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

Nike pays a typical worker in one of its Vietnamese factories roughly $600 a year. That is a pathetic amount of money. It also happens to be twice an average Vietnamese worker’s annual income.11 Indeed, sweatshops played an important role in the development of countries like South Korea and Taiwan,

Consider the following question posed by Amartya Sen, winner of the 1998 Nobel Prize in Economics.13 Three men have come to you looking for work. You have only one job to offer; the work cannot be divided among the three of them and they are all equally qualified. One of your goals is to make the world a better place by hiring the man who needs the

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.

Consider an inflammatory example: The problem with Asian sweatshops is that there are not enough of them. Adult workers take jobs in these unpleasant, low-wage manufacturing facilities voluntarily.

This phenomenon, whereby taxes make individuals worse off without making anyone else better off, is referred to as “deadweight loss.”

Economics starts with one very important assumption: Individuals act to make themselves as well off as possible.

It is simply bad economics to impose our preferences on individuals whose lives are much, much different.

Good government makes a market economy possible. Period. And bad government, or no government, dashes capitalism against the rocks, which is one reason that billions of people live in dire poverty around the globe.

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