Fight, Fight, Fight!

Richard posted a link to the Federal Reserve Bank of Minneapolis’s multi-guess Economic Literacy Test. Most of it was fairly easy if you know the standard economic textbook viewpoint on capitalism (which allows for a few market failures but is mostly fairly single-minded about the market’s ability to be efficient).

Unlike Richard, though, I only managed 11/13 on the first pass. So in true bad loser style, it’s time to defend myself. I got the right answer second time round on both questions I failed on, and I was dithering over two possible answers on both. One mistake was because of the ambiguous use of the phrase ‘public interest’ in the question (they actually meant: make goods and services people want, I thought of cuddly things like clouds and cars that don’t pollute). The other was to do with high inflation and the money supply - mah, I’ve never understood macroeconomics properly anyway. Plus it was the 12th question and I was getting slapdash…

OK, I’m ignorant. Time to go do some reading.

Comments

Yes, I think it does. I'm not convinced it needs to exist, but it's pretty hard to tell when we've never tried without :)
> this is one of the areas where I think > libertarianism struggles most: law and > the implementation of justice I was thinking the same thing while watching this debate but, in addition to guiding the actions of business managers, doesn't the law provide a framework for markets to operate in? Just wondering whether that's necessary or desirable, or whether everything would be fine without Sarbanes–Oxley or any other laws. (Drifting further off topic :)
'Unfairly harm others or break the law' Doesn't our legal system as it stands unfairly harm others in plenty of situations? I'd be surprised if you disagreed with me on that. I agree that following the law is a desirable objective, but I don't thing it is the only (or most important) factor for anyone, be they a manager of a public company or simply an individual. My own moral code (and/or the moral code of the manager in question here) should be a guiding factor too. And yes, I realised I'm drifting off the subject slightly. But I don't think this is a black and white issue. I'm glad we're debating it though, as this is one of the areas where I think libertarianism struggles most: law and the implementation of justice.
"For example, I wouldn’t run a business as a hit-man, irrespective of how profitable it was." But that's the thing..... running a hit-man business is already illegal and I strongly believe that companies should vigorously compete within the constraints of the legal system in which they find themselves (i.e. compliance with the law should be a given) I guess what I'm saying is: the social purpose of a company is to make money for its owners provided that they don't unfairly harm others or break the law as they do so. My problem is that this leaves no room for a concept of "social responsibility". Either the thing a company does is good for the company or it's not. If it is, then it's wrong to call it social responsibility.... it's just good business. If it's not, then it's misallocation of the owners' money.... in which case the managers should be in prison :-)
I think we're talking about slightly different things here. Firstly, I'm thinking primarily of the small business owner-manager, where the decisions and the money stem from the same guy. But you're quite right - the discussion does need to be extended beyond that. It sounds like you're talking primarily about charitable giving. That's not what social responsibility is about to me. I'm speaking primarily of the responsibility not to do things - in libertarian terms, encroach on others' property. For example, I wouldn't run a business as a hit-man, irrespective of how profitable it was. I quite agree that managers spending money when it's not in share-holders' best interest is irresponsible (and I think it is illegal in many countries, though probably very hard to prove). However, fortunately, it's normally fairly obvious when it happens on a wide scale, and shareholders are welcome to withdraw their investments from such companies if they wish. That doesn't excuse the behaviour, but it will compensate for some of the more blatant examples. On the flip side, if shareholders want their companies' money invested that way, who are we to stop them?
Milton Friedman's "Free To Choose" is where he explains his claim that inflation is always - and everywhere - a monetary phenomenon. His basic argument appears to be that inflation is caused by printing more money. All other things that _appear_ to create inflation either don't or are consequences of the root cause However, I must confess that this area of economics is one where I'm taking the result on trust - I haven't thought deeply enough about it yet. As for social responsibility of business leaders....... the whole idea makes me sick. If a business leader believes that an act of charity will do his company good (e.g. good PR, improve employee retention, whatever) then fine... they should do it because it makes good business sense. But a purely philanthropic gesture? Should be illegal (indeed, it probably is). It's not the manager's money to spend. That money belongs to the company's owners. If they want to spend the money, then fine.... let them. But the sight of managers spending *other people's money* on a whim is just wrong.
Yes, I guess that makes sense. I need to do some more reading though: I've never really understood what affects inflation properly, apart from in the most superficial sense. The other one was about individuals pursuing their own interest in a market economy and why this serves the public interest. The options I was dithering over were: A) Operation of competitive markets. B) Social responsibility of business leaders. I still contend that B is a valid answer, but it really depends on how you define public interest. In retrospect, the fairly obvious free-market bent of the rest of the quiz indicates the desired answer was clearly A (my exam-taking strategy has got a little rusty of late).
The inflation one - was that about money supply and government spending? My answer to that one was based on Milton Friedman's claim that inflation is always - and everywhere - a monetary phenomenon (so raise interest rates/reduce the money supply to combat inflation) .... combined with some supply+demand (if the government demands fewer goods and services their prices are likely to drop) As for the other one.... do you remember the wording of the question? I can't remember it!