THE CALCULATION PROBLEM

PICTURE YOURSELF AS the head planner of a global socialist state. The recent spring months in the Northern Hemisphere have been unusually hot and dry. Your minions come to you to ask how to adjust the agricultural plan for the upcoming summer.

THE DYNAMICS OF INTERVENTIONISM

THERE HAVE BEEN many efforts over the years to develop a “third way” of managing social cooperation, a path that will take advantage of the efficiency of the market process while controlling its “excesses.” The fascist movement in Italy, National Socialism in Germany, and the New Deal in America were all examples of the search for that path.

GOVERNMENTS HAVE FREQUENTLY felt the need to interfere with market prices. Such interference can take a number of forms. Price floors set a legal minimum on the price of some good or service. Price ceilings set a legal maximum on the price. Price targets try to keep a price with a narrow range: examples include foreign currency exchange rates “pegged” within a band, and the Federal Reserve targets for interest rates.

IN THE ECONOMIES of most modern industrial nations, a central bank manages the nation’s money supply and attempts to control the level of interest rates, at least to some extent. (In America, that central bank is called the Federal Reserve.

PRODUCT SAFETY

WHEN CONSIDERING THE possibility of an unregulated market, one question that arises frequently is how consumers can be protected against unsafe products without government intervention.

THE THEORY OF EXTERNALITIES

BRITISH ECONOMIST A.C. Pigou was instrumental in developing the theory of externalities. The theory examines cases where some of the costs or benefits of activities “spill over” onto third parties. When it is a cost that is imposed on third parties, it is called a negative externality. When third parties benefit from an activity in which they are not directly involved, the benefit is called a positive externality.

MARKET FAILURE AGAIN?

PATH DEPENDENCE HAS recently and prominently been forwarded as an example of market failure. The idea is that markets can get “stuck” on a path that is clearly inferior to another option. However, no individual market participant is in a position to change things—that is the sense in which the market is stuck. For each individual, the cost of switching to the better path is too great. But if a person knew that everyone else would switch, he would prefer to do so.

DOMED MONUMENTS

ACOUPLE OF YEARS ago, in my home state of Connecticut, Governor John Rowland agreed on a deal to bring the New England Patriots to Hartford.

WHERE WE ARE

WE HAVE OUTLINED an economics for real people, one studying real choices as they are made by you and me. Economics does not need to regard us as automatons, to assume we are only interested in monetary matters, or to treat us as atomistic, pleasure-seeking narcissists.