The Economic System
The Economic System ECON 111
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This 9 page Class Notes was uploaded by Alberto Balistreri on Saturday September 12, 2015. The Class Notes belongs to ECON 111 at West Virginia University taught by Russell Sobel in Fall. Since its upload, it has received 8 views. For similar materials see /class/202814/econ-111-west-virginia-university in Economcs at West Virginia University.
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Date Created: 09/12/15
Iustus Eapen ECON 111 Sobel April 18 2011 Unleashing Capitalism Book Project Unleashing Capitalism is an enlightening analysis of the effects ofpublic policy on the economy ofWest Virginia EXpertly compiled and edited by WVU s own Russell Sobel Unleashing Capitalism firstly explains the relationship between government policy and economic growth Part 11 describes several specific reforms in policy that may increase economic growth in West Virginia Chapter One sets an academic tone for the teXt The chapter uses statistics and other research to validate its claims The evidence is quite solid and the connections drawn are logical and conclusive The chapters that follow utilize a similar mode of academic persuasion resorting to charts graphs statistics and commonsense logic to convince the economics student ofa contention s legitimacy The first chapter addresses the nature of economic growth It seeks to illustrate West Virginia s place in America s economic landscape Moving onwards the chapter uses casestudies to prove the plausibility of a West Virginian economic revolution Finally Sobel makes progrowth arguments with correlative evidence that ties a population s wellness divorce crime and education rates with its economic prosperity Finally Chapter One touches on one of the text s major themes The negative effect ofpublic policy on economic growth Chapter Two will take this theme and run with it Chapter Two delves into the effects of Capitalism on an economy The authors define capitalism for the purposes of the book as quotan economic system founded on the private ownership ofproductive assets This system promotes economic freedom by combining elements ofpersonal choice personal individuals voluntary exchange entrepreneurial freedom and protection of persons and property Capitalism Unleashed presents evidence suggesting that states dependent on capitalistic systems are more prosperous The authors rely on Adam Smith and other economists to prove capitalism improves living standards They stress the role private ownership rights play in growing an economy Chapter Three explains quotWhy Capitalism Works The authors explain the concepts ofvoluntary exchange wealth creation and value added They stress economic freedom as a mechanism which drives entrepreneurship and discovery within a populace Again they mention Adam Smith when discussing quotThe Invisible Hand Principle to prove that selfishness can spur economic growth Chapter Three describes the incentive structure that pollutes legislation It illustrates how public policies that may have been drafted with the best intentions often have unintended consequences The text draws lines between wealth creation and wealth destruction Sobel draws a correlation between quotentrepreneurial productivity and the level of economic freedom enjoyed by the individual quotCapitalismresults in higher labor productivity increased specialization expansion of markets increased capital investments the text proclaims Chapter Four was contributed by Claudia R Williamson who addresses myths and cultural misconceptions about Capitalism Firstly she addresses an industry well known in West Virginia Coal Mining Williamson questions the effectiveness of unions and uses high turnover rates amongst nonunion workforces to support her claims Williamson disagrees with the notion that Coal Miners required the government to regulate safety She also contests the idea that miners were forced into debt by their employers Williamson s evidencebased argument seems to soundly rebuke many West Virginian paradigms that oppose capitalism Part II ofUnleashing Capitalism focuses on solving West Virginiaspecific economic issues Chapter Five tackles the taxation conundrum with an iron fist Firstly taxes are naturally dispersed amongst the individuals of a population Businesses cannot bear taxes because those costs are passed along to the owners employees and customers of the business Additionally the indirect costs associated with creating a law enforcing it and manipulating markets can significantly increase the taX burden on the individual quotAccording to the best economic estimates each dollar of taX revenue really costs the West Virginia economy somewhere between 160 and 182 The teXt goes on to put West Virginia s taX burden into a national perspective TaX rates in West Virginia are relatively high compared to its neighbors and national averages The data presented in Figures 53 54 and 55 analyzes the taX revenue relationships in detail Chapter Five goes on to present academic studies and research that that suggest a quotstrong negative relationship between taxes and economic growth Some of the studies suggest property taxes and industrial growth are positively correlated possibly because quotfirms prefer locally dominated taX systems over state dominated ones Chapter 6 continues with the discussion on taxes Robin C Capehart and Pavel A Yakovlev encourage West Virginia to adopt quotprogrowth tax policies that will support businesses The authors found that states who taX place a high taXburden on business lose prospective sources of revenue thus lowering their economic viability Capehart and Yakovlev make three quotprogrowth proposals to alter the taX policy Firstly they would have franchise taxes repealed personal property taxes on inventory repealed and would replace them with a quotbroadbased value added tax Secondly they d replace the current profittaxes on corporations with a quotlowrate profits taxquot on all businesses Third and finally quotRepeal the future use of all business taX credits I strongly support the first two proposals however I disagree with the author s negative view of taX credits Yes using taX credits as a means to promote business is a bad idea because it allows for human error to skew the allocation of resources However taX credits may still be useful as a tool to protect the environment For example offering taX credits for lower carbon emissions would give businesses incentive to invest in green technology In fact Unleashing Capitalism suspiciously fails to make any mention of how the environment will be protected from capitalism s greedy consumption oflimitednon renewable natural resources There doesn t seem to be a point in perpetuating economic growth if that exponentially increasing curve doesn t just taper off Chapter Seven continues where Chapter Two left off in the discussion of private property rights Chapter Seven addresses the West Virginia s eminent domain policies as a contemptible hindrance to capitalism When individuals do not feel secure ownership over their assets they will be less likely to use them to effectively create wealth Secure ownership rights should allow the owner to use the property as they see fit transfer the property to new owners or quotexclude nonowners from the above rights Chapter Seven is discourages the Government from using its power to acquire properties at a lowerthanmarket value The authors use the casestudy of Kelo v City of New London as the cornerstone of their argument against government and quotpublicquot ownership of property Chapter Eight is an examination of the government s distribution of subsidies to businesses The authors emphasize the use of quotbroad lowrate taX structures that reduce the state government s power to skew the market Additionally targeted subsidies for businesses are difficult to equitably distribute The authors use studies done between 1989 and 2007 on quottax incentive efficacy to support their antisubsidy stance West Virginia is especially guilty of utilizing economic development incentives that produce few if any benefits The authors are quite adamant about abolishing selective taX incentives in West Virginia in order to best promote prosperity Chapter Nine is an examination into the costs and consequences of West Virginian business regulation The teXt draws on case studies to illustrate how the unintended consequences of economic policy can be surprisingly destructive The authors use the examples of safety regulation in the airline and drug industries to support the antiregulation stance They also criticize the fuel efficiency mandates on automakers that result in more highway deaths every year Chapter Nine does not neglect to mention the economic burden imposed by the passing and enforcement of the aforementioned policies Figure 91 graphically illustrates the economic disparity between states with many regulations and states who legislate sparingly The variables analyzed included rates of selfemployment and establishment creation Furthering its case the text discusses local businesses that have been affected by regulation CampH Taxi and Boston Beanery are specifically mentioned The authors continue using casestudies to support their thesis with the example of the quotLimited Video Lottery Act This act legalized certain forms of gambling machines inside bars and other establishments The problem is this limitations on the industry force owners into compromises that may not be in the best interest of their business Chapter Nine sums up by offering policy recommendations The authors suggest a moratorium on new business regulation They also propose regular costbenefit analyses of current regulations These can be used to adjust faulty policies whose unintended consequences are too hurtful Chapter Ten was contributed to the text by Nathan 1 Ashby and Mark T Gillis This chapter discusses the consequences of labor restrictions that choke capitalism Ashby and Gillis suggest that West Virginia quoteliminate unnecessary and competitionreducing occupational licensing laws to foster entrepreneurship and reduce the cost ofliVing Furthermore the duo demands the elimination of Promise Scholarships and state minimum wages They believe K12 education can be improved through use ofvouchers and charter schools Basically it is procapitalism argumentation that systematically decentralizes resource management Chapter Eleven addresses the controversial subject of statesponsored welfare The text asserts that current welfare policy creates an incentive for laziness This problem is especially prevalent in West Virginia where a large proportion of aidrecipients do not hold employment The authors draw connections between low participation rates in the labor force and the complexity ofpublicaid policy Chapter Eleven of the text also demands that West Virginia quotutilize the exibility in TANF funds to restructure the system of transfer benefits The authors draw direct correlations between labor force participation and federal disability benefit reception They believe that an quotaccelerated policy reform must be accomplished to empower the lower social strata The text moves on to Chapter Twelve contributed by Michael I Hicks This chapter examines the high costs of civil litigation and the politicization of the judicial system In West Virginia the negative impact oflitigation costs on economic growth is especially apparent According to Hicks the broken West Virginian judicial system costs each citizen more than 100 annually Hicks describes these reforms as quotamong the most immediate of our public policy concerns Chapter Thirteen continues to examine West Virginia s broken judicial system Specifically tort reform is a priority The authors suggest adapting the quotdoctrine ofjoint and several liability to eliminate its existence in civil courts They also recommend continuing medical malpractice liability reform through a limitations statute and precise medical testimony requirements The legislation should also return to examining methods ofprevent abuse quotof state courts by nonresidents seeking plaintifffriendly venues Finally the authors entertain the notion of limiting punitive and medical monitoring damage awards Enacted in con uence these proposals have the potential to significantly affect economic growth The final chapter tackles the role of government from a broad perspective In mildly ambiguous strokes Sutter and Pjesky paint a portrait oflimited government Chapter Fourteen is primarily written to drive home the prosmall government arguments There argument presented for decentralization is one of the most interesting cases made in the book Chapter Fourteen succeeds in justifying the reliance on local governance through the equitable distribution of tax revenue The text explicitly supports constitutional restraints on government regulation Unleashing Capitalism is a text that uses commonsense economic theories to address issues close to home in our cozy heart oprpalachia The evidence of ineffective government is all around us As a student of economics I believe the solutions proposed in the text to be creative and probably solvent It has been interesting to study these economic principles from the perspective ofa state that has been governed so poorly in the past I would very much like to study the application of these principles in more economically prosperous states like Maryland and Connecticut