Lecture 10/14

Main Point One: All the guilded age "robber barons" started out poor and picked themselves up by the bootstraps, even though history books portray them as criminals who stole other people's money. In fact, people didn't get poor from them.

Main Point Two: What is so bad about Marxism?
-He thinks in a zero sum way and he contradicts himself
-For example, he thinks a factory worker is making far less than the value of what he's producing, and that he's being exploitive. Yet when Marx suggests to abolish private property, he suggests that the amount people work and what they produce don't mean anything.
-He also ignores the assumption that if the worker doesn't feel he's making what he feels he's valued at that he can find another job that needs someone of his skills who would be willing to pay him that much.

Main Point Three: Why Markets are often "Wrong"
-If there's no unwritten "rule of law," in a society, then it's hard for them to have an effective free market system. Things like don't sit on a seat that has someone else's bag on it need to be instinctively followed, and need to be "law" before it's legislation.
-Externalities also cause markets to not function. For example, if every student was forced to take Professor Rizzo's class, then Rizzo would have no incentive to teach, and every incentive to use his students to his advantage.
-Why information problems cause markets to fail: Let's it costs $2million to pay for cancer treatments, so every person who buys health insurance pays $2000 to make paying for treatments cheaper for them. Let's say a healthier than average person saw this deal, they would think it's not worth it because their liklihood of contacting the disease is extremely low. However, a person with an extremely unhealthy lifestyle would think this is a good deal because she is likely to contact the disease, so this is a cheap way for her to treat it. However, it gets more expensive for the sick person if the healthy person pulls out. Since all the healthy people are pulling out, most people don't want to pay because it's too expensive, not knowing that it's expensive because so many people pulled out.

Main Point Four: Why institutions matter
Good institutions are generally accepted ways of acting before the way of acting becomes official legislation. If unwritten law becomes legislation before legislation becomes unwritten law, it works much better. In order for them to work, they must equally apply to everyone and must not be arbitrary. Institutions are not rivalrous because as many people can access them as they want without having to compete for them.