John C. Goodman on Replacing Obamacare and Curing the Healthcare Crisis [Part One]

Voluntary Exchange at the Point of Mutual Self-Interest

“If an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can only gain at the expense of another.” - Milton Friedman

The “simple insight” that Friedman mentions above can be difficult to comprehend when, as Friedman points out, zero sum thinking is introduced, that is, “that one party can only gain at the expense of another“.

Is zero sum thinking purposely introduced [that exchange is a phenomena where one party only gains at another party’s expense] as less of a “tendency” and more of a politically motivated event? Stated alternatively, is zero sum thinking applied to exchange to allow for a third party, the politico, to supposedly rectify the gain? To levelize the gain as it were. To become the white knight charging in, to solve the ills of exchange, when in fact no ills exist.

When one states that voluntary exchange at the point of mutual self- interest makes the pie grow, the phenomena may well be assumed to be self evident. If the phenomena is not as self evident as many assume, then an expanse of foggy gray area of not-so-self evident exists which allows the opportunity the politico seeks to introduce third party intervention at the point of exchange. It may well be that the simple insight which is supposedly of a self evident nature [voluntary exchange at the point of mutual self interest makes the pie grow] needs better articulated so as to close the window for politico interests.

One of the better articulations of the concept of voluntary exchange at the point of mutual self-interest which makes the pie grow appears below:

“The basic mechanism of contract is very simple, powerful, and universal. It essentially involves your surrendering something that you value in exchange for something else that you value even more. If both sides allow the trade to occur, there will be an enormous increase in overall well being….”

“What is even better is that this one simple idea of gains through trade is capable of infinite repetition.”

“One good idea bets a thousand bad ones”.

“The logic of mutual gain from voluntary exchange is perfectly general. It rests only on the self-interest of individuals in a world of scarcity. It is not particular to one culture, one time, or one set of values”.

“….exchange is not role specific…”

“It does not create one set of rules for people who are rich and powerful and another set for those who are frail or meek. Instead, the law speaks about two hardy standbys in all contractual arrangements: A and B. These people are colorless, odorless, and timeless, of no known nationality, age, race, or sex.” (1)

Notes:

(1) Simple Rules for a Complex World, Richard Epstein, 1995, Harvard University Press, pgs. 72 and 73.

Losing control of the mechanism established [Milton Friedman]

The entire video is excellent. However, one may very well find insight by paying particular attention to the video from time period 6:00 to 7:04.

Discouraged Workers, Worker Mobility and the Rise in Social Security Disability Claims

The Federal Reserve Bank of Richmond’s publication Regional Focus, second/third quarter 2012 edition has three very enlightening articles regarding discourage workers, worker mobility and Social Security disability claims on the rise. Links to the articles appear below:


Where Have All The Workers Gone? Why are more people leaving the labor force, and what are they doing?

http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/cover_story.pdf

　

Pulling Up Stakes, Have Americans lost the urge to move?

http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/feature1.pdf

　

The Sharp Rise in Disability Claims. Are federal disability benefits becoming a general safety net?

 http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/feature3.pdf

Say’s Law: Supply Creates its Own Demand? Nay, Nay!

Why is it that conventional wisdom depicts classical economist John Baptiste Say and Say’s Law as “supply creates it own demand”? Is the depiction correct?

“Say’s Law is best known in the form Keynes postulated it in The General Theory: “supply creates its own demand” . Despite the apparent eloquence and simplicity contained in this definition, it obscures the genuine meaning of the concept.”

“Instead, Say’s Law can be interpreted as saying that the ability to produce generates their ability to purchase other products. One can only fully grasp Say’s Law when analyzing the nature of the division of labor in a market economy. Individuals specialize in producing a limited range of goods or services, and in return receive income that they use to buy goods and services from others. The income one receives from production is their source of demand. In other words, “all purchasers must first be producers, as only production can generate the power to purchase” . This idea is intimately linked to the Smithian idea that the division of labor is limited by the extent of the market.“

The above quotes come from a most excellent essay by Garrett Watson of St. Lawrence University.His essay is entitled Misunderstanding Say’s Law of Markets.

 

 

Chuck Woolery on the Unemployment Crisis

Everything You Need to Know About the Fiscal Cliff - WSJ