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Free Enterprise: The Economics of Cooperation Part 52 of 52 |
| Written by Webmaster, on November 21, 2008 08:22 AM |
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No economic system does a better job than the market system of realizing the advantages of both individual freedom and social cooperation. But no matter how well the market works, people will still be dissatisfied with the outcomes it produces because they always reflect the unavoidable reality of scarcity. People will always want, and are easily convinced they deserve, more than is available.
Many of the criticisms of the market are really complaints about scarcity. Indeed, one reason the market is so effective at pushing back the limits of scarcity is that it forces us to face up to scarcityand deal with itthrough the information that market prices communicate.
Market economies address scarcity by keeping us informed and responsive to it. Understanding economics reduces the temptation to temporarily mask scarcity by restricting market communication. Our best hope for continued freedom and prosperity is the social cooperation made possible by communication through market prices.
Last update: November 21, 2008 08:22 AM
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Free Enterprise: The Economics of Cooperation Part 38 of 52 |
| Written by Webmaster, on November 04, 2008 04:42 PM |
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In large corporations the residual claimants are the shareholders, who are so numerous that instead of making corporate decisions themselves, they hire managers to run the firm. But even here, tying management pay and tenure to the company's stock performance can motivate managers to act like residual claimants by encouraging them to make profits as large as possible.
So while profits may seem like an extra cost to consumers, profits actually lower prices by motivating firms to produce the right products, in the right amounts, as cheaply as possible.
Consider what occurs when there is no residual claimant. Government agencies don't make a profit; they receive appropriations at the beginning of each fiscal year. Any money not spent at year's end goes back into the general fund, and the agency may get a smaller appropriation the following year. To avoid this, managers will desperately search for something to spend excess money on more computers, travel, office space, anything regardless of whether it adds to the value of the service provided.
The result is that the cost of providing government services is much higher than it needs to be, and citizens pay far more in taxes than they would if the services were provided
Last update: November 04, 2008 04:42 PM
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