar­ri­ers to free im­port of goods, no mat­ter what the policy of its trad­ing part­ners. The lo­gic of such “uni­lat­er­al free trade” can be seen in a quo­ta­tion from Joan Robin­son (1903–83), one of the most ori­gin­al and pro­lif­ic eco­nom­ists of the twen­ti­eth cen­tury:

   Even if your trad­ing part­ner dumps rocks into his har­bour to ob­struct ar­riv­ing cargo ships, you do not make your­self bet­ter off by dump­ing rocks into your own har­bour.

   Pub­lic dis­cus­sion of­ten tries to ana­lyze free­dom of trade, free­dom of move­ment, and free­dom of in­vest­ment as sep­ar­ate top­ics. They are not. If work­ers are paid less in one coun­try than an­oth­er, all three chan­nels will come into play. Work­ers will try to move to the high­er wage area, in­vestors will come to the lower wage coun­try to take ad­vant­age of cheap labor, and goods pro­duced us­ing this labor will be less ex­pens­ive in glob­al mar­kets. Block­ing any one of these chan­nels will only in­crease the pres­sure on the oth­ers.
8. Use of ex­tern­al an­chors
   Voters, like all eco­nom­ic­ally ra­tion­al people, make de­cisions by com­par­ing costs and be­ne­fits. Politi­cians, as we have already dis­cussed, of­ten have very short time ho­ri­zons, end­ing at the next elec­tion. This dis­con­nect cre­ates dif­fi­culty in ad­opt­ing policies that may im­pose cur­rent costs in re­turn for much lar­ger long-term be­ne­fits. This time in­con­sist­ency makes it hard for politi­cians to make be­liev­able policy com­mit­ments. Lead­ers may also be sub­ject to pres­sure from power­ful ves­ted in­terests to ad­opt policies that fa­vor in­siders at the ex­pense of the pub­lic at large.
   One pos­sible solu­tion is for far-sighted lead­ers to lim­it their abil­ity to re­spond to pres­sure by join­ing an in­ter­na­tion­al or­gan­iz­a­tion that re­quires good policies as a con­di­tion of join­ing or con­tinu­ing mem­ber­ship. There are many such or­gan­iz­a­tions. The European Uni­on (E.U.) im­poses re­quire­ments of a low budget de­fi­cit and a lim­it to total level of gov­ern­ment bor­row­ing. It also re­quires mem­bers to ad­opt a set of com­mon leg­al rules (called the ac­quis com­mun­autaire). While some E.U. policies (farm sub­sidies un­der the Com­mon Ag­ri­cul­tur­al Policy are an ob­vi­ous ex­ample) may not be be­ne­fi­cial (or are even con­trary to sound eco­nom­ics), they are typ­ic­ally far bet­ter than those that might have been ad­op­ted by many post-com­mun­ist coun­tries without the in­cent­ive of pro­spect­ive E.U. mem­ber­ship. Coun­tries with a reas­on­able ex­pect­a­tion of join­ing the E.U. made many pain­ful re­forms that ul­ti­mately be­nefited their cit­izens.⁽⁸⁸⁾
   Oth­er or­gan­iz­a­tions that could have a sim­il­ar pos­it­ive in­flu­ence in­clude NATO, the WTO, the European Court of Hu­man Rights, the OECD, and the In­ter­na­tion­al Centre for Set­tle­ment of In­vest­ment Dis­putes (IC­SID). The In­ter­na­tion­al Mon­et­ary Fund (IMF) is par­tic­u­larly im­port­ant in in­du­cing gov­ern­ments to ad­opt growth-en­han­cing gov­ern­ment­al policies. Coun­tries tend to turn to the IMF for as­sist­ance when ex­cess­ive gov­ern­ment spend­ing has cre­ated cur­rency crises where in­ter­na­tion­al cred­it mar­kets are no longer ac­cess­ible to fin­ance even more gov­ern­ment debt. An ex­ample would be the Greek crisis of 2010–2018. Only pres­sure from the IMF and the European Cent­ral Bank per­suaded the Greek gov­ern­ment to ad­opt ne­ces­sary re­forms.
   Even ex­tern­al rank­ings that do not re­quire mem­ber­ship can have a pos­it­ive in­flu­ence on gov­ern­ment per­form­ance. Geor­gia, for ex­ample, takes great pride in be­ing ranked among the top 10 coun­tries in the World Bank’s “Ease of Do­ing Busi­ness” in­dex and gov­ern­ment min­is­ters are held ac­count­able for re­forms that im­prove this rank­ing.

The price of liberty, and even of com­mon hu­man­ity, is etern­al vi­gil­ance.

I al­ways told my stu­dents that life is not a lot­tery and life is not a zero-sum game. Your suc­cess will not take away from any­one else’s suc­cess. Your suc­cess de­pends on your choices, and choices have con­sequences.

Money is only a tool. It will take you wherever you wish, but it will not re­place you as the driver.

Com­pound in­terest is the most power­ful force in the uni­verse.

Source: Au­thors’ cal­cu­la­tions. As­sumes not smoking one pack per day at a price of $8 per pack, and earn­ing in­terest of 7 per­cent per year.

1. If it looks too good to be true, it prob­ably is. This is an old cliché, but a val­id one. Some in­vest­ment mar­keters may be will­ing to do just about any­thing to ob­tain your money be­cause, once they do, they are in charge and you are vul­ner­able.
2. Deal only with parties that have a repu­ta­tion to pro­tect. Es­tab­lished com­pan­ies with a sol­id repu­ta­tion will be re­luct­ant to dir­ect their cli­ents into un­sound in­vest­ments. For ex­ample, an ini­tial pub­lic stock of­fer­ing by an up­start broker­age firm with which only a few are fa­mil­i­ar is far more likely to res­ult in loss than the of­fer­ing of an es­tab­lished firm with a sub­stan­tial repu­ta­tion on the line.
3. Nev­er pur­chase an in­vest­ment so­li­cited by tele­phone or e-mail. Such mar­ket­ing is a tech­nique used by those look­ing to prey on those in­di­vidu­als who are easy tar­gets. Do not let your­self be a vic­tim of scams. Nev­er share per­son­al in­form­a­tion with people you do not ex­pli­citly trust. Your so­cial se­cur­ity num­ber, date of birth, cell phone num­ber, and postal ad­dress should be care­fully guarded.
4. Do not al­low your­self to be forced into a quick de­cision. Take time to de­vel­op an in­vest­ment strategy. Nev­er let your­self be pres­sured into a hasty de­cision.
5. Do not al­low friend­ship to in­flu­ence an in­vest­ment de­cision. Nu­mer­ous people have been dir­ec­ted into bad in­vest­ments by their friends. If you want to keep a per­son as your friend, in­vest your money with an ob­ject­ive third party.
6. If high-pres­sure mar­ket­ing is in­volved, grab your check­book and run. At­tract­ive in­vest­ments are sold without the use of high-pres­sure mar­ket­ing tech­niques. If you already have a sub­stan­tial port­fo­lio, there may be a place in it for high-risk in­vest­ments, in­clud­ing “junk” bonds and pre­cious metals. But those in­vest­ments must come from funds that you can af­ford to lose. If you are look­ing for a sound way to build wealth, most of your funds should be in more routine lower-risk in­vest­ments help­ing you es­tab­lish a well-di­ver­si­fied port­fo­lio.

1. While the tend­ency to de­vel­op mar­kets can be said to be al­most a uni­ver­sal part of hu­man nature, it is pos­sible, if a so­ci­ety tries hard enough, to re­move them from nor­mal hu­man ac­tion. Con­sider the early days of post-com­mun­ist trans­ition (or even of the Ro­man Cath­ol­ic Church) when cit­izens were taught that items had an in­trins­ic value and would of­ten re­fuse to sell for less than that sup­posed “value” even if hun­ger res­ul­ted.↩︎
2. The most power­ful wa­ter­fall in Europe, which lies in Ice­land.↩︎
3. Philip K. Howard, The Death of Com­mon Sense (New York: Ran­dom House, 1994): 3–5.↩︎
4. Coun­try Gender As­sess­ment for Ukraine 2016, The World Bank, 48: http://documents.worldbank.org/curated/en/128891470822320083/pdf/107673-PUB-P156988-ADD-ISBN-PUBLIC-SoltisBookENweb.pdf.↩︎
5. See Char­lotte Web, “Swedes now spend more on fun than on food: study,” The Loc­al Sweden, Septem­ber 30, 2009: https://www.thelocal.se/20090930/22392.↩︎
6. For ex­ample, if a cor­por­a­tion in­vests USD 100 mil­lion in build­ings and equip­ment to pro­duce a product, say shirts, it is for­go­ing what it could have earned if these funds had been in­ves­ted in oth­er ways, such as pro­du­cing mo­tor­cycles. The cor­por­a­tion could have simply put the USD 100 mil­lion in the bank and let it draw in­terest at, say, a 5 per­cent rate. In a year’s time, the in­terest earn­ings would sum to USD 5 mil­lion. This USD 5 mil­lion in for­gone in­terest is an op­por­tun­ity cost of the activ­it­ies of the cor­por­a­tion, but it will not be re­flec­ted on the firm’s ac­count­ing state­ment. Be­cause of this omis­sion, ac­count­ing costs un­der­state the op­por­tun­ity costs of the re­sources util­ized. There­fore, net in­come over­states profit.↩︎
7. See Par­able of the broken win­dow, Wiki­pe­dia (last ed­ited June 2019): https://en.wikipedia.org/wiki/Parable_of_the_broken_window.↩︎
8. Adam Smith, An In­quiry into the Nature and Causes of the Wealth of Na­tions, Volume II Glas­gow Edi­tion (In­di­ana­pol­is: Liberty Fund, Inc., [1776] 1981): 454. Also avail­able at: http://www.econlib.org/library/Smith/smWN.html.↩︎
9. F. A. Hayek, “The Use of Know­ledge in So­ci­ety,” Amer­ic­an Eco­nom­ic Re­view 35 (Septem­ber 1945): 519–530.↩︎
10. Henry Haz­litt, Eco­nom­ics in One Les­son (New Rochelle: Ar­ling­ton House, 1979): 103.↩︎
11. See “SCI­ENCE WATCH: Seat Belts and Ped­es­tri­ans.” The New York Times (June 18, 1985). Sec­tion C, 9: https://www.nytimes.com/1985/06/18/science/science-watch-seat-belts-and-pedestrians.html.↩︎
12. Lux­em­bourg: Pub­lic­a­tions Of­fice of the European Uni­on, 2012. “The Com­mon Ag­ri­cul­tur­al Policy—A Story to be Con­tin­ued” http://doi.org/10.2762/35894.↩︎
13. See Patrick Jomini, Pierre Boulanger, Xiao-guang Zhang, Cath­er­ine Costa, and Michelle Os­borne, “The com­mon ag­ri­cul­tur­al policy and the French, EU and glob­al eco­nom­ies,” Groupe d’Économie Mon­diale (GEM), (Oc­to­ber 2009. Re­vised Feb­ru­ary 2, 2010): https://ecipe.org/wp-content/uploads/2014/12/Jomini_boulanger-The_Common_Agricultural_policy_and_the_French.pdf.↩︎
14. See Pierre Boulanger and Patrick Jomini, “Of the be­ne­fits to the EU of re­mov­ing the Com­mon Ag­ri­cul­tur­al Policy” Groupe d’Économie Mon­diale (GEM), (Novem­ber 19, 2009. Re­vised Feb­ru­ary 2, 2010): https://ecipe.org/wp-content/uploads/2014/12/BoulangerJomini_removingCAP112009.pdf.↩︎
15. This chart comes from a much lar­ger pro­ject star­ted by Hans Rosling and cur­rently main­tained by his son and daugh­ter-in-law. You can see many more such charts and cre­ate your own at https://www.gapminder.org.↩︎
16. Robert E. Lu­cas Jr., “On the Mech­an­ics of Eco­nom­ic De­vel­op­ment,” Journ­al of Mon­et­ary Eco­nom­ics 22, No. 1 (1988): 3–42.↩︎
17. The most widely used meas­ure of total out­put and in­come is gross do­mest­ic product (GDP). Changes in GDP are also widely used to meas­ure the growth of an eco­nomy.↩︎
18. While a di­verse set of factors in­flu­ences growth and de­vel­op­ment, the mod­ern view re­cog­nizes the cent­ral role of in­sti­tu­tions and policies. Lead­ing con­trib­ut­ors to the mod­ern view in­clude No­bel Laur­eate Dou­glass North, Eng­lish eco­nom­ist Peter Bauer, Daron Acemo­glu of the Mas­sachu­setts In­sti­tute of Tech­no­logy, and James Robin­son of Har­vard. See Peter T. Bauer, Dis­sent on De­vel­op­ment: Stud­ies and De­bates in De­vel­op­ment Eco­nom­ics (Cam­bridge: Har­vard Uni­versity Press, 1972); D.C. North, In­sti­tu­tions, In­sti­tu­tion­al Change, and Eco­nom­ic Per­form­ance (Cam­bridge: Cam­bridge Uni­versity Press, 1990); and Daron Acemo­glu and James A. Robin­son, Why Na­tions Fail: The Ori­gins of Power, Prosper­ity, and Poverty (New York: Crown, 2012).↩︎
19. See, for ex­ample, Ran­dall K. Filer and Jan Hanousek, “Out­put Changes and In­fla­tion­ary Bias in Trans­ition,” Eco­nom­ic Sys­tems, Vol. 24, Is­sue 3. Avail­able at: https://ideas.repec.org/p/wpa/wuwpma/0012010.html.↩︎
20. Tom Beth­ell, The Noblest Tri­umph (New York: St. Mar­tin’s Press, 1998): 10.↩︎
21. For ad­di­tion­al in­form­a­tion, see John McMillan, Re­in­vent­ing the Bazaar: A Nat­ur­al His­tory of Mar­kets (New York: W. W. Norton, 2002): 94–101. As McMillan points out, real privat­iz­a­tion would have been pre­ferred. Non­ethe­less, the move­ment to­ward private own­er­ship was still “the biggest anti-poverty pro­gram the world has ever seen.”↩︎
22. For a dis­cus­sion of buf­fa­loes, see: Lueck, Dean “The Ex­term­in­a­tion and Con­ser­va­tion of the Amer­ic­an Bison” in The Journ­al of Leg­al Stud­ies Vol. 31, No. S2, The Evol­u­tion of Prop­erty Rights: A Con­fer­ence Sponsored by the Searle Fund and North­west­ern Uni­versity School of Law (June 2002), pp. S609–S652. There have been oth­er cases where hu­mans have hunted an an­im­al spe­cies to ex­tinc­tion. Pas­sen­ger pi­geons are an ex­ample. They were hunted for meat while whales were hunted mainly for oil. But pi­geons were such a small part of the mar­ket for meat that even as they began to dis­ap­pear, the price of meat did not in­crease enough to call forth either pre­ser­va­tion ef­forts or a large-scale in­crease in the pro­duc­tion of meats. There was no crisis. So their dis­ap­pear­ance be­came com­plete. If whales had been in­tens­ively hunted only for their meat, and not mainly for oil, they also might have dis­ap­peared. But whale oil was so im­port­ant in the mar­ket for light that when its price rose sharply, a sub­sti­tute was found that re­duced the de­mand for whale oil and its price, sav­ing the whales.↩︎
23. Clair Wil­cox. Com­pet­i­tion and Mono­poly in Amer­ic­an In­dustry. Mono­graph No. 21, Tem­por­ary Na­tion­al Eco­nom­ic Com­mit­tee, In­vest­ig­a­tion of Con­cen­tra­tion of Eco­nom­ic Power, 76^th Cong. 3^d sess. (Wash­ing­ton, D.C.: United States Gov­ern­ment Print­ing Of­fice, 1940).↩︎
24. Adam Smith. An In­quiry into the Nature and Causes of the Wealth of Na­tions, Volume I Glas­gow Edi­tion (In­di­ana­pol­is: Liberty Fund, Inc., [1776] 1981): 18. Also avail­able at: www.econlib.org/library/Smith/smWN.html.↩︎
25. World Bank, Do­ing Busi­ness Pro­ject (doingbusiness.org). “Time re­quired to start a busi­ness (days).” https://data.worldbank.org/indicator/ic.reg.durs.↩︎
26. For a com­pre­hens­ive ana­lys­is of the im­pact of min­im­um wage le­gis­la­tion on the poor, see Thomas MaCurdy, “How Ef­fect­ive Is the Min­im­um Wage at Sup­port­ing the Poor?” Journ­al of Polit­ic­al Eco­nomy 123 (2015): www.jstor.org/stable/full/10.1086/679626.↩︎
27. For evid­ence on this point, see Ed­ward Bier­han­zl and James Gwart­ney, “Reg­u­la­tion, Uni­ons, and Labor Mar­kets,” Reg­u­la­tion (Sum­mer 1998): 40–53.↩︎
28. Muravyev, A., Oshchep­kov, A. (2016) “The ef­fect of doub­ling the min­im­um wage on em­ploy­ment: evid­ence from Rus­sia.” IZA J Labor De­vel­op 5, 6.↩︎
29. Maria Kou­menta and Mario Pagliero, 2018. “Oc­cu­pa­tion­al Li­cens­ing in the European Uni­on: Cov­er­age and Wage Ef­fects,” CEPR Dis­cus­sion Pa­per 12577, CEPR Dis­cus­sion Pa­pers Series.↩︎
30. See the De­part­ment of Treas­ury, Of­fice of Eco­nom­ic Policy, Oc­cu­pa­tion­al Li­cens­ing: A Frame­work for Poli­cy­makers, 2015; Mor­ris M. Klein­er, “Why Li­cense a Flor­ist?” New York Times, May 28, 2014; Jac­ob Gold­stein, “So You Think You Can Be a Hair Braid­er?” New York Times, June 12, 2012; and Dick M. Car­penter II, Lisa Knep­per, An­gela C. Er­ick­son, and John K. Ross, Li­cense to Work: A Na­tion­al Study of Bur­dens from Oc­cu­pa­tion­al Li­cens­ing, In­sti­tute for Justice, May 2012.↩︎
31. The sharp-eyed among you may have noted that the earli­est pic­ture in this se­quence comes from 1990, after the fall of the So­viet Uni­on. In part this is be­cause aer­i­al pho­to­graphs from So­viet air­space were not easy to take. More crit­ic­ally, the shrink­ing after 1990 is still largely a leg­acy of So­viet policies. Once a re­gion­al eco­nomy is built around schemes to force il­lo­gic­al pro­duc­tion activ­it­ies, it is very hard to change the in­fra­struc­ture and work­er skills in­volved. What will Caspi­an Sea fish­er­men do if all of a sud­den they are told, “No more fish­ing, find an­oth­er job?”↩︎
32. These fig­ures are from the Cen­ter for Re­spons­ive Polit­ics, “Lob­by­ing: Top Spend­ers,” (2008) avail­able at: http://www.opensecrets.org/lobby/top.php?indexType=s. (For ad­di­tion­al de­tails, see Peter J. Wal­lis­on and Charles W. Ca­lo­miris, “The De­struc­tion of Fan­nie Mae and Fred­die Mac,” Amer­ic­an En­ter­prise In­sti­tute [2008] avail­able at https://www.aei.org/research-products/report/the-last-trillion-dollar-commitment/).↩︎
33. See Peter Nyberg (2011) Re­port of the Com­mis­sion of In­vest­ig­a­tion into the Bank­ing Sec­tor in Ire­land (Dub­lin) https://merrionstreet.ie/en/News-Room/Releases/commission-of-investigation-into-the-banking-sector.38671.shortcut.html, and Ron Wright Strength­en­ing the Ca­pa­city of the De­part­ment of Fin­ance (Dub­lin) https://web.archive.org/web/20110310164641/http://www.finance.gov.ie/documents/publications/reports/2011/deptreview.pdf.↩︎
34. Note that cred­it cards (and deb­it cards) are not money. A cred­it card is simply a means of get­ting an auto­mat­ic loan that will not carry in­terest if paid back soon, while a deb­it card is merely an easy way to trans­fer bank ac­count de­pos­its, which are the real money.↩︎
35. Of course, as eco­nom­ists like to say, “cor­rel­a­tion does not mean caus­a­tion.” Maybe coun­tries fa­cing high in­fla­tion simply print more money to try and keep up. Soph­ist­ic­ated data ana­lys­is, however, strongly sup­ports the con­clu­sion that it is ex­cess print­ing of money (usu­ally to pay for gov­ern­ment spend­ing without rais­ing taxes) that causes in­fla­tion. As Milton Fried­man fam­ously said: “in­fla­tion is al­ways and every­where a mon­et­ary phe­nomen­on.”↩︎
36. Frye, T. (2002). “The Per­ils of Po­lar­iz­a­tion: Eco­nom­ic Per­form­ance in the Post­com­mun­ist World.” World Polit­ics, 54(3), 308–337. http://doi.org/10.1353/wp.2002.0008.↩︎
37. The size of the ac­tu­al fall in GDP in post-com­mun­ist coun­tries is ex­tremely hard to meas­ure. Un­der cent­ral plan­ning, pro­du­cers had an in­cent­ive to over-re­port out­put in or­der to meet quotas. In a mar­ket eco­nomy the in­cent­ive shif­ted to un­der-re­port­ing to avoid taxes. In ad­di­tion, im­prove­ments in qual­ity to meet con­sumer de­mands in a com­pet­it­ive en­vir­on­ment were al­most im­possible to cap­ture. See, for ex­ample, Ran­dall Filer and Jan Hanousek (2003) “Out­put Changes and In­fla­tion­ary Bias in Trans­ition”, Eco­nom­ic Sys­tems, Vol. 24. http://dx.doi.org/10.2139/ssrn.1516073.↩︎
38. An­ders As­lund, Ukraine:What Went Wrong and How to Fix It (Peterson In­sti­tute, 2015): 48–49.↩︎
39. See https://www.doingbusiness.org/en/methodology/paying-taxes.↩︎
40. The World Bank takes ser­i­ously the concept of “one coun­try, two sys­tems,” and eval­u­ates Hong Kong’s tax sys­tem in­de­pend­ently from that of main­land China.↩︎
41. Henry George, Pro­tec­tion or Free Trade (New York: Robert Schalken­bach Found­a­tion, 1980).↩︎
42. Many of the “job savers” act as if for­eign­ers are will­ing to sup­ply goods without ever us­ing their ac­quired dol­lars or euros to pur­chase things. This is not the case. If for­eign­ers were will­ing to sell things to Amer­ic­ans for dol­lars or Europeans for euros but nev­er use the dol­lars or euros to buy products, it would be as though Amer­ic­ans and Europeans could write checks for im­ports without any­one ever cash­ing them or ex­port pretty pieces of pa­per with pic­tures of na­tion­al her­oes (United States bank notes) or even fic­tion­al bridges (Euro bank notes) on them. Wouldn’t that be great? In fact, however, pro­du­cers of im­por­ted goods and ser­vices do cash the checks they re­ceive. They don’t ac­tu­ally want the pieces of pa­per; they want the pur­chas­ing power rep­res­en­ted by them to buy things they want or to in­vest in pro­duct­ive as­sets. And of­ten what they want to buy are the products that Amer­ica and Europe ex­ports. Thus, im­ports help to gen­er­ate the de­mand for ex­ports.↩︎
43. When the ex­change rate is de­term­ined by mar­ket forces, equi­lib­ri­um in this mar­ket will bring the pur­chases of goods, ser­vices, and as­sets (in­clud­ing both real and fin­an­cial as­sets such as bonds) from for­eign­ers into bal­ance with the sale of these items to for­eign­ers. Dur­ing the last couple of dec­ades, United States im­ports of goods and ser­vices have per­sist­ently ex­ceeded ex­ports. With mar­ket-de­term­ined ex­change rates, such trade de­fi­cits will be largely off­set by an in­flow of cap­it­al of sim­il­ar mag­nitude. The capital inflow will res­ult in lower in­terest rates, more in­vest­ment, and ad­di­tion­al em­ploy­ment. Thus, even in this case, there is no reas­on to an­ti­cip­ate that there will be a neg­at­ive im­pact on em­ploy­ment. Even though trade de­fi­cits were present throughout most of the 1980–2005 peri­od, em­ploy­ment in the United States ex­pan­ded by more than 35 mil­lion.↩︎
44. The same lo­gic ap­plies to “out­sourcing,” un­der­tak­ing cer­tain activ­it­ies abroad in or­der to re­duce cost. If an activ­ity can be handled at a lower cost abroad, do­ing so will re­lease do­mest­ic re­sources that can be em­ployed in high­er pro­duct­ive activ­it­ies. As a res­ult, out­put will be lar­ger and in­come levels high­er.↩︎
45. “Cheap” does not mean “low qual­ity.” We are ex­pli­citly hold­ing qual­ity con­stant. To eco­nom­ists things of dif­fer­ent qual­ity are dif­fer­ent products. West Texas In­ter­me­di­ate Crude Oil is a dif­fer­ent product from Louisi­ana Light, just as a Mer­cedes and a Kia are dif­fer­ent products, not a gen­er­ic “car.”↩︎
46. S. Hong, H. Han, and C.S. Kim, “World dis­tri­bu­tion of in­come for 1970–2010,” Em­pir­ic­al Eco­nom­ics (2019). https://doi.org/10.1007/s00181-019-01657-w.↩︎
47. As quoted in Frank Whit­son Fet­ter, “Con­gres­sion­al Tar­iff The­ory,” Amer­ic­an Eco­nom­ic Re­view, 23 (Septem­ber 1933): 413–27.↩︎
48. Douglas A. Ir­win, “GATT’s con­tri­bu­tion to eco­nom­ic re­cov­ery in post-war West­ern Europe” in: Europe’s Post­war Re­cov­ery, ed. B. Eichen­green (Cam­bridge: Cam­bridge Uni­versity Press, 1995): 127–150. See text in Ir­win for ref­er­ences in charts.↩︎
49. Ibid., p.7.↩︎
50. Ibid., p.2.↩︎
51. See, for ex­ample, Havryly­shyn, and Tupy (2016) “25 Years of Re­forms in Ex‐Com­mun­ist Coun­tries: Fast and Ex­tens­ive Re­forms Led to High­er Growth and More Polit­ic­al Free­dom,” CATO In­sti­tute Policy Ana­lys­is No. 795.↩︎
52. These fig­ures are in 2011 “In­ter­na­tion­al Dol­lars” to make com­par­is­ons more mean­ing­ful. The in­ter­na­tion­al dol­lar ad­justs for dif­fer­ences in prices in dif­fer­ent coun­tries.↩︎
53. James Buchanan was awar­ded the 1986 No­bel Prize in Eco­nom­ics for his role in the de­vel­op­ment of pub­lic choice eco­nom­ics. For a clear and com­pre­hens­ive present­a­tion of pub­lic choice ana­lys­is, see Randy Sim­mons, Bey­ond Polit­ics: The Roots of Gov­ern­ment Fail­ure (Oak­land, Cali­for­nia: The In­de­pend­ent In­sti­tute, 2011).↩︎
54. A. C. Pigou, who many con­sider to be the fath­er of wel­fare eco­nom­ics, makes this same point. In his 1932 clas­sic The Eco­nom­ics of Wel­fare (Part II, Chapter 20, Sec­tion 4), Pigou stated, “It is not suf­fi­cient to con­trast the im­per­fect ad­just­ments of un­fettered private en­ter­prise with the best ad­just­ment that eco­nom­ists in their stud­ies can ima­gine. For we can­not ex­pect that any pub­lic au­thor­ity will at­tain, or will even whole-heartedly seek, that ideal. Such au­thor­it­ies are li­able alike to ig­nor­ance, to sec­tion­al pres­sure and to per­son­al cor­rup­tion by private in­terest. A loud-voiced part of their con­stitu­ents, if or­gan­ized for votes, may eas­ily out­weigh the whole.”↩︎
55. Thomas Sow­ell, Is Real­ity Op­tim­al and Oth­er Es­says (Stan­ford: Hoover In­sti­tu­tion Press, 1993).↩︎
56. See Jared Mey­er and Pre­ston Cooper, “Sug­ar Sub­sidies Are a Bit­ter Deal for Amer­ic­an Con­sumers,” Eco­nom­ic Policies for the 21^st Cen­tury at the Man­hat­tan In­sti­tute, Man­hat­tan In­sti­tute (June 23, 2014). economics21.org/commentary/sugar-subsidies-are-bitter-deal-american-consumers. In re­cent years candy man­u­fac­tur­ers and oth­er ma­jor users of sug­ar have been mov­ing to Canada, Mex­ico, and oth­er coun­tries where sug­ar can be pur­chased at the world mar­ket price. Il­lus­trat­ing our earli­er dis­cus­sion of trade, the im­port re­stric­tions that “saved” jobs in the sug­ar-grow­ing in­dustry caused job losses in oth­er in­dus­tries, par­tic­u­larly those that use sug­ar in­tensely.↩︎
57. Jef­frey Frankel, “The ar­gu­ments against food and en­ergy sub­sidies,” World Eco­nom­ic For­um, Au­gust 18, 2014. https://www.weforum.org/agenda/2014/08/food-energy-subsidies-egypt-india-indonesia.↩︎
58. See Hol­man W. Jen­kins Jr., “How Uber Won the Big Apple,” Wall Street Journ­al, July 24, 2015. http://www.wsj.com/articles/how-uber-won-the-big-apple-1437778176.↩︎
59. See John Voel­ck­er, “Where Can Tesla Leg­ally Sell Cars Dir­ectly To You? State-By-State Map: LATEST UP­DATE.” Green Car Re­ports, April 22, 2015, n.p. www.greencarreports.com/news/1095337_where-can-tesla-legally-sell-cars-directly-to-you-state-by-state-map; Phil Ker­pen, “Tesla and Its Sub­sidies.” Na­tion­al Re­view On­line, Janu­ary 26, 2015, n.p. http://www.nationalreview.com/article/397162/tesla-and-its-subsidies-phil-kerpen.↩︎
60. James Buchanan, The De­fi­cit and Amer­ic­an Demo­cracy (Mem­ph­is: P. K. Steidman Found­a­tion, 1984).↩︎
61. Ash­ley Kirk, “European debt crisis: It’s not just Greece that’s drown­ing in debt,” Daily Tele­graph, Feb­ru­ary 8, 2017. https://www.telegraph.co.uk/news/0/european-debt-crisis-not-just-greece-drowning-debt.↩︎
62. We are in­debted to E. C. Pa­sour Jr., long­time pro­fess­or of eco­nom­ics at North Car­o­lina State Uni­versity, for this ex­ample.↩︎
63. Euro­stat, Stat­ist­ics Ex­plained, “Gov­ern­ment ex­pendit­ure on so­cial pro­tec­tion.” http://ec.europa.eu/eurostat/statistics-explained/index.php/Government_expenditure_on_social_protection.↩︎
64. Euro­stat, Stat­ist­ics Ex­plained, “Pop­u­la­tion struc­ture and age­ing.” http://ec.europa.eu/eurostat/statistics-explained/index.php/Population_structure_and_ageing.↩︎
65. James R. Schle­sing­er, “Sys­tems Ana­lys­is and the Polit­ic­al Pro­cess,” Journ­al of Law & Eco­nom­ics (Oc­to­ber 1968): 281.↩︎
66. World Bank, “Sub­sidies and oth­er trans­fers (% of ex­pense),” In­ter­na­tion­al Mon­et­ary Fund, Gov­ern­ment Fin­ance Stat­ist­ics Year­book and data files. https://data.worldbank.org/indicator/GC.XPN.TRFT.ZS.↩︎
67. Euro­stat, Stat­ist­ics Ex­plained, “Total gen­er­al gov­ern­ment ex­pendit­ure on so­cial pro­tec­tion, 2016 (% of GDP % of total ex­pendit­ure.” http://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Total_general_government_expenditure_on_social_protection,_2016_(%25_of_GDP_%25_of_total_expenditure).png.↩︎
68. Oth­ers at­trib­ute this state­ment to Lord Thomas Ma­caulay. The au­thor can­not be veri­fied with cer­tainty. For ad­di­tion­al in­form­a­tion on this top­ic, see Loren Collins, “The Truth About Tytler” at: http://www.lorencollins.net/tytler.html.↩︎
69. See James Gwart­ney and Richard Stroup, “Trans­fers, Equal­ity, and the Lim­its of Pub­lic Policy,” Cato Journ­al, (Spring/Sum­mer 1986), for a de­tailed ana­lys­is of this is­sue.↩︎
70. See, for ex­ample, Anna Kier­sztyn, “Stuck in a mis­match? The per­sist­ence of overedu­ca­tion dur­ing twenty years of the post-com­mun­ist trans­ition in Po­land,” Eco­nom­ics of Edu­ca­tion Re­view, 32:1 (2013), p. 78–91.↩︎
71. For evid­ence on this point, see Lawrence Katz and Bruce Mey­er, “The Im­pact of the Po­ten­tial Dur­a­tion of Un­em­ploy­ment Be­ne­fits on the Dur­a­tion of Un­em­ploy­ment,” Journ­al of Pub­lic Eco­nom­ics 41, No. 1 (Feb­ru­ary 1990): 45–72. Also see Daniel Aaron­son, Bhashkar Ma­zum­der, and Shani Schechter, “What Is Be­hind the Rise in Long-Term Un­em­ploy­ment?” Fed­er­al Re­serve Bank of Chica­go, Eco­nom­ic Per­spect­ives (Second Quarter 2010): 28–51.↩︎
72. Fed­er­al Safety Net, “Poverty and Spend­ing Over the Years.” Fig­ures ex­clude spend­ing on med­ic­al in­sur­ance for the poor (Medi­caid). http://federalsafetynet.com/poverty-and-spending-over-the-years.html.↩︎
73. OECD Data (2019), “Fin­an­cial dis­in­cent­ive to re­turn to work” (in­dic­at­or). http://doi.org/10.1787/3ef6e9d7-en.↩︎
74. Sey­more Dres­cher, trans­lat­or (Lon­don: Civ­itas, 1997): 27–28.↩︎
75. Ron Haskins and Isa­bel V. Sawhill, Op­por­tun­ity So­ci­ety (Wash­ing­ton, D.C.: Brook­ings In­sti­tu­tion Press, 2009).↩︎
76. Mi­chael Tan­ner of the Cato In­sti­tute has test­i­fied that in the United States only 30% of gov­ern­ment en­ti­tle­ments reach the in­ten­ded be­ne­fi­ciar­ies as op­posed to 82% of the funds of sim­il­ar pro­grams run by private char­it­ies.↩︎
77. Adam Smith, The The­ory of Mor­al Sen­ti­ments, Glas­gow Edi­tion of Ox­ford Uni­versity Press (In­di­ana­pol­is: Liberty Fund, Inc., [1790] 1976): 233–34. Also avail­able at: https://www.econlib.org/library/Smith/smMS.html?chapter_num=7 - book-reader.↩︎
78. Friedrich Hayek, “Pre­tence of Know­ledge.” No­bel Prize Lec­ture in Eco­nom­ics. Stock­holm, Sweden. Decem­ber 11, 1974.↩︎
79. Jef­frey Frankel, “The ar­gu­ments against food and en­ergy sub­sidies,” World Eco­nom­ic For­um, Au­gust 18, 2014. https://www.weforum.org/agenda/2014/08/food-energy-subsidies-egypt-india-indonesia.↩︎
80. Oby Ezek­we­sili, “Why we need to end fish­er­ies sub­sidies,” World Eco­nom­ic For­um, Oc­to­ber 2, 2015. https://www.weforum.org/agenda/2015/10/why-we-need-to-end-fisheries-subsidies.↩︎
81. From Om­ni­po­tent Gov­ern­ment: The Rise of the Total State and Total War (New Haven: Yale Uni­versity Press, 1944).↩︎
82. M. Czaika and C.R. Par­sons, “The Grav­ity of High-Skilled Mi­gra­tion Policies,” Demo­graphy, 54 (2017): 603.↩︎
83. Freidman, Milton, Cap­it­al­ism and Free­dom (Chica­go: Uni­versity of Chica­go Press, 2002).↩︎
84. Alex­is de Toc­queville, Demo­cracy in Amer­ica (New York: George Dear­born & Co., Ad­lard and Saun­ders, 1835): Volume 1, Chapter 5. We will not dis­cuss wheth­er the United States main­tains the same de­gree of power in loc­al gov­ern­ments today. This is an open ques­tion.↩︎
85. As of late 2019 Pro­fess­or Mylovan­ov left his pro­fess­or­ship at the Uni­versity of Pitt­s­burgh to be­come Min­is­ter of Eco­nom­ic De­vel­op­ment, Trade and Ag­ri­cul­ture in the gov­ern­ment of Ukraine, a po­s­i­tion he held un­til March 2020.↩︎
86. See Stefan Voigt, Stefan, Jerg Gut­mann, and Lars P. Feld (2015) “Eco­nom­ic growth and ju­di­cial in­de­pend­ence, a dozen years on: Cross-coun­try evid­ence us­ing an up­dated Set of in­dic­at­ors,” European Journ­al of Polit­ic­al Eco­nomy 38 p: 197–211.↩︎
87. Of course, tech­no­logy can be a force for re­pres­sion as well, as seen by the use of fa­cial re­cog­ni­tion cap­ab­il­it­ies to track dis­sid­ents or minor­it­ies.↩︎
88. For a dis­cus­sion of how the pos­sib­il­ity of E.U. mem­ber­ship con­trib­uted to more suc­cess­ful re­form in the post-com­mun­ist coun­tries, see Chapter 6 of Oleh Havryly­shyn, Present at the Trans­ition (Cam­bridge: Cam­bridge Uni­versity Press, 2020).↩︎
89. “Buy any deans ne­ces­sary, Let­ting aca­dem­ics pick ma­gis­trates has not worked in Guatem­ala,” The Eco­nom­ist (July 25, 2019): 37. https://www.economist.com/the-americas/2019/07/25/letting-academics-pick-magistrates-has-not-worked-in-guatemala.↩︎
90. Yogi is also re­spons­ible for ad­vising, “When you come to a fork in the road, take it.”↩︎
91. Ar­thur Brooks, Pres­id­ent of the Amer­ic­an En­ter­prise In­sti­tute, is one of the lead­ing schol­ars on the de­term­in­ants of hap­pi­ness. For an over­view of his views, see “A For­mula for Hap­pi­ness,” New York Times, Decem­ber 14, 2013 at: http://www.nytimes.com/2013/12/15/opinion/sunday/a-formula-for-happiness.html.↩︎
92. Of­ten there seems a dif­fer­ence between what is highly val­ued by con­sumers and what “plan­ners” would like them to value. In 2019 the world’s young­est bil­lion­aire was Kylie Jen­ner. We make no judg­ment on her line of lip glosses oth­er than to ob­serve that cit­izens with free choice over thou­sands of al­tern­at­ives seem to se­lect them.↩︎
93. See “What is Emo­tion­al In­tel­li­gence (EQ)?” by Mi­chael Akers and Grover Port­er at: http://psychcentral.com/lib/what-is-emotional-intelligence-eq/.↩︎
94. One of the earli­est stud­ies es­tab­lish­ing the re­la­tion­ship between at­ti­tude traits and eco­nom­ic suc­cess was by one of the au­thors of this book. See: Ran­dall K. Filer, “The In­flu­ence of Af­fect­ive Hu­man Cap­it­al on the Wage Equa­tion,” in Ron­ald Ehren­berg, ed., Re­search in Labor Eco­nom­ics, Vol. 4 (Green­wich: JAI Press, 1981).↩︎
95. Theresa Har­old, “How a former So­viet state be­came one of the world’s most ad­vanced di­git­al na­tions,” Al­phr.com, (30 Oct 2017) http://www.alphr.com/technology/1007520/how-a-former-soviet-state-became-one-of-the-worlds-most-advanced-digital-nations.↩︎
96. Adi­das AG, Fin­an­cial Pub­lic­a­tions: https://www.adidas-group.com/en/investors/financial-reports.↩︎
97. Mi­chael Jar­rett and Quy Nguy­en Huy, “IKEA’s Suc­cess Can’t Be At­trib­uted to One Cha­ris­mat­ic Lead­er,” Har­vard Busi­ness Re­view (hbr.org), Feb­ru­ary 2, 2018. https://hbr.org/2018/02/ikeas-success-cant-be-attributed-to-one-charismatic-leader.↩︎
98. The World Bank, “Self-em­ployed, total (% of total em­ploy­ment) (modeled ILO es­tim­ate),” In­ter­na­tion­al La­bour Or­gan­iz­a­tion, ILOSTAT data­base data re­trieved in April 2019. https://data.worldbank.org/indicator/SL.EMP.SELF.ZS.↩︎
99. Janene Pieters, “A Fifth Of Dutch Mil­lion­aires Are Farm­ers,” NLTimes.NL, Septem­ber 12, 2017. https://nltimes.nl/2017/09/12/fifth-dutch-millionaires-farmers.↩︎
100. Bruno Dallago, Kier Dis­cus­sion Pa­per No. 968, “Di­ver­ging Paths of En­tre­pren­eur­ship in Post-Trans­form­a­tion Coun­tries, a Com­par­at­ive View”; Kyoto In­sti­tute of Eco­nom­ic Re­search, March 2017. http://www.kier.kyoto-u.ac.jp/DP/DP968.pdf.↩︎
101. Thomas Stan­ley and Wil­li­am D. Danko point out in their best­seller The Mil­lion­aire Next Door (At­lanta: Long­street Press, 1996) that the most com­mon char­ac­ter­ist­ic of mil­lion­aires is that they have lived be­neath their means for a long time. Over half of them nev­er re­ceived any in­her­it­ance and few­er than 20 per­cent re­ceived 10 per­cent or more of their wealth from in­her­it­ance.↩︎
102. See “Your Top Debt Man­age­ment Ques­tions Answered.” Dave Ram­sey. N.p., Oc­to­ber 25, 2014. https://www.daveramsey.com/blog/the-truth-about-debt-management.↩︎
103. Some may need cre­at­ive meth­ods of con­trolling im­pulse pur­chases with a cred­it card. If this is the case, eco­nom­ist and fin­an­cial ad­viser Wil­li­am C. Wood sug­gests that you freeze your cred­it card in­side a block of ice in your re­fri­ger­at­or. By the time the ice thaws, your im­pulse to buy may have cooled.↩︎
104. Justin Hig­gin­bot­tom, “Gov­ern­ments Fi­nally Em­brace The Shar­ing Eco­nomy,” Ozy.com, Septem­ber 30, 2018. https://www.ozy.com/fast-forward/governments-finally-embrace-the-sharing-economy/89688.↩︎
105. Pro­fess­or Wil­li­am C. Wood calls such items “SIT ex­pendit­ures.” Wood in­dic­ates that “SIT stands for two things: (1) sit down when you get an un­ex­pec­ted bill; and (2) sur­prises, in­sur­ance, and taxes.”↩︎
106. In ad­di­tion, for some Muslims, the pay­ment of in­terest is not al­lowed un­der Sharia law, and the re­turn will re­flect some type of profit shar­ing that achieves a sim­il­ar goal, as will be de­scribed at the end of this ele­ment.↩︎
107. Nils-Ger­rit Wun­sch, “Re­tail price of a premi­um pack of 20 ci­gar­ettes in se­lec­ted European coun­tries in 2017 (in GBP),” April 3, 2019. https://www.statista.com/statistics/415034/cigarette-prices-across-europe. ↩︎
108. Our cal­cu­la­tions as­sume that your in­vest­ments yield a re­turn of 7 per­cent every year. Ob­vi­ously this is un­likely to hap­pen. Even though you can ex­pect an av­er­age an­nu­al re­turn of ap­prox­im­ately 7 per­cent, this re­turn will vary from year to year. This can make a dif­fer­ence in how much you ac­cu­mu­late at re­tire­ment, but the dif­fer­ence is likely to be small.↩︎
109. These av­er­age re­turns are for the United States mar­ket, but those in oth­er ad­vanced eco­nom­ies will be pretty much the same. If they were bet­ter in the United King­dom than the United States, for ex­ample, glob­al in­vestors would move funds into the United King­dom un­til this were no longer true. When a coun­try has con­tinu­ally high re­turns on bonds, it sug­gests that in­vestors feel that there is also great­er risk as­so­ci­ated with that coun­try, es­pe­cially if either de­fault (fail­ure to pay) or de­value (due to cur­rency de­pre­ci­ation). In oth­er words, high ap­par­ent rates of re­turn on gov­ern­ment bonds is usu­ally a strong sig­nal of bad gov­ern­ment. A 7 per­cent real (after in­fla­tion) rate of re­turn may not sound like much com­pared to what some stocks, such as Dell and Mi­crosoft, have yiel­ded. But a 7 per­cent compounded annual rate of return means that the value of your sav­ings will double every ten years. In con­trast, it will take thirty-five years to double your money at a 2 per­cent in­terest rate, the ap­prox­im­ate after-tax re­turn earned his­tor­ic­ally by sav­ings ac­counts and money mar­ket mu­tu­al funds. Note: You can ap­prox­im­ate the num­ber of years it will take to double your funds at al­tern­at­ive in­terest rates by simply di­vid­ing the yield (the av­er­age an­nu­al re­turn on your money) into sev­enty. This is some­times re­ferred to as the Rule of 70 or, for those who like a little more pre­ci­sion, the Rule of 72.↩︎
110. Krystyna Krzyzak, “CEE: A Sys­tem In Flux,” In­vest­ment & Pen­sions Europe, Janu­ary 2018 (Magazine). https://www.ipe.com/pensions/country-reports/cee/cee-a-system-in-flux/10022463.article.↩︎
111. Chris­toph­er Jar­vis, “The Rise and Fall of Al­bania’s Pyr­am­id Schemes,” Fin­ance & De­vel­op­ment, a quarterly magazine of the IMF, March 2000, Volume 37, Num­ber 1. https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm.↩︎
112. Any men­tion of spe­cif­ic funds does not mean that we think that they are prefer­able to any al­tern­at­ive. You should en­gage in care­ful re­search your­self be­fore you buy an in­vest­ment. Re­mem­ber, the fu­ture you are in­vest­ing in is yours.↩︎
113. Di­m­it­ar Boy­adzhiev et al., Morn­ing­star Man­ager Re­search EMEA, “Morn­ing­star’s European Act­ive/Pass­ive Ba­ro­met­er,” Feb­ru­ary 2019. https://www.morningstar.com/en-uk/lp/european-active-passive-barometer.↩︎
114. See Jeremy J. Sie­gal, Stocks for the Long Run, 3^rd edi­tion (New York: McGraw Hill, 2002): 342–43.↩︎
115. See Bur­ton G. Malk­iel, A Ran­dom Walk Down Wall Street: The Time Tested Strategy for Suc­cess­ful In­vest­ing (New York: W. W. Norton & Com­pany, 2015): 177–78.↩︎
116. See Bur­ton G. Malk­iel, A Ran­dom Walk Down Wall Street: The Time-Tested Strategy for Suc­cess­ful In­vest­ing (New York: W. W. Norton & Com­pany, 2003): 189–190. For ad­di­tion­al evid­ence that a mu­tu­al fund yield­ing a high rate of re­turn dur­ing one peri­od can­not be coun­ted on to con­tin­ue to do so in the fu­ture, see Mark M. Car­hart, “On Per­sist­ence in Mu­tu­al Fund Per­form­ance,” The Journ­al of Fin­ance 52, No. 1 (March 1997): 57–82.↩︎
117. See Bur­ton G. Malk­iel, A Ran­dom Walk Down Wall Street: The Time-Tested Strategy for Suc­cess­ful In­vest­ing (New York: W. W. Norton & Com­pany, 2003): 180–181.↩︎
118. Ab­ra­ham Ok­usan­ya, “Les­sons from 118 years of as­set class re­turns data,” FinalytiQ, March 28, 2018. https://finalytiq.co.uk/lessons-118-years-capital-market-return-data/.↩︎
119. Even those in­vest­ing in in­dex funds should ob­tain some ad­vice from ex­perts. There are tax and leg­al con­sid­er­a­tions such as tak­ing ad­vant­age of tax-de­ferred pos­sib­il­it­ies, es­tab­lish­ing wills and trusts, mak­ing wise in­sur­ance choices, etc., which do re­quire in­put from spe­cial­ists.↩︎
120. See Li­qun Liu, An­drew J. Rett­en­maier, and Zijun Wang, “So­cial Se­cur­ity and Mar­ket Risk,” Na­tion­al Cen­ter for Policy Ana­lys­is Work­ing Pa­per, No. 244, July 2001.↩︎
121. In­fla­tion-in­dexed bonds are also is­sued by the United King­dom, Ger­many, the Rus­si­an Fed­er­a­tion, and Sweden, among oth­er coun­tries.↩︎
122. OECD, Dir­ect­or­ate for Em­ploy­ment, La­bour and So­cial Af­fairs: Pen­sion sys­tems: “Ukraine: Pen­sion sys­tem pro­file.” https://www.oecd.org/countries/ukraine/45336467.pdf.↩︎
123. OECD Pro­ject on Fin­an­cial In­cent­ives and Re­tire­ment Sav­ings, Policy Brief N°1, “The tax treat­ment of re­tire­ment sav­ings in private pen­sion plans,” Decem­ber 2018. https://www.oecd.org/daf/fin/private-pensions/Tax-treatment-of-retirement-savings-Policy-Brief-1.pdf.↩︎
124. Tranio, “Real es­tate agency com­mis­sion rates in dif­fer­ent coun­tries,” Septem­ber 18, 2017. https://tranio.com/articles/real_estate_agents_commissions_in_various_countries.↩︎
125. Bank for In­ter­na­tion­al Set­tle­ments, Joint For­um, “Mort­gage in­sur­ance: mar­ket struc­ture, un­der­writ­ing cycle and policy im­plic­a­tions,” Au­gust 2013. https://www.bis.org/publ/joint33.pdf.↩︎
126. Euro­stat, “Mean and me­di­an in­come by edu­ca­tion­al at­tain­ment level–EU-SILC sur­vey.” Last up­date: 27 Au­gust 2019. https://ec.europa.eu/eurostat/en/web/products-datasets/-/ILC_DI08.↩︎
127. Pay Scale, Inc. Col­lege Salary Re­port Up­dated for 2019. Re­trieved from www.payscale.com/college-salary-report/majors-that-pay-you-back/bachelors.↩︎
128. Bit­coin.org, “Avoid Scams: Fa­mil­i­ar­ize your­self with some of the most com­monly ob­served bit­coin scams to help pro­tect your­self and your fin­ances—Free Giveaways.” https://bitcoin.org/en/scams#free-giveaways.↩︎
129. A fair coin is one that has a 50% chance of land­ing on either side when flipped. The “heads” and “tails” is a con­ven­tion when coins show im­ages of kings, queens, or pres­id­ents on one side (“heads”). By con­ven­tion, on Euro coins the side with the na­tion­al sym­bol is re­garded as “heads.” In­ter­est­ingly some re­search has found that the typ­ic­al EU coin is not “fair,” tend­ing to more of­ten land on heads. (The au­thors are not re­spons­ible if you try this and end up los­ing money ☺).↩︎

1. The Power of Incentives
2. The Road Not Taken
3. Opportunities and Costs
4. Markets and Marginalism
5. Specialization and Wealth
6. Sacrificing Lives for Profits
7. I, Pencil, My Family Tree
8. Creating Jobs vs. Creating Wealth
9. What Is Seen and What is Not Seen
10. Gross Domestic Product—What is it and how is it measured?
11. Private Property and Opportunity Costs
12. Running Out of Agricultural Land
13. Censoring Pleas for Help
14. Markets and Freedom
15. Unfair Competition with the Sun
16. Not Yours to Give
17. Politics and Foreign Trade
18. Energy Production versus Conservation
19. Social Cooperation and the Marketplace
20. A Case for Constitutional Reform in Ukraine

1. The pro­ponents of gov­ern­ment spend­ing on sports sta­di­ums of­ten ar­gue that this spend­ing ex­pands em­ploy­ment. Eval­u­ate this view.
2. The U.S. fed­er­al gov­ern­ment spends bil­lions of dol­lars sub­sid­iz­ing ag­ri­cul­ture. Do these sub­sidies in­crease em­ploy­ment and out­put? Ex­plain.