Chapter 5 Notes

Question 1

What does it mean to “socialize” a cost?

Answer 1

To spread an individual cost to society

Question 2

According to socialists, which economic goal should individuals strive to meet?

Answer 2

To promote the good of society

Question 3

What did Marx say about production and distribution of goods and services?

Answer 3

“…from each, according to his ability, to each, according to his need…”

Question 4

According to socialists, something keeps individuals from auctioning off their labor to the highest bidding firm. What?

Answer 4

Firms are not in competition–they are all on the same side.

Question 5

What did Marx predict about unemployment rates? What reason did he give for his prediction?

Answer 5

Technological advances would replace labor with capital, causing a growing army of the unemployed

Question 6

Why were socialists searching for new ways of selling socialism by the 1950s?

Answer 6

Because Marx’s predictions of worsening conditions of workers and worsening unemployment did not come to pass.

Question 7

True, False, explain: Only government socializes costs and benefits that are socialized unless the government does it.

Answer 7

False. Some benefits and costs are not socialized by government, such as the benefit from national defense and the cost of pollution.

Question 8

Costs that naturally spill over to others are called

Answer 8

External costs

Question 9

What reason do capitalist philosophers give for not expanding the state to solve the problems of externalities?

Answer 9

The public choice school points out that government officials are self-interested and have limited knowledge. This means that 1) they may not be interested in solving problems, but getting money and reelection and 2) their limited knowledge may cause them to make things worse as they try to solve problems

Question 10

How can the state maintain a socialist order if individuals disagree about their abilities, needs, or what is good for society?

Answer 10

By force

Question 11

True, False, explain: Socialism can only exist with unelected dictators in power.

Answer 11

False. If costs and /or benefits are socialized by the legal system, socialism exists, whether or not the state is headed by a dictator

Question 12

An economic system under which the state has title to all property is called

Answer 12

Communism

Question 13

An economic system under which the state leaves property in private hands, but extensively regulates the use of property is called

Answer 13

Fascism

Question 14

What is imminent domain?

Answer 14

The state taking private property, but compensating the owner

Question 15

What is civil forfeiture?

Answer 15

The state taking private property from those it suspects of criminal behavior

Question 16

Who typically receives the proceeds of a civil forfeiture?

Answer 16

The law enforcement body that seized the property

Question 17

What is the latest rationale for socialism in the U.S.?

Answer 17

If the state produces any good with spillover benefits, the state is justified in dictating the use of individuals’ property

Question 18

Why is the percentage of total spending done by the state a measure of the degree of socialism?

Answer 18

Because as the state spends more, it makes more of the economic decisions–that is, the individual, more and more, serves the state’s conception of “the good of society”

Question 19

What do many capitalist philosophers consider the legitimate functions of the state?

Answer 19

Protection of property and persons

Question 20

What does “the pursuit of happiness” mean?

Answer 20

The right to use property freely, to choose one’s profession, to make contracts, and to travel

Question 21

If property rights are protected, how can an individual in a capitalist society advance materially?

Answer 21

By creating value through production and/or trade

Question 22

How do markets encourage conservation of a resource that becomes scarcer?

Answer 22

By increasing its price

Question 23

What do capitalist philosophers say about how markets solve fairness problems?

Answer 23

Markets may or may not solve fairness problems, but, given the limitations of the state, it might not do any better, and may make things worse.

Question 24

What did Piketty and Saez’s research show?

Answer 24

Based on tax records, the average taxpayer’s income in the U.S. has been stagnant since the 1980s, while top incomes have grown.

Question 25

What did Burkhauser, Larrimore, and Simon show?

Answer 25

We see a 37% growth in incomes when we use household data, account for taxes, transfers, and fringe benefits, and adjust for household size

Question 26

What two observations did Thomas Sowell make about inequality?

Answer 26

As people age, gaining experience and education, they grow richer. Also, people who are poor can increase their incomes and the wealthy sometimes lose income, moving them to different categories of earned income

Question 27

What did Milton Friedman point out about different economic systems in his interview with a talk show host?

Answer 27

The leaders of all states are greedy, but capitalism harnesses greed to improve the general welfare, whereas socialism does not

Question 28

The poverty rate in the United States is approximately?

Answer 28

16%

Question 29

How much per person does the US spend on anti-poverty programs?

Answer 29

About $20,000

Question 30

How is poverty related to anti-poverty spending? How is poverty related to economic growth?

Answer 30

Poverty does not seem to respond to anti-poverty spending, but economic growth does reduce poverty, with a lag

Question 31

What is one area where government spending on fairness replaced private spending?

Answer 31

Unemployment insurance and education

Question 32

What does Bastiat say about countries with machines vs. those with less mechanization?

Answer 32

He said that more mechanization allows people to have more satisfaction for less work, so mechanized societies are well off

Question 33

Bastiat says that to curse machines is to curse…

Answer 33

The human mind, since only advanced thought can invent advanced machines

Question 34

When James Goodfellow replaces a worker with a machine, what could possibly employ the worker?

Answer 34

The money saved on the worker will be spent by James Goodfellow, creating a job with an equivalent paycheck

Question 35

When James Goodfellow replaces a worker with a machine, does the total amount of production in the economy change? Why or why not?

Answer 35

Total production rises, since there is a free worker and JG also has income freed up to purchase the worker’s output

Question 36

Who profits from James Goodfellow’s inventiveness?

Answer 36

In the short run, JG. In the long run, others imitate JG and prices are bid down for all consumers.