This book illuminates the effects of regulations on people’s everyday lives by working through the ripple effects of changes. Thus, the book provides a fundamental understanding of the economy as an organism rather than a machine and enlightens the reader by offering a model for understanding the economy and market. Regulations, which are restrictions placed on the working of the economy, have consequences—both intended and unintended, direct and indirect. While the direct effects are well understood, the indirect effects are often overlooked because they don’t fit with the machine understanding of an economy. More to the point, this book emphasizes the real effects of regulation and market change on individual actors, thereby stressing how the economy works to provide an individual with the options that exist in choice situations. We draft a new definition of prosperity and well-being that focuses on the individual’s access to valuable alternatives. From this point of view, the real implications of regulation are traced step by step, following the logic of exchange and the effects on individual actors rather than the economy as a whole.
Table of Contents
1. The How of the Market
Introduction to market process of value creation. Discussion on the “messiness” of the market, how the real market is not optimal; what drives the market. Individual choice vs aggregate phenomena, and the role of opportunity cost
2. The Price is Right
Discussion on the role of prices, how price determination works and what it means. The price “mechanism” and its central role in the market. The visibility of the invisible hand, and the allocation of resources.
3. What Prices Communicate
Discussion on the information-carrying capacity of prices, how prices communicate important information about resources and resource uses. How prices provide the informative means for individuals to relate to the “market.” Also on prices as communicating relative importance from point of view of consumers, role in reallocating resources under scarcity.
4. Unbeatable, Imperfect Markets
How markets satisfy consumer wants and what this means for any individual person in his/her everyday choices. The implications of an unhampered price mechanism for resource allocation and “wealth,” as well as individual choice – and freedom of choice.
5. The Seen and the Unseen
Drawing from Bastiat’s well-known discussion, but with focus on individual choice and the choice set of the individual market actor:
(a) The Direct Effect, or: That Which Is Seen
(b) The Indirect Effect, or: That Which Is Not Seen
How market actors use price, and what unexpected change implies for prices, incomes, and satisfaction.
6. The Market and Natural Disasters
How the unhampered market responds to sudden disruptions or even catastrophes. What this means in terms of satisfaction, prices, and resource allocation. Possible examples include hurricanes Katrina in New Orleans and Sandy in New Jersey.
7. Taxation and Regulation
Application of discussion in previous chapters on the cases of taxation and regulation. The effect of taxation/subsidization (steered market) and regulation (prohibition) on relative prices and resource allocation. What this means for individuals’ options/choice sets; tracing the real effects.
8. Attempts to Perfect the Market
Deals with the question, which intuitively follows from previous chapters, if the market cannot be perfected or “helped” by political incentives and other attempts to steer investments toward a “higher” goal. Contrasts the imperfection of the market with the imperfection of the tampered-with market situation from the point of view of individual choice and possibility of satisfying wants.
9. The Unrealized
Discussion on the implications of different regimes (pure market, mixed economy, and planned economy) on the availability of options for individuals. How this relates to wealth and well-being, and what we can say about regulation, reform and other political means in terms of individuals’ wealth of choices.
10. Implications for our view of society
Discussion on what the “unrealized” means in terms of our understanding for regulation, the state, and the economy, how we can use this perspective to analyze e.g. sweat shops and developing countries. How this ties into the question of economic growth and prosperity. And some warnings.