Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)

As we shall explore later in the book, a low savings rate can limit the pool of capital available to make the kinds of investments that allow us to improve our standard of living.

The market rewards scarcity, which has no inherent relation to value. Diamonds are worth thousands of dollars a carat while water (if you are bold enough to drink it out of the tap) is nearly free. If there were no diamonds on the planet, we would be inconvenienced; if all the water disappeared, we would be dead. The market does not provide goods t

In America, there is no central authority that tells stores what items to stock, as there was in the Soviet Union. Stores sell the products that people want to buy, and, in turn, companies produce items that stores want to stock. The Soviet economy failed in large part because government bureaucrats directed everything, from the number of bars of s

Good policy uses incentives to channel behavior toward some desired outcome. Bad policy either ignores incentives, or fails to anticipate how rational individuals might change their behavior to avoid being penalized.

If we fix prices in a market system, private firms will find some other way to compete.

The more productive we are, the richer we are.

One dollar in tax cuts may only cost the government eighty cents in lost revenue (or fifty cents in extreme cases), as government is taking a smaller slice of a bigger pie.

In 1995, I was traveling across South Africa, and I was struck by the remarkable service at the gas stations along the way. The attendants, dressed in sharp uniforms, often with bow ties, would scurry out to fill the tank, check the oil, and wipe the windshield. The bathrooms were spotless—a far cry from some of the scary things I’ve seen driving a

One crucial role for government in a market economy is dealing with externalities—those cases in which individuals or firms engage in private behavior that has broader social consequences.