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Questions
Part One: Question 2
2a. Hayek argues that society is not faced by the economic problem, “how do we allocate all of the resources available” but rather, “how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know.” Hence, not all resources are quantifiable and no centralized authority should distribute resources, but should protect them for the betterment of the members of the society. Hayek also argues that another economic problem the society faces is “rapid adaptation to changes in the particular circumstances of time and place.” He suggests that this can be solved by decentralization. The decentralized actors need to exploit their local knowledge while also using the local knowledge of others relevant to making these decisions. These decentralized actors need not be concerned with ‘why’ some resources are more or scarce than they were before, they need to be concerned with whether these resources will increase or decrease any further. This can be solved by the price system. Hayek argued that the price system, free markets, coordinated people’s actions remarkably. The market was supposed to be spontaneous without any influences. Hayek states that an economy cannot be organized by a central author since the central authority does not have sufficient knowledge to make the best decisions at any one given time.
2b. According to Rosenberg and Birdzell, the West Grew Rich due to a combination of factors; the expansion of rights of private firms, the development of markets, and competition as an important cause of innovation and growth. The expansion of the rights of the private firms was important because it strengthened substantive freedoms and autonomy that allowed all willing individuals to participate in economic activities CITATION Nat86 l 1033 (Rosenberg and Birdzell). Therefore, this led to social mobility and lowered transaction costs, because private companies and people became the agents of change in economic development. Production and business were relatively free of religious or political control. Competition was important because it aided innovation. Rewards of innovation such as profits and market growth soon became the characteristic of a race. The development of markets played a huge role in allocating resources and determining prices of products, and with this, competition was intensified.
Rosenberg’s and Birdzell’s arguments are consistent with those of Hayek because, the West did not prosper by having a centralized influence governing the market, but by allowing the price system to work freely. In so doing, people’s actions were coordinated, without them realizing it.
Part Two: Question 2
2a. Special interest groups and lobbyists have a huge impact on the costs and benefits of government programs and policies. According to Public Choice theory, government officials and citizens respond to incentives and this encourages an active role of the government in the economy even when government comparative advantage is absent CITATION Ste181 l 1033 (Greenlaw). This makes the government particularly receptive to special interest groups. In an elected legislature, the government officials have an incentive to be most open to the needs of the groups that assist to keep them in office, organizations that fund their political campaigns, and groups of people who are more likely than others to influence votes such as seniors or veterans.
The costs of government programs sometimes outweigh the benefits. This may be due to the actions of special interest groups that impose costs directly on the general public or due to the fact that special interest groups may rally government to pursue social goals rather than economic efficiency. Despite the small numbers in a special interest group, they may pressure legislators to enact policies that do not necessarily benefit the entire society. For instance, legislators may enact and environmental act that pushes for the reduction of air pollution from manufacturing companies that will cost 10 companies $3 million each, for a total cost of $30 million. However, the social benefits from enacting this law will provide a benefit of $10 for each person in the nation, totaling to approximately $3 trillion. Despite the benefits of the act being higher than the costs accrued, the 10 manufacturing companies are likely to lobby vehemently to avoid paying the $3 million. The public is therefore going to face negative environmental externalities due to the lobbying.
2b. Richard Epstein argues that the main purposes of a Constitution is to constrain the misconduct of the sovereign because government power, (especially local governments’) if unchecked, can become monopolistic. He argues that individual rights should be directly protected and the ordinary rights of citizens and minorities should receive much attention.
In his view, the three possible limitations on sovereignty are federalism, separation of powers, and entrenched individual rights. Federalism prevents the threat monopolistic sovereignty since individual states compete with each other for businesses, residents, and tax revenue (Epstein 157). This competition limits the states’ capacity for the disastrous forms of expropriation that might otherwise occur. Separation of powers, that is the division of power at all levels of government, with each division keeping each other in check, is the second restraint on sovereignty. The third limit on the sovereignty is entrenched rights. By directly protecting individual rights, citizens are guarded from governmental abuse.
Works Cited
BIBLIOGRAPHY Epstein, Richard A. “Self-Interest and the Constitution.” Chicago Unbound (1987): 153-161. Web.
Greenlaw, Steven E. Principles of Economics. Houston: OpenStax, 2018. Print.
Rosenberg, Nathan and L E Birdzell. How the West grew rich : the economic transformation of the industrial world. New York: Basic Books, 1986. Print.
