The Unbroken Window

Books for Course

Required Book: Economics: Private and Public Choice, 12^th edition, by Gwartney, Stroup, Sobel and Macpherson. (GSSM)

Recommended Books

The Undercover Economist, by Tim Harford (bookstore has copies)

Economic Harmonies, by Frederic Bastiat (available online for free)

Economic Sophisms, by Frederic Bastiat (available online for free)

Comments

• Required reading is indicated with a l . You are strongly encouraged to do them. In some cases the readings mirror what we will be covering in class (e.g. the textbook material on supply and demand), but in a majority of cases the readings are meant to complement what we are doing in class. This is intended to give you multiple types of exposure to the material, and to help you think critically about what we discuss in class.
• In each section I have added a list of supplemental readings. While these are not required, reading them will add a great deal of richness to your learning experience, and help me do a bit better justice to the topics than we can cover in such limited class time.
• Particularly motivated students who take advantage of these extra readings have fared very well in this course in past terms; please see me if you are interested in reading more about any topic. Space considerations do not permit me to list all of the readings I would like to introduce you to.
• I did my best to introduce you to the major thinkers in economics over the past quarter-millennium – those scholars that have most influenced the profession. Many an economics student (even PhD students) will go an entire career without reading any of these original works, but yet will reference them repeatedly, and form opinions on them nonetheless. Some names may not be familiar to you, but their inclusion should indicate their importance, given the high opportunity cost involved.
• This is still only a preliminary list. The topics and readings are subject to change. I will also be adding a series of short articles to the list and on the website as the semester progresses.
• Any readings that I add to this list will NOT be required. The indicated required readings below will not be subject to change.

Section I: The Economic Way of Thinking

1. Introduction
   1. What is Economics?
   2. Scarcity
   3. Social cooperation, planning and spontaneous order
   4. The market system; anti-market sentiments; biases (and what gives rise to them)

Readings

• l GSSM Ch1. pp. 1-8, 15-18
• l Bastiat, Frederic. 1845. “Abundance and Scarcity,” Economic Sophisms, Chapter 1. Available online.
• Read, Leonard E. 1958. “I, Pencil,” The Freeman, December 1958. Available online.
• Undercover Economist, Chapter 1
• Marshall, Alfred. 1890 (8^th edition 1920). Principles of Economics. London: MacMillan & Co., pp. 1-2, 31-33, 36.
• Bastiat, Frederic. 1845. “Obstacle and Cause,” Economic Sophisms, Chapter 2. Available online.
• Bastiat, Frederic. 1850. “Natural and Artificial Social Order,” in Economic Harmonies. Available online.
• Klein, Dan. 2006. “Rinkonomics: A Window on Spontaneous Order,” Liberty Fund Feature, May 2006. Available online.
• O’Rourke, P.J. 1998. “P.J.s Economics 101,” from a speech delivered at the Independent Institute on October 29, 1998. Available online. Based on his book, Eat the Rich.

2. Economic Evolution: Today’s Economy in Historical Perspective

Readings

• l GSSM Ch7, p. 164
• l GSSM Ch15, pp. 331-336
• l Lucas, Robert. 2003. “The Industrial Revolution: Past and Future,” The Region, Annual Report of the Federal Reserve Bank of Minnesota. Available online.
• Undercover Economist, Chapter 10
• Cox, Michael and Richard Alm. 2008. “How Are We Doing? The American. July-August 2008. Available online.
• Braudel, Fernand. 1981. The Structures of Everyday Life.
• Caplow, Theodore, Louis Hicks and Ben J. Wattenberg. 2000. The First Measured Century: An Illustrated Guide to Trends in America 1900-2000. Available online.
• Landsburg, Steven. 2007. Chapter 2 in More Sex is Safer Sex.
• Fogel, Robert. 2004. The Escape from Hunger and Premature Death.
• Simon, Julian. 1995. The State of Humanity.
• l Ebeling, Richard. 2004. “Free Markets, the Rule of Law, and Classical Liberalism.” The Freeman. Available online.
• l Marx, Karl and Friedrich Engels. 1848. The Manifesto of the Communist Party. Read the Preface, Section I (Bourgeois and Proletarians) and the last 5 paragraphs of the book. Available online.
• Hayek, F.A. 1944. The Road to Serfdom, Chicago: University of Chicago Press, pp. 34-38, 41-42. “Individualism and Collectivism.” Here is one take on it. Here is another way to put it. I do not think this chapter is available online.
• Schumpeter, Joseph. 1942 (3^rd edition: 1950). Capitalism, Socialism, and Democracy. New York: Harper Torchbooks, Harper and Row Publishers, pp. 132-34, 141-42, 150-51, 417-418. Not online, but here is a summary.
• Friedman, Milton. 1962. “The Relation between Political Freedom and Economic Freedom,” in Capitalism and Freedom. Chicago: University of Chicago Press, Chapter 1, pp. 7-10.
• l Lerner, Abba. 1963. “Review of Capitalism and Freedom by Milton Friedman.” American Economic Review, Vol. 63, No. 3, pp. 458-60. Available online.
• Mill, John Stuart. 1869 (1878 edition). The Subjection of Women. London: Longman’s Reader and Dyer, pp. 1-2, 86-93, 192-194. Available online.
• Toynbee, Arnold. 1884. Lectures on the Industrial Revolution in England: Popular Addresses, Notes and other Fragments. London: Rivingtons, pp. 85-93. Available online. Scroll down to Section VIII: The Chief Features of the Industrial Revolution.
• Berle, Adolph. 1963. The American Economic Republic. New York: Harcourt, Brace and World, Inc. pp. 3-7. “The American Political-Economic System.”

Video: The Industrial Revolution

3. Economics as a Science: Modeling, Theories and Policies

Readings

• l GSSM Ch1. pp. 14-15
• Bastiat, Frederic. 1845. “Post Hoc, Ergo Propter Hoc,” in Economic Sophisms, Second Series, Chapter 8. Available online.
• l Peirce, Charles Sanders. 1931. “Morality and Sham Reasoning,” The Collected Papers Vol. I: Principles of Philosophy. Available online.

Ethics Exercise #1 Does Science Need Ethics?

4. Basic Economic Principles
   1. Tradeoffs
   2. Opportunity costs
   3. Thinking at the margin
   4. Sunk costs (class experiment)
   5. Incentives
   6. Pie fallacy (why economics is boring)
   7. Market organization
   8. Market “failure”
   9. Standards of living
   10. Inflation

Readings

• l GSSM Ch1. pp. 8-14
• Stigler, George. 1984. “An Academic Episode,” in The Intellectual and the Marketplace. Cambridge: Harvard University Press, Chapter 1, pp. 3-9. (unintended consequences)
• l Bastiat, Frederic. 1845. “Effort and Result,” in Economic Sophisms, First Series, Chapter 3. Available online. 
• You might wish to watch: The Family Man, the whole movie, but particularly the scene where Nicholas Cage tries to convince Tea Leoni to relocate to NYC.

5. Ethical Foundations of Commercial Society
   1. The golden rule
   2. Selfishness and self-interest
   3. Soft-values, business responsibility, profits and love
   4. Trust, faith or confidence?

Readings

• Bastiat, Frederic. 1850. “Man’s Wants,” Economic Harmonies, Chapter 3. Available online.
• Bastiat, Frederic. 1850. “Wants, Efforts, Satisfactions,” Economic Harmonies, Chapter 4. Available online.
• Butler, Eamonn. 2007. “The Theory of Moral Sentiments,” Chapter 4 in Adam Smith: A Primer. Institute for Economic Affairs. Available online.
• Smith, Adam. 1759. The Theory of Moral Sentiments. Available online.
• Jeremy Bentham, Defence of Usury (London: T. Payne and Son, 1787), 2.
• Thomas Aquinas, Summa Theologica, trans. by Fathers of the English Dominican Province (New York: Benziger Brothers, 1947), II, ii, q. 77, art. 1.
• Rebecca M. Blank and William McGurn, Is the Market Moral? A Dialogue on Religion, Economics & Justice (Washington DC: Brookings Institution Press, 2004), 84
• l Appiah, Kwame Anthony. 2006. “The Case for Contamination,” New York Times Magazine, January 1, 2006. Available online.
• Heyne, Paul. 1998. “Moral Misunderstanding and the Justification of Markets,” The Region, Federal Reserve Bank of Minneapolis, Vol. 12, No. 4, December 1998. Available online.
• l Aristotle. (350 BC). Nicomachean Ethics. Book V. Available online.
• Hirshleifer, Jack. 1959. “Capitalist Ethics – Tough or Soft?” Journal of Law and Economics, Vol. 2, (Oct. 1959), pp. 114-119. Available online.
• Bastiat, Frederic. 1845. “Two Systems of Ethics,” in Economic Sophisms, Second Series, Chapter 2. Available online. 
• l Bastiat, Frederic. 1850. “Conclusion to Part I,” in Economic Harmonies. Available online.

Ethics Exercise #2 What is the Difference Between Self-interest and Greed?

Ethics Exercise #10 What is Economic Justice?

6. Scarcity, Choice, Specialization and Exchange
   1. Basic economic questions
   2. Tradeoffs
   3. Wealth
   4. Trade and exchange
   5. Production possibilities
   6. Diminishing returns
   7. Comparative advantage
   8. International trade
   9. Trade statistics and free trade

Readings

• l GSSM Ch2, pp. 28-33, 38-46, 50-51
• l GSSM Ch17, pp. 371-378
• l GSSM Ch12, pp. 263-265 (money)
• Bastiat, Frederic. 1850. “Exchange,” Economic Harmonies, Chapter 4. Available online.
• Bastiat, Frederic. 1850. “On Value,” Economic Harmonies, Chapter 5. Available online.
• Bastiat, Frederic. 1850. “On Wealth,” Economic Harmonies, Chapter 6. Available online.
• Undercover Economist, Chapter 9.
• l Smith, Adam. 1776 (6^th edition: 1791). “Book I, Chapter II: Of the Principle which gives Occasion to the Division of Labour,” in An Enquiry into the Nature and Causes of the Wealth of Nations. London: A Strahan. Available online.
• Lerner, Abba. 1949. “The Myth of the Parasitic Middleman.” Commentary, July 1949, pp. 45-46, 49-50.
• Bastiat, Frederic. 1845. Economic Sophisms, First Series Chapter 4 through 23, but particularly Chapter 6, 7 (Candlemakers’ Petition) and 17. Series 2, Chapter 16. Available online.
• l Munger, Michael. 2007. “The Division of Labor,” EconTalk. Podcast April 2, 2007. Available online.
• Boudreaux, Donald. 2007. “The Economics of Buy Local,” EconTalk Podcast. April 16, 2007. Available online.
• You might wish to watch: Babe, the scene where Ferdinand the Duck devises a plan to avoid being slaughtered by taking over rooster’s crowing responsibilities.

Ethics Exercise #6 What Should We Do About Sweatshops?

                       

7. Property Rights, Institutions, and Economic Freedom
   1. Transactions costs and the market
   2. Middlemen
   3. Competing political economy models
   4. Origins of American (western) system of property rights
   5. Economic freedom

Readings

• l GSSM Ch2, pp. 33-38, 46-48
• l GSSM Ch15, p. 336-343
• l GSSM Ch16 (including appendix) – we will only briefly cover this chapter in class, but it is important to read nonetheless
• l Mill, John Stuart. 1848. “Of Property,” in Principles of Political Economy, with some of their Applications to Social Philosophy, Book II, Chapter I. London: Longmans, Green & Co., pp. 208-209. Available online – Private Property Has Not Received a Fair Trial (last 3 paragraphs of § 3).
• l Alchian, Armen A. “Property Rights,” The Concise Encyclopedia of Economics. Available online.
• l Todd, Walker. 2002. “Property Rights: Origins and Theories,” Economic Education Bulletin, May 2002. American Institute for Economic Research: Great Barrington, MA. Available online.

• Murphy, Liam and Thomas Nagel. 2002. The Myth of Ownership: Taxes and Justice, New York: Oxford Univ. Press. This is reviewed in “The Philosopher Kings,” AIER Research Reports, vol. 69, no. 9 (May 13, 2002) by Walker Todd (available online).

• Bastiat, Frederic. 1850. “Private Property and Common Wealth,” Economic Harmonies, Chapter 8. Available online.
• Bastiat, Frederic. 1850. “Landed Property,” Economic Harmonies, Chapter 9. Available online.

Video: Commanding Heights, Episode One: The Battle of Ideas

Section II: Analytical Tools of the Economist

1. Supply and Demand
   1. Double oral auction experiment
   2. Perfect competition simplification
   3. Demand
   4. Demand elasticity
   5. Need or wants?
   6. Supply
   7. Opportunity costs
   8. Supply elasticity

Readings

• l GSSM Ch3, pp. 55-70
• l GSSM Ch19
• l Radford, R.A. 1945. “The Economic Organization of a P.O.W. Camp.” Economica, XII, No. 48, New Series, pp. 189-201. Available online.
• Veblen, Thorstein. 1899. The Theory of the Leisure Class. New York: The Viking Press, Inc., pp. 36-37, 70, 71, 230-32. Available online.
• l Galbreath, John Kenneth. 1952. The Affluent Society. Boston: Houghton Mifflin, pp. 126-131.
• Bastiat, Frederic. 1845. “High Prices and Low Prices,” in Economic Sophisms, Second Series, Chapter 5. Available online. 
• Bastiat, Frederic. 1850. “Competition,” Economic Harmonies, Chapter 10. Available online.

Ethics Exercise #4 Do Markets Make Us More Moral?

2. Equilibrium and the Price System
   1. Methods of rationing
   2. The Market
   3. Coordinating role of money prices
   4. Moving toward equilibrium
   5. Changes to market conditions
   6. The urge to fix prices
   7. Can you eliminate competition?
   8. The success of planned economies

Readings

• l GSSM Ch3, pp. 70-79
• l Smith, Adam. 1776 (6^th edition: 1791). “Book IV, Chapter II: Of Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home,” in An Enquiry into the Nature and Causes of the Wealth of Nations. London: A Strahan. Available online – particularly paragraphs 8 and 9. (Invisible Hand)
• lRizzo, Michael. “Riffing on Gas Price Complaints,” on The Unbroken Window blog, August 8, 2005.

Ethics Exercise #5 What are the Moral Limits of Markets?

3. Supply and Demand Applications
   1. Rent Control
   2. Economics of Illegal Drugs
   3. Tax Incidence
   4. Additional applications: professional sports, poetry readings, gold mines, delis, international trade and more

Readings

• l GSSM Ch4
• l GSSM Ch17, pp. 378-383, 386-390
• Undercover Economist, Chapter 3.
• de Jouvenel, Bertrand. 1948. “No Vacancies,” in The Reader’s Digest Condensation. Irvington-on-Hudosn, New York: The Foundation for Economic Education, pp. 33-46. mimeo (I will try to upload, but the scan is huge – 11MB)
• Hayek, Friedrich. 1945. “The Use of Knowledge in Society”, Library of Economics and Liberty Edition: American Economic Review, XXXV, No. 4; pp. 519-30. Available online.
• l No Red Roses for Saudi Valentines. Available online.
• l The Great X-Box Shortage of 2005. Available online.
• l Ethanol Boom Fuels Brisk Sales of Midwest Farmland. Available online.
• Jabloner, Amy. 1997. “Homebrewing During Prohibition,” Brew Your Own, December 1997. Available online.
• Bastiat, Frederic. 1845. “The Tax Collector,” in Economic Sophisms, Second Series, Chapter 10. Available online.

Ethics Exercise #7 Should We Allow a Market for Transplant Organs?

4. Evaluation of Market Mechanism
   1. Consumer and producer surplus
   2. Welfare
   3. Interlude (possible): rationality, mistakes, evolutionary psychology and behavioral economics

Readings

• l GSSM Ch5, pp. 107-110 and reread Ch3, pp. 57-59, 66
• Undercover Economist Chapter 8
• Undercover Economist Chapter 9
• l Senior, Nassau. 1836. “Value of the Forces of Supply and Demand,” in An Outline of the Science of Political Economy. New York: Augustus N. Kelly, pp. 13-17.  Scroll down here to the section on value. (Perfect Competition).
• Hayek, F.A. 1936. “Economics and Knowledge,” Economica, IV (new series, 1937), pp. 33-54. Available online.
• Marshall, Alfred. 1890. “Competition,” in Principles of Economics. London: Macmillan & Co., Ltd., pp. 4-8.
• Knight, Frank. 1933. “The Price System and the Economic Process,” in The Economic Organization. New York: Harper and Row, Publishers, pp. 31-36.
• Friedman, David. 2001. “Economics and Evolutionary Psychology,” Indret, April 2001. Available online. Rationality, just prices and other economic puzzles.

Ethics Exercise #8 Is Efficiency an Ethical Concept?

Video: Commanding Heights, Episode Two: The Agony of Reform

5. SPECIAL TOPIC (POSSIBLE): Economics of Health Care
   1. Popular notions; what is health care?
   2. Fundamental health care problem
   3. Insurance markets, application and history of health insurance
   4. Peculiarities of health “insurance” market today
   5. Current health care cost problem
   6. U.S. health care system
   7. Analysis, policy and ethical issues

Readings

• UndercoverEeconomist, Chapter 5.
• l Gawande, Atul. 2005. “Medicine’s Money Problem,” The New Yorker. New York: Apr 4, 2005. Vol. 81, Iss. 7; pg. 044. Available online.
• l Thoma, Mark. 2005. “Paul Krugman: Economics 101,” for a nice overview on state of health care and thinking in the US. See the links in the post too, particularly Arnold Kling’s comments here and here. The Economists View. Available online.
• l Thoma, Mark. 2005. A continuation of the above post – summarizes series on health care from Paul Krugman in the NYT. Available online.
• l Roberts, Russell. 1995. “If You’re Paying, I’ll Have Top Sirloin,” Wall Street Journal, May 18, 1995. Available online.
• l Howard, Paul. 2006. “You Get What You Pay For?” TCS Daily, March 10, 2006. Available online.
• Kling, Arnold. 2006. Crisis of Abundance: Rethinking How We Pay for Healthcare.

You might wish to watch: http://www.onthefencefilms.com/video/deadmeat/

Ethics Exercise #3 Do Markets Need Ethical Standards?

6. SPECIAL TOPIC (POSSIBLE): Economics of Risk and Uncertainty
   1. Danger and delight
   2. Risk and personal safety
   3. Why the increased fear of risk
   4. Environmental and other risks
   5. How this fits in?

Readings

• l GSSM Ch5, pp. 107-110 and reread Ch3, pp. 57-59, 66
• Knight, Frank H. 1951. “Profit,” in The Economic Organization. New York: Kelley & Millman, Inc. pp. 118-21.
• You might wish to watch: Along Came Polly, Polly liberating Rueben by taking a knife to his pillows; later Polly uses the key finder to find her keys.

Video: Are We Scaring Ourselves to Death?

Section III: Profits, Losses and Entrepreneurialism

1. Simple Theory of the Firm

1.  
   1. Factors of production
   2. Profitability
   3. Wages and rents
   4. Interest
   5. Calculating profits
   6. Uncertainty

Readings

• l GSSM Ch20 (we will not cover the material on cost curves)
• Undercover Economist, Chapter 2.
• Coase, Ronald. 1937. “The Nature of the Firm.” Economica, New Series 4, pp. 386-405. Available online.
• Robinson, Joan. 1971. “Increasing and Decreasing Returns.” Economic Heresies: Some Old Fashioned Questions in Economic Theory. New York: Basic Books, pp. 52-63.
• Parkinson, C. Northcote. 1957. “Parkinson’s Law or the Rising Pyramid,” in Parkinson’s Law and Other Studies in Administration. New York: Houghton Mifflin Company, Chapter One.
• l Schumpeter, Joseph. 1942 (3^rd edition: 1950). Capitalism, Socialism, and Democracy. New York: Harper Torchbooks, Harper and Row Publishers, pp. Chapter VII – Creative Destruction.
• Baumol, William J. 1990. “Entrepreneurship: Productive, Unproductive, and Destructive,” Journal of Political Economy, Vol. 98, No. 5, Part 1 (October 1990), pp. 893-921. Available online.
• Bastiat, Frederic. 1850. “Capital,” Economic Harmonies, Chapter 7. Available online.

You might wish to watch: The Man Who Wasn’t There, pay attention to the scene where Billy Bob Thornton is cutting Jon Polito’s hair.

You might wish to watch: The Terminal, scene where Tom Hanks figures out how to make a living collecting push-carts; and what happens to him after that.

Ethics Exercise #9 Do Businesses Have a Social Responsibility?

2. The Entrepreneur

1.  
   1. Arbitrage
   2. Restrictions on competition
   3. Discounting and present value

Readings

• l GSSM Ch21, pp. 483-486
• l GSSM Ch22, pp. 498-502
• Undercover Economist, Chapter 6
• Kling, Arnold. A rent or buy calculation. Available online.
• Kling, Arnold. Develop a business plan. Available online.
• l Mill, John Stuart. 1849. “Competition and Custom,” in Principles of Political Economy. London: Longmans Green, pp. 242-47. Book II, Chapter IV: Available online.
• Bastiat, Frederic. 1845. “The Physiology of Plunder,” in Economic Sophisms, Second Series, Chapter 1. Available online. 

You might wish to watch: Being John Malcovich, cut to the scene where John Malcovich  goes to investigate John Cusack and Catherine Kenner for their scheme.

Section IV: Markets in the Real World: Extra Thumbs on the Invisible Hand; The Grabbing Hand

1. Competition in the Real World: Price Searching and Market Power

1.  
   1. What is a monopolist?
   2. Choice and market power
   3. Price takers, price searchers and optimal resource allocation
   4. The competitive process
   5. The theory of price searchers
   6. Price discrimination

Readings

• l GSSM Ch5, pp. 111-112
• l GSSM Ch22
• l GSSM Ch23 (we will cover this differently in class, I urge you to read this as a supplement)
• l Galbreath, John Kenneth. 1948. “Monopoly and the Concentration of Economic Power,” in A Survey of Contemporary Economics, edited by H.S. Elliss. Homewood: Irwin, pp. 99-103.
• Kolko, Gabriel. Railroads and Regulation and The Triumph of Conservatism.

2. Competition in the Real World: Externalities and Public Goods

1.  
   1. Conflicting rights
   2. Negative and positive externalities
   3. Thinking about Solutions
   4. Negotiation and the Coase Thm
   5. Adjudication
   6. Legislation: command and control, taxes, permits
   7. Public Goods Experiment

Readings

• l GSSM Ch5, pp. 112-120
• Undercover Economist, Chapter 4
• l Coase, Ronald. 1960. “The Problem of Social Cost,” Journal of Law and Economics, Vol. 3 (Oct. 1960), pp. 1-44. Available online.
• l Munger, Michael. 2008. “Orange Blossom Special: Externalities and the Coase Theorem.” Library of Economics and Liberty Feature. May 8, 2008. Available online.

3. Government Incentives and Private Incentives: A Public Choice Primer

1.  
   1. Markets and Government, Public Choice
   2. What is the Case for Coercion?

Readings

• l GSSM Ch6
• l GSSM Ch17, pp. 383-386
• l Stigler, George. 1984. “A Sketch of the History of Truth in Teaching,” in The Intellectual and the Marketplace, Enlarged edition, Chapter 6. Cambridge, MA, and London, England: Harvard University Press, pp. 43-50. Available online.
• Hirshleifer, Jack (under the pen name “Sir Epicure Mammon”). 1959. “The Sumptuary Manifesto.” Journal of Law and Economics, Vol. II. October, pp. 120-23. Available online.
• Harriss, C. Lowell. 1989. “True Fundamentals of the Economic Role of Government,” in Fundamentals of the Economic Role of Government, Warren J. Samuels ed. New York: Greenwood Press.
• l Munger, Michael. 2006. “Two Steves and One Soichiro: Why Politicians Can’t Judge Innovation,” feature at the Library of Economics and Liberty. Available online.

4. The Distribution of Income

1.  
   1. Growth and inequality
   2. Special privilege
   3. The importance of inequality
   4. Supply, demand and predetermination
   5. Capital
   6. Poverty
   7. Challenges
   8. Land policy

Readings

• l GSSM Ch27
• Hicks, John R. 1932. The Theory of Wages. London: Macmillan & Co., Ltd., pp. 4-9, 14-19.
• Ricardo, David. 1817. “Rent,” in Principles of Political Economy and Taxation. London: J. Murray. Available online. (if you wish, you can stop about 1/3 of the way through with the paragraph that ends, “and the land would be no longer pre-eminent for its limited powers.”)
• l George, Henry. 1879. “Preface,” Progress and Poverty. New York: Modern Library, pp. xii-xvii. Available online.
• Harriss, C. Lowell. “How to Make Slums and Create Barbarians,” Economic Education Bulletin. May 1981. American Institute for Economic Research: Great Barrington, MA. Available online.
• Friedman, David. 1970. “The Rich Get Richer and the Poor Get Richer,” Chapter 5 in The Machinery of Freedom.

Video: Commanding Heights, Episode Three: The New Rules of the Game

Section V: Macroeconomics

1. Introduction

1.  
   1. Major issues in macroeconomics
   2. Macroeconomic policy (Ch 11 and 12 if you have full edition, I will not cover these in class)

Readings

• l GSSM Ch8, pp. 170-183
• Lekachman, Robert. 1977. “The Specter of Full Employment.” Harper’s Magazine, February, pp. 35-40.
• Hazlitt, Henry. 1959. The Failure of the “New Economics.”  Princeton, NJ: Van Nostrand, Chapter XXVI, pp. 399-408.
• l Lucas, Robert. 1978. “Unemployment Policy.” American Economic Review, May pp. 353-357. Available online.
• Buchanan, James M. and Richard E. Wagner. 1978. The Consequences of Mr. Keynes. London: Institute of Economic Affairs, pp. 13-17, 18, 23, 27.
• Hutt, William Harold. 1963. Keynesianism – Retrospect and Prospect. Chicago: Henry Regnery, pp. 39-43.
• l Modigliani, Franco. 1977. “The Monetarist Controversy, or Should We Foresake Stabilization Policies?” American Economic Review, Volume 67 (March), pp. 1-8, 12, 14, 15, 17, 18. Available online.
• l Keynes, John Maynard. 1936. The General Theory of Employment Interest and Money. London: Macmillan, pp. 377-84. “Concluding Notes on the Social Philosophy Towards Which the General Theory Might Lead.

2. Measurement

1.  
   1. Measuring GDP
   2. GDP and living standards

Readings

• l GSSM Ch7
• Abraham, Katharine G. 2005. “What We Don’t Know Could Hurt Us: Some Reflections on the Measurement of Economic Activity,” Journal of Economic Perspectives, Vol. 19, No. 3 (Summer, 2005), pp. 3-18. Available online.
• l U.S. Bureau of Economic Analysis. “Measuring the Economy: A Primer on GDP and the National Income and Product Accounts,” September 2007. Available online.

3. Inflation

1.  
   1. Causes
   2. Consequences

Readings

• l GSSM Ch8, pp. 183-186
• l GSSM Ch12, pp. 264-283
• Weatherford, Jack. 1998. “Cannibals, Chocolate and Cash,” Chapter 1 in The History of Money.
• Hazlitt, Henry. 2008. What You Should Know About Inflation, Mises Institute Daily Article, March 11, 2008. Available online.
• Law, John. 1705. Money and Trade Considered. Printed by the heirs and successors of Andrew Anderson, printer to the Queen’s Most Excellent Majesty. Read the 1^st five paragraphs of the section, “5. Freighting, or hireing out Ships” this is available online.
• l Bagehot, Walter. “Why Lombard Street is Often Very Dull, and Sometimes Extremely Excited,” in Lombard Street. London: Kegon Paul and Co., April 1873, pp. 118-123, 150-52. Available online.
• Fisher, Irving. 1935. 100% Money. New Haven: The City Printing Company, pp. 3-20. “100 Per Cent Reserves.”
• Simons, Henry. 1936. “Rules versus Authorities in Monetary Policy.” Journal of Political Economy, Vol. 44, No. 1 (February), pp. 1-30. Available online. 
• Keynes, John Maynard. 1932. Essays in Persuasion. New York: Harcourt Brace, pp. 77-79. “Inflation and Deflation.”
• Samuelson, Paul and Robert Solow. 1960. “Problems of Achieving and Maintaining a Stable Price Level.” American Economic Review, (May), pp. 136, 189, 191-194. Available online
• Friedman, Milton. 1977. “Inflation and Unemployment.” Journal of Political Economy, No. 3, pp. 454-60, 464-71. Available online.

You might wish to watch: Waterworld, the mariner has in his possession a bag of dirt, something we’d take for granted today, but not in Waterworld. The dirt is more valuable than pure fresh water. Once the dirt is assessed for purity and weighed it is exchanged for 124 chits.

You might wish to watch: The Major and the Minor.

4. SPECIAL TOPIC (POSSIBLE): Social Security

Readings

• l Jackson, Howell E. 2004. “Accounting for Social Security and Its Reform,” Harvard Journal on Legislation, Vol. 41, pp. 59-159. Available online.
• l Furman, Jason. 2007. “Options for Closing the Long-Run Fiscal Gap,” Testimony Before the U.S. Senate Committee on Budget. January 31, 2007. Available online.
• What You Need To Know About Social Security. American Institute for Economic Research, 2007.

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