The Concise Encyclopedia of Economics

Browse the CEE Index

Index Entries beginning with:
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z

A

AAA (Agricultural Adjustment Act of 1933), 4, 173, 232–33
abortion, 325, 588
accidents: causes, 324; deaths, 446; rates, 327. See also job safety; tort law
accounting: internal controls, 91; sources-of-growth, 593; standards, 386
accounting firms: auditors, 91; regulation of, 91; savings and loan audits, 462
accounting scandals, 90, 98
acquisitions. See mergers; takeovers
activity analysis, 552
Adenauer, Konrad, 218
adverse selection, 282
advertising, 1–4; as barrier to entry, 2–3; competing with, 74; deceptive, 2; economic function, 1–2, 269; expenditures, 1; government, 3; history, 1; image, 2; price, 3; of quality, 82; ratios to sales, 1; regulation of, 3; relationship to profit, 3; seen as brainwashing, 59; television, 303–4; on Web sites, 303–4
AFDC (Aid to Families with Dependent Children), 408, 511. See also welfare system
affirmative action, 118–19, 216
Africa: average incomes, 146; economic freedom, 125; foreign aid, 194; government corruption, 99, 122, 194. See also individual countries
African Americans: civil rights movement, 119; effects of New Deal policies, 233, 572–73; poverty rates, 406; segregation, 118, 119, 572; strikebreakers, 321; wages, 117, 543
African National Congress Party, 18
Afrikaners, 15
Aftalion, Albert, 305
agency costs, 87–88, 89, 334, 335
Agent Orange, 327–28
aggregate demand: externalities, 379; fiscal policy influences, 183, 184, 185, 355, 483, 557; fluctuations and business cycles, 49; influences on, 316; Keynesian view, 376, 483, 550
Agricultural Adjustment Act (AAA) of 1933, 4, 173, 232–33
agricultural subsidy programs, 4–6; costs, 4, 438; criticism of, 4, 427; economic impact, 5, 166, 580; in European Union, 5, 166; forms, 4, 5; impact on international trade, 5–6; impact on prices, 166, 437; in OECD countries, 4–5, 427; parity prices, 344; reductions, 6; supporters, 4, 429, 438–39; in United States, 4, 5, 344, 437, 438–39; wool, 398
agriculture: cartels, 63; commodity futures, 207, 208, 209; in developing countries, 6, 557, 585–86; diminishing marginal returns, 599; effects of global warming, 220; employment, 102–3; in European Union, 5, 166; international trade, 5–6, 427; land rents, 580; New Deal programs, 4, 173, 232–33, 572–73; productivity growth, 102–3, 403; share of labor force, 403, 417–18; in Soviet Union, 66, 423; tenant farmers, 233; trade barriers, 5, 342, 427
Aid to Families with Dependent Children (AFDC), 408, 511. See also welfare system
aircraft: manufacturing, 326; military, 110
Air Force, U.S., 110
Airline Deregulation Act of 1978, 6
airline industry: cartel, 74; competition, 7; deregulation, 6–10, 60, 440; freight transportation, 487; growth, 7; hub-and-spoke system, 7, 8; low-cost carriers, 7, 8; mergers, 8; national ownership rules, 10; “Open Skies” agreements, 9–10; political control of grid, 8–9; profitability, 8; regulation, 6, 7–8, 9–10; subsidies, 10; yield management, 601
air pollution: controls, 170, 210, 399–400, 401–2, 441; effects of fuel efficiency standards, 153; futures, 210. See also environmental damage
airports, 9, 168–69
air traffic control, 9
Air Transport Association, 8, 9
Air Transportation Stabilization Board (ATSB), 10
Akerlof, George A., 521
Alchian, Armen A., 24, 522–23
Allais, Maurice, 523
all-volunteer forces (AVFs), 76, 77
altruism: actions based in, 34–35, 64; environmental quality and, 163; moral value, 162; among voters, 398. See also charity
aluminum: prices, 373; recycling, 162, 435
American Stock Exchange (Amex), 479
American Trucking Association, 486
Anchorage earthquake, 114
Angola, civil war, 455
antidumping duties, 426–27
antitrust, 11–14; criticism of, 11–13, 365; effects, 8, 13–14; enforcement, 12, 13–14, 62–63, 260, 366, 587, 594; exemptions, 13, 474; issues in sports, 474, 475; laws, 11, 13, 14, 58, 259; merger reviews, 260; origins, 11, 59; practices outlawed, 11; suspension of enforcement during Great Depression, 234. See also mergers; monopolies
apartheid, 14–19; colour bar, 15–17; created by white workers, 15, 16–17, 116; decline, 17–18; effects of international sanctions, 18, 452; implementation, 17; origins, 15–17
arbitrage: costs, 268; covered interest, 199; in foreign exchange, 528; locational, 469–70; price differences eliminated by, 268; in sports, 472
Arca/EX, 335
ARCH (autoregressive conditional heteroskedasticity), 530–31
Argentina: government debt default, 186; hyperinflation, 253; privatization, 414, 415
Army, U.S., 110
Army Corps of Engineers, 487
Arrow, Kenneth: biography, 523–24; impossibility theorem, 428, 523, 588
arts, 19–21; donations to nonprofit organizations, 19, 64; economic principles and, 19–21; innovations, 21; international trade in, 20; subsidies, 20
asbestos, 311, 326–28
Asia: average incomes, 147; male-female ratio, 588–89. See also individual countries
asset prices: based on present value of future cash flows, 138, 478; relationship to replacement costs, 598. See also efficient markets theory; stock prices
asymmetric information: incentives under, 568, 600; in insurance market, 596; in markets, 88, 96, 268, 282, 521, 596–97; about stock values, 88, 96; on worker productivity, 594
AT&T, 366
athletes, behavior of, 471–73. See also sports
ATSB (Air Transportation Stabilization Board), 10
auctions, 21–23; of airport landing and takeoff rights, 168–69; definition, 21; Dutch, 21, 22, 168, 593; economic experiments, 168, 592–93; English, 21, 22, 168, 592–93; sealed-bid, 21–22, 592–93, 601; types, 21–22, 592–93, 601; Vickrey (second-price), 21–22, 601; of wireless bandwidth, 22–23
auditors, regulation of, 91
Audubon Society, 204
Australia: immigration, 256; minimum wages, 346, 347; trade embargo on France, 453
Austrian School of Economics, 23–27; business cycle theory, 26, 569; contemporary economists, 24; history, 23–24; leading figures, 23, 24, 526–27, 565, 569; propositions, 24–27; view of information and markets, 269. See also Hayek, Friedrich August; marginalism; Mises, Ludwig von
automatic stabilizers, 184
automobiles: accident rates, 327; electric, 150; emissions standards, 400; fuel efficiency, 153, 374; insurance, 281, 283; Japanese industry, 309, 426; safety regulation, 440; voluntary export restrictions, 426; warranties, 521
autoregressive conditional heteroskedasticity (ARCH), 530–31
AVFs (all-volunteer forces), 76, 77

B

baby boomers: in labor market, 403; retirements, 240, 458–59, 464
Bachelier, Louis, 138
balance-of-payments accounts, 27–29; capital account, 28–29, 290–91, 293, 297; current account, 28, 29, 290–91, 292–93, 297; deficits, 27; definitions, 27–28; discrepancies, 291, 292; money supply and, 547, 571; offsetting balances, 291; surpluses, 27; trade balance, 27, 28, 183, 297, 340; of United States, 27, 28, 29, 292
Bangladesh, effects of corruption, 98
Banking Act of 1935, 176
Bank of England: anti-inflation policies, 318; bullion controversy, 580; founding, 179; operation of gold standard, 223
bank runs, 29–31; in Great Depression, 232; illiquidity, 180; relationship to bank failures, 30; spillover effects, 29–30; as warning sign, 180
bankruptcy, 31–34; corporate, 31, 32–33, 181; costs, 33, 87, 89; enforcement of laws, 89; filing rates, 31, 32, 33; government, 185–86; history, 31; law, 31–33; pension plans and, 181; personal, 31, 32, 33
banks: antidiscrimination laws, 181; capital requirements, 179, 440, 531; checkable deposits, 71, 355, 356–57, 360, 361; crises in Great Depression, 175–76, 180, 232; currency issued by, 71; failures, 30, 180, 232, 310; free banking systems, 71–73; international, 181; national, 174; regulation, 174, 178–82, 440, 460; reserve requirements, 176, 177, 233, 351, 355, 357, 361; reserves, 356–57; runs on, 29–31, 180, 232; state charters, 174; too-big-to-fail, 180–81. See also financial institutions; investment banks
Bank Secrecy Act, 181–82
barriers to entry, 13, 258, 365
barriers to trade. See trade barriers
Barro, Robert, 318, 379, 435
barter, 200, 217, 252, 565
baseball, 472–73, 474
Basel capital standards, 179, 531
basketball, 472
Bastiat, Frédéric, 163–64, 505, 524–25
Beane, Billy, 473
Bear Stearns and Company, 314
Becker, Gary Stanley, 323, 429, 525, 586
behavioral economics, 34–38; bounded rationality, 34, 35, 590; bounded selfishness, 34–35; decision making, 547–48; differences from traditional economic view of human behavior, 34–35; finance, 35–36, 140; loss aversion, 34, 548; mental accounting, 34; saving behavior, 36–37
benefit-cost analysis (BCA), 38–40; of environmental policies, 38–39, 441–42; estimation of benefits and costs, 38–39; issues, 39; use by governments, 39–40; value framework, 161
benefits, 347. See also health insurance; pensions
Bentham, Jeremy, 525–26
Berle, Adolf A., 60, 89, 97
Bernanke, Ben, 266
beta, 589
Bewley, Truman, 434
Black, Duncan, 428
Black, Fischer, 210–11, 566, 584–85
black markets, 410
Black-Scholes option pricing model, 210–11, 566, 584–85
Blinder, Alan, 54, 492
block booking of movies, 594
BLS (Bureau of Labor Statistics), 78, 79, 80, 262, 418, 503
Blue Cross, 241
Blue Shield, 241
boards of directors. See directors
Boers, 15
Boesky, Ivan, 315
Böhm-Bawerk, Eugen von, 23, 24, 526–27, 551, 587, 603
Bolivia, dollarization, 253
Bond Market Association, 86
bonds, 40–42; definition, 40; government, 224–27; interest payments, 289–90; issuers, 40; market values, 225; municipal, 42, 224; prices, 40, 289; ratings, 41, 313. See also corporate bonds; debt; government debt
Boserup, Ester, 404
Boulware, Lemuel, 319
Boulwarism, 319
bounded rationality, 34, 35, 590
brand names, 42–44; advertising, 1–2; economic function, 43–44; price premium, 42–43, 44; quality assurance function, 2, 43–44, 81
Bretton Woods system, 198, 222, 549. See also World Bank
bribery, 98, 99. See also corruption
Bridgestone, 43–44
brinkmanship strategy, 213
British Empire, 15, 591
Brock, William A., 434
brokerages: functions, 179; investor protection, 181; regulators, 179
Brunner, Karl, 350
bubbles, 44–47; debate on, 47; definition, 45; Internet stocks, 44–45, 140, 141, 301; irrational, 45, 47; Mississippi, 46–47; perpetuation, 45; rational, 45, 47; South Sea, 46–47; speculative, 198; tulip, 45–46
Buchanan, James M., 24, 332, 527
budget deficits: definition, 224; of European Union members, 186; fiscal policies, 182–83, 226–27, 355, 557; future taxes implied by, 226, 318, 378; as indicator of fiscal sustainability, 186; of United States, 40, 186
budget surpluses, of United States, 183
building industry. See construction industry
Bundesbank, 354
bureaucracies, 399, 429–30, 468, 603
Bureau of Engraving and Printing, 361
Bureau of Labor Statistics (BLS), 78, 79, 80, 262, 418, 503
Burma, international sanctions on, 452
Burns, Arthur Frank, 177, 528
Bush administration (1989–1993), 453
Bush administration (2001–2009): outsourcing of federal jobs, 416; Social Security reform proposals, 465; tax cuts, 83, 85, 355; tax proposals, 85–86; war on terrorism, 182; withdrawal from Kyoto protocol, 219–20
business cycles, 47–51; Austrian School view, 26, 569; causes, 48–49; consensus explanations, 381; countercyclical fiscal policy, 184, 550; dating, 48; econometric models, 598; effects of shocks, 578; forecast errors and, 434; historical record, 49–50, 528; Keynesian stabilization policies, 317, 318, 341–42; Keynesian view, 49, 432–33; moderation, 50; new classical view, 49, 318, 319, 376–77; peaks, 48; persistence, 377; role of expectations, 432–33; role of monetary policy, 48–49; troughs, 48; unemployment, 504; in United States, 48. See also recessions

C

CAB (Civil Aeronautics Board), 6, 7–8
cable television, 495
cabotage laws, 342
CAFE (Corporate Average Fuel Efficiency standards), 153
California: electricity markets, 144, 169; gold rush, 223; minimum wages, 349
California Contract Cities Association, 416
California Power Exchange, 144
California Public Utilities Commission (CPUC), 144
campaign finance, 51–53; corporate employee contributions, 52; expenditures, 53; free-speech issues, 51; individual contributions, 52, 53; reforms, 53; regulation, 51, 52, 53; relationship to actions of elected officials, 52, 75; relationship to electoral results, 51–52; wealthy candidates, 51
Canada: floating exchange rate, 571; immigration, 256; inflation indexing of tax brackets, 572; natural gas exports, 370, 371; North American Free Trade Agreement, 299–300, 427; oil exports, 382; protectionism, 547
CAP (Common Agricultural Policy), 166
capital: definition, 53, 532; incentives to accumulate, 554; mobility, 199; physical, 26, 304–8; ratio to labor, 53–54, 418; role in economic growth, 593, 599. See also human capital
capital asset pricing model, 566, 589
capital controls, 199
capital flows, international. See international capital flows
capital gains: definition, 54; on stock investments, 479
capital gains taxes, 53–57; avoidance, 54, 55; debates on, 83–84; definition, 54; effects of inflation, 265; eliminating, 83–84, 560; impact of changes, 55–57; inefficiency, 54–55; rate cuts, 56–57, 83, 85, 492; relationship of rates to stock prices, 55; relationship to new business creation, 55–56; revenues, 54, 55; unique features, 54
capital goods, heterogeneity, 26
capitalism, 57–60; benefits, 59; creative destruction, 101–4, 155, 272, 586; critics of, 58–60; division of labor (specialization), 60, 115, 200, 603; emergence, 57–58; entrepreneurship in, 156–57; Marxist view, 58, 59, 338–39; profits, 419–20; role of competition, 75. See also economic freedom; free markets
capital losses: deduction for, 54; disposition effect, 36
capital markets: efficiency, 138–42; excess returns, 589; regulation, 90; risk, 589. See also asset prices; efficient markets theory; stock markets
capital punishment, 106, 325
capture theory, 426, 427, 595
carbon emissions, 219–20, 221
Carfax, 521
Carlson, Chester, 272
Carnegie, Andrew, 58
cartels, 61–63; agricultural, 63; airline, 74; antitrust prosecutions, 62–63; cheating by members, 61, 62, 74–75, 383; conditions discouraging, 62–63; consensus in, 62; failures, 62; in fascist economies, 172, 173; government facilitation, 13, 63, 75, 233, 234, 578; rarity, 63; restraint of trade, 11; sports leagues, 474; successful, 61–62. See also antitrust; OPEC
Carter, Jimmy, 177, 454, 486
cash-flow tax. See consumption tax
Cassel, Gustav, 528
Castro, Fidel, 256
catallactics, 24
CBOE (Chicago Board Options Exchange), 210, 585
CBOT (Chicago Board of Trade), 207, 209, 210
CEA (Council of Economic Advisers), 544, 576, 596, 598–99, 607
cell phones, 495–96
Census Bureau, 136; Current Population Survey, 119–20, 122
central banks: abolition of, 71–72; anti-inflation policies, 318–19, 554; Bank of England, 179, 223, 318, 580; Bundesbank, 354; foreign exchange reserves, 197; foreign exchange trading, 197; operation of gold standard, 223; power, 353; sterilization operations, 197, 223; in transition economies, 500; U.S. government securities held by, 293. See also European Central Bank; Federal Reserve
central planning: advocates of, 75, 124, 466–68, 554–55; allocation of resources, 549; by Defense Department, 110; drawbacks, 201, 390; information problems, 269; New Deal programs, 173; problems with, 110, 466–68, 499, 541; in Soviet Union, 466–67, 468. See also socialism
CFCs (chlorofluorocarbons), 402
Chamberlin, Edward H., 581–82
Champernowne, David, 597
charity, 63–66; arts funding, 19, 64; donations to, 34; foreign aid, 194–95; giving as proportion of GDP, 64; during Great Depression, 64–65; history, 64–65; motives for, 64; recipients, 64, 65; Smith on, 590–91; volunteer work, 34–35, 64. See also nonprofit organizations
charter schools, 134
chartists, 139
checkable deposits, 71, 355, 356–57, 360, 361
Chicago Board of Trade (CBOT), 207, 209, 210
Chicago Board Options Exchange (CBOE), 210, 585
Chicago Mercantile Exchange, 207, 209
Chicago school, 217, 351, 376, 551
child labor, 58
children: Medicaid coverage, 514; poverty rates, 406, 408; property rights to toys, 424; unmarried mothers, 407, 408. See also education
Chile: economic freedom, 125; hyperinflation, 253; incomes, 146; privatization, 414
China: communism, 67; economic freedom, 68, 125–26; economic policies, 68, 130; one-child policy, 588; productivity, 206; state-owned enterprises, 415; trade surplus with United States, 206; wages, 206
chlorofluorocarbons (CFCs), 402
Church of England, 57
cigarettes: advertising, 3; excise taxes, 328. See also tobacco industry
CIO (Congress of Industrial Organizations), 233
Civil Aeronautics Board (CAB), 6, 7–8
Civil Rights Act of 1964, Title VII, 216
civil rights movement, 119
classes: class struggle, 339, 563; mercantile, 340
classical economics, 23, 376, 403, 545. See also Ricardo, David; Smith, Adam
Clay, Henry, 75
Clay, Lucius D., 217, 218
Clayton Act of 1914, 11, 13, 14, 259
Clean Air Act, 399–400, 401
climate change. See global warming
Clinton administration: Council of Economic Advisers, 596; Kyoto protocol, 219; welfare reform, 438, 511–12; World Trade Organization meetings, 300
cliometrics, 575
closed-end mutual funds, 35
coal: mines, 546; use in electricity generation, 143, 399
Coase, Ronald H., 24, 171, 323, 528–30, 577, 593
Coase theorem, 171, 323, 529
coercion, 201, 424
cognitive psychology, 450
Colbert, Jean-Baptiste, 341, 579
cold war, 194
collateral trust bonds, 42
collective bargaining, 319. See also labor unions
collective goods. See public goods
colleges and universities: costs, 249; enrollments, 249; female students, 249; financial aid, 134; general education requirements, 134; government funding, 130, 134–36; loans, 135; private, 135; public, 135; racial preferences in admissions, 118; rate of return to education, 136, 248; sports teams, 320; tuition charges, 135. See also education
commodity futures: energy, 151, 210, 371; as insurance, 151, 209; markets, 207, 209; orange juice, 210; trading, 208
Common Agricultural Policy (CAP), 166
common currency areas. See monetary unions
common markets, 164, 299. See also European Union
common-pool problems, 31–32
common stock. See stock
communications. See telecommunications
communism, 66–69; central planning, 124; in China, 67; collapse, 67–68, 337, 340, 499; in Eastern Europe, 67, 146, 337, 555; economics of, 66; fascist opposition to, 172–73; fear of during cold war, 194; Marx’s conception, 563; in Soviet Union, 66–68, 114, 115, 466–67. See also Marxism; socialism; transition economies
Compagnie des Indes, 46–47
comparative advantage, 69–71, 206, 295–96, 580
compensation, fringe benefits, 347. See also wages; workers’ compensation system
compensation test, 544
competing money supplies, 71–73
competition, 73–76; activity of, 25; assumption of perfect information, 267; costs, 74; creative destruction and, 102; functions, 75; global, 469, 470–71; information needed, 74; monopolistic, 581–82; nonprice, 74; perfect, 58, 75, 586; real, 58; regulation inhibiting, 75. See also antitrust
compound interest, 288
Comptroller of the Currency, U.S., 176, 179
computer industry: effects of trade barriers, 207; innovation, 275. See also Internet; software companies
concentration ratio, 257
Condorcet’s paradox, 523, 588
congestion pricing, 507–8, 601
Congress of Industrial Organizations (CIO), 233
conscription, 76–77; effects on military wages, 76; inequities, 76–77; negative effects, 76–77; opponents, 534; supporters, 76; as tax on military service, 76; in United States, 76, 234
conservation, private choices, 203–4
Constitution, U.S.: Bankruptcy Clause, 31; intellectual property protection, 284; Second Amendment, 111
construction industry, effects of minimum wages, 347
consumed-income tax. See consumption tax
consumer-driven health care, 240, 242–43
Consumer Price Index (CPI), 78–80, 262
consumer price indexes, 77–81
Consumer Product Safety Commission, 82
consumer protection, 81–83; regulation, 82–83; role of middlemen, 81–82
consumer sovereignty, 556
consumer spending. See consumption
consumer surplus, 562–63
consumption: conspicuous, 535, 600; deferred, 456; effects of tax cuts, 434; foregone, 304–5, 307, 419–20; habit persistence, 434; influence of monetary policy, 356; life-cycle model, 36, 569–70; permanent income theory, 433–34; relationship to income, 36; share of GDP, 368
consumption tax, 83–86; arguments for, 83–84, 492, 532, 568; implementation, 85; opposition to, 85
contingent valuation method, 38
contraceptives, 327
contract law, 82, 324
convergence behavior, 114
convertible bonds, 42
Coolidge, Calvin, 477, 483
copper prices, 373, 404
copyrights: duration, 284, 286, 287–88; fair use, 287; file-sharing issues, 287; law, 284, 287; monopoly conferred by, 285–86. See also intellectual property rights protection
Corporate Average Fuel Efficiency (CAFE) standards, 153
corporate bonds, 41–42; compared to government bonds, 225; default risk, 41; factors in use of, 86–89, 267; investment-grade, 313; junk bonds, 41, 313–16, 462; legal factors, 89; outstanding amounts, 86, 94; private placements, 313; ratings, 41; types, 41–42
corporate financial structure, 86–89; debt/equity ratios, 86–87; determinants of, 86–89; influences of taxes, 93–94; M&M theorem, 86, 567, 570; “pecking order” model, 88. See also corporate bonds; stock
Corporate Fraud Task Force, 91
corporate governance, 89–92; agency problem, 87–88, 89, 334, 335; equity ownership by managers, 90; exchange listing requirements, 90; internal controls, 91; legal environment, 90–91; management accountability, 91; market forces, 90; questioning of, 90; reforms, 90–92; separation of ownership and management, 60, 87, 89, 95, 96–97, 334. See also market for corporate control
corporate scandals. See accounting scandals
corporate taxation, 92–95; deductibility of interest payments, 94; distinction from individual taxation, 92; double, 84, 87, 492; economic effects, 93–94; history, 93; incidence, 92–93, 94, 491; income tax, 92–93, 490, 492; of multinational companies, 94; proportion of federal revenues, 93; rates, 92; by states, 93
corporations, 95–98; agency costs, 87–88, 89, 334, 335; bankruptcies, 31, 32–33, 181; campaign contributions by employees, 52; comparison to partnerships, 95; creating, 95; criticism of, 60, 97; definitions, 95; democratic analogy, 97; labor conflicts, 320; limited liability, 96; multinational, 94, 99; private, 334; public, 333, 334; reputations, 43, 44, 58, 81, 82, 268–69; separation of ownership and management, 60, 87, 89, 95, 96–97, 334; state charters, 94, 95; Subchapter S status, 94. See also market for corporate control
corporatism, 172
corruption, 98–101; in Africa, 99, 122, 194; business-to-business, 98; country rankings, 99; economic effects, 98–99; facilitation payments, 98, 99; government, 98–99; legal penalties, 99; in rationing schemes, 410; reducing, 100; relationship to poverty, 98; in transition economies, 502; in United States, 99
Corzine, Jon, 51
cost-benefit analysis. See benefit-cost analysis
cost of living, 78
costs: as competitive advantage, 74; marginal, 331; opportunity, 25, 385, 525; subjectivity, 24–25. See also transactions costs
Council of Economic Advisers (CEA), 544, 576, 596, 598–99, 607
countervailing duties, 426–27
courts, efficiency, 323. See also legal systems; Supreme Court
covered interest arbitrage, 199
covered interest parity, 199
CPI (Consumer Price Index), 78–80, 262
CPUC (California Public Utilities Commission), 144
creative destruction, 101–4; effects on employment, 102–4, 272; innovation by entrepreneurs, 586; introduction of new products, 101–2, 104, 155; productivity growth and, 102–3; technological change, 272; in transportation, 101–2
creditors, protections in bankruptcy law, 31. See also debt
credit unions: functions, 178–79; share insurance, 180. See also financial institutions
creeping inflation, 545
crime, 104–7; costs and benefits, 525; deterrent effect of punishment, 106, 325; economic analysis, 104–7; organized, 105; rights of accused, 325; theft, 106. See also corruption; law enforcement
criminal law, 106–7, 323, 325
Cuba: Mariel boatlift, 256; trade sanctions on, 454
culture. See arts
currencies: coins and notes, 361; competition, 71; fiat, 71, 72, 73, 172, 351, 360; foreign exchange market, 197–200, 210, 528; German, 217–18; introduction to end hyperinflation, 252; in money supply, 355, 360, 361; vehicle, 197. See also euro; exchange rates; U.S. dollar
currency futures, 207, 209
currency options, 197, 210
current account, 28, 29, 290–91, 292–93; deficits of developing countries, 342–43; surpluses, 343; U.S. deficit, 292, 293, 297, 342–43, 456. See also balance-of-payments accounts
customs unions: definition, 299; exceptions for in WTO rules, 164; trade creation and trade diversion, 166, 300, 601–2. See also European Economic Community

D

Dalkon Shield, 327
Danish Competition Council, 63
Davis-Bacon Act, 321, 347
DB (defined benefit) plans, 386–87. See also pensions
DC (defined contribution) plans, 386
deaths: causes, 446–47; mortality rates, 476
debentures, 42
Debreu, Gerard, 530
debt/equity ratios, 86–87
decision making: biases, 547–48; bounded rationality, 34, 35, 590; risk estimation errors, 450, 548; under uncertainty, 547–48. See also behavioral economics; public choice
defense, 107–11; central planning, 110; civil liberties issues, 111; demand for, 108–9, 398; expenditures, 107, 108, 499, 501; foreign procurement, 109; free-rider problem, 107–8, 431; international alliances, 109; optimal amount, 108; private benefits from spending, 108; production of goods, 109–10. See also military
Defense Department. See U.S. Department of Defense
defined benefit (DB) plans, 386–87. See also pensions
defined contribution (DC) plans, 386
demand, 111–13; curves, 481, 561–62; derived, 565; elasticity, 112, 562; income levels and, 112–13; law of, 111–12; microeconomic theory, 343–44. See also aggregate demand
democracy: in corporations, 97; in Eastern Europe, 502; expansion, 229; legislatures, 429; majority rule, 108, 396, 430; provision of public goods, 108; voting rights, 229. See also elections; political behavior
Demsetz, Harold, 24
deposit insurance, 180–81, 459–60, 462, 498
depository institutions, 178–79, 355, 361. See also banks; financial institutions; savings and loans
depreciation, accelerated, 306
deregulation: airline, 6–10, 60, 440; benefits, 488; corruption reduced by, 100; of financial industry, 177; of savings and loans, 460–61; of surface freight transportation, 60, 440, 485–89; of telecommunications, 494; in United States, 6–7, 440. See also regulation
derivative securities: trading volume, 197; uses, 584. See also futures; options
destruction, creative. See creative destruction
developing countries: agriculture, 6, 557, 585–86; artists from, 20; capital controls, 199; capital flight, 293; current account deficits, 342–43; dual economies, 557; economic growth, 557–58; foreign aid, 194–97; foreign direct investment in, 293–94; foreign exchange gap, 195; international capital flows, 291, 293; international trade, 6, 296–97, 558; life expectancies, 129, 402; population growth, 402; rural poverty, 405, 585–86; savings gap, 195; World Bank loans, 194, 195–96
Diamond, Peter, 568
digital rights management (DRM), 287
diminishing marginal returns, law of, 580, 599
Director, Aaron, 529, 587
directors: elections, 97; independence, 90; insiders, 97; insider trading by, 276, 277; relations with managers, 90; replacing, 333; role, 95, 334; stock owned by, 90; of takeover targets, 336
disability insurance, Social Security, 463, 464, 513
disaster recovery, 113–16; antisocial and prosocial behavior, 114; convergence behavior, 114; factors in recovery, 114–15; population movements, 115; preparations, 115; role of government, 115; safety nets, 113; speed of recovery, 113
disasters: community-wide, 113–14, 115; society-wide, 113, 115
discount rate, 175, 176, 231, 232, 355, 361, 362
discrete choices, 564
discrimination, 116–19; in bank lending, 181; bases, 117; causes of different outcomes, 116–17; costs, 116, 522–23, 525; gender-based, 215, 273; government intervention and, 116, 119; by labor unions, 321; laws prohibiting, 181, 216; officially sanctioned, 118–19; statistical, 117; wage disparities and, 543. See also apartheid
disinflation, 266, 354, 361, 412
disposition effect, 36
distribution of income, 119–23
dividends, 479; increases, 478; taxes on, 83, 87, 94, 492; uncertainty, 478
division of labor: in bureaucracies, 429; in capitalism, 60, 115, 200, 603; role of telecommunications and information technology, 469, 494; Smith on, 19, 494, 591; Turgot on, 599. See also specialization
divorce, economic analysis of, 529–30
Dixit, Avinash, 426
doctors. See physicians
dollar, Canadian, 571
dollar, U.S. See U.S. dollar
dollarization, 253
Domar, Evsey, 539, 556
Dorfman, Robert, 583
Dornbusch, Rudiger, 198
dot-com stocks. See Internet stocks
Dow Chemical Company, 328
Dow Jones Industrial Average, 139, 479, 480. See also stock prices
Downs, Anthony, 429, 527
Drexel Burnham, 314, 315
Drèze, Jean, 588
DRM (digital rights management), 287
dual economies, 557
DuBois, W. E. B., 321
dumping, antidumping duties, 426–27
Dutch auctions, 21, 22, 168, 593
Dvorak, August, 303
dynamic equation of exchange, 263–64
dynamists, 273–74

E

Earned Income Tax Credit (EITC), 122, 408, 438, 510, 513–14
earnings, gender gap, 117–18, 214–16. See also incomes; wages
earthquakes, 113–14. See also disasters
Eastern Europe: communist regimes, 67, 146, 337, 555; conscription, 77; democratic governments, 502; economic freedom, 126, 159–60; economic growth, 502; environmental damage, 202; EU members, 164, 165, 499, 502; free-market reforms, 68; government debt defaults, 186; NATO members, 77; transitions from communism, 115, 484, 499–502
East Germany, 145, 146. See also Eastern Europe; Germany
eBay, 302
Eccles, Marriner, 176
e-commerce, 82, 302, 303. See also Internet
econometric models, 188–94; autoregressive conditional heteroskedasticity (ARCH), 530–31; cointegrated time series, 537–38; complete, 190; errors in, 190; Lucas critique, 559; multiequation, 598, 602; policy analysis, 193; predictions based on, 190; probability theory and, 538; structural, 191–93; of U.S. economy, 598
economic analysis of law. See law and economics
economic freedom, 124–27; benefits, 75; in China, 68; contrasted with central planning, 124; country rankings, 68, 125–26, 308; in former Soviet bloc, 68; increases in, 124, 125; indexes, 124–25, 126, 156; key ingredients, 124; measuring, 124–25; promotion by governments, 124; relationship to economic results, 126–27, 146, 148, 156–57; relationship to entrepreneurial activity, 156–57, 201; relationship to environmental quality, 159–60; relationship to political freedom, 125, 545; relationship to social outcomes, 126; relationship to standards of living, 124
Economic Freedom of the World (EFW), 68, 124–25, 308
economic growth, 128–31; compound rates, 128; convergence rates, 147–48; determinants, 145, 147–48; effects on income distribution, 553; empirics, 145–49; forecasting, 191; future, 130–31; Harrod-Domar model, 539, 593; importance of higher rates, 147; income per capita, 128, 476, 557–58; meta-ideas and, 130; natural rate, 539; neoclassical model, 147, 149; Okun’s law, 576; policies promoting, 148; population growth and, 403–5; product innovation and, 128–29, 130; relationship to economic freedom, 126–27, 146, 148, 156–57; relationship to entrepreneurial activity, 155; relationship to environmental quality, 158, 300; relationship to marginal tax rates, 329–30, 482, 484; relationship to per capita income, 557–58; role of education, 129, 131; role of investment, 304–5; rule of law and, 145, 148, 159–60; Solow’s work on, 147, 593; sources-of-growth accounting, 593; standard of living and, 475–78, 515; trade liberalization and, 148; warranted, 539
economic individualism, 57. See also capitalism
economic mobility, 123, 406
economic models: of U.S. economy, 551; use of, 188–89. See also econometric models
economic quasi-rents, 481
economics, definition of, 581
economic sanctions. See sanctions
economies of scale: industrial concentration and, 258; monopolies created by, 365, 370; in urban transportation, 507, 508
education, 131–36; achievement test scores, 131–32; charitable giving to institutions, 64; compulsory, 132; early childhood, 407; elementary, 131–33; expenditures, 131–32; family influences, 250; home schooling, 132; as investment, 147, 525, 586; opportunity costs, 385; private schools, 132–33, 134; productivity decline, 131; public schools, 132–33, 134; quality, 248; racial segregation, 572; rate of return to, 136, 248; reforms, 134; role in economic growth, 129, 131; school choice programs, 134, 592; school performance, 131, 134; secondary, 131–33, 147, 248; subsidies, 130, 134–36, 581; teachers, 133–34; voucher programs, 134, 592; of women, 216, 249. See also colleges and universities; human capital
efficiency, 136–38; assumption of perfect information, 267; critics of use in public policy decisions, 137; definition, 136; monetary valuation, 136–37; role of private ownership, 137
efficiency wage theories, 267, 381, 596
efficient capital markets, 138–42
efficient markets theory (EMT): asset prices, 35, 45, 138, 433; challenges to, 140; semistrong form, 139; stock market crash of 1987 and, 140–41; strong form, 139; usefulness, 141; violations, 35–36; weak form, 139
EFW. (Economic Freedom of the World), 68, 124–25, 308
Ehrlich, Anne, 158
Ehrlich, Paul, 158, 404
elasticity: of demand, 112, 562; of labor supply, 543, 578
elderly: family net worth, 437, 458–59; growing proportion of population, 185–88, 402–3; health care, 185, 402, 403; poverty rates, 406, 459. See also Medicare; retirement; Social Security
elections: median-voter theorem, 428–29; participation rates, 429; political futures market, 210; voter ignorance, 429; voting rights, 229. See also campaign finance; political behavior
electricity: competitive markets, 143–44; consumption, 142; deregulation, 144; distribution as natural monopoly, 365; external costs, 151–52; ownership structure, 142–43; power sources, 142, 143, 150, 151–52, 371, 399, 401–2; prices, 142, 144; regulation, 142–45, 151, 169, 595
electric vehicles, 150
Ellickson, Robert, 593
embargoes, trade, 453, 454
eminent domain, 60
emissions allowances, 170, 210, 401–2, 440
empirics of economic growth, 145–49
employment: effects of technological change, 102–4; effects of trade barriers, 437; full, 48, 317, 354, 526, 550; influence of monetary policy, 379, 526; job safety, 311–12; offshoring, 342, 469; protectionist efforts to save jobs, 206–7, 342. See also labor market; occupations; unemployment; women’s employment
Employment Act of 1946, 50, 176, 228
energy, 150–54; conservation, 152; consumer responses to price increases, 150–51; costs, 150; crises, 374, 382; efficiency, 150; expenditures, 151; external costs, 151–52; government intervention in markets, 153–54; natural gas, 370–72; renewable, 150; research and development, 152–53; sources, 150, 151; subsidies, 151, 153–54; trading, 169. See also electricity; fossil fuels; natural resources; oil
energy futures, 151, 210, 371
energy intensity, 374
energy options, 210
Energy Policy Act of 1992 (EPAct), 143
Engels, Friedrich, 563
Engle, Robert F., 530–31
English auctions, 21, 22, 168, 592–93
Enron, 90
entrepreneurs: definition, 154–55; examples, 54; “gazelle,” 155; innovations, 25, 155, 274, 586; “lifestyle,” 155; in rural areas, 155–56
entrepreneurship, 154–57; academic understanding, 154–57; creative destruction and, 102; definition, 154; government promotion of, 155, 156, 157; measuring, 155; profits, 420; relationship to economic freedom, 156–57, 201; relationship to economic growth, 155
environmental damage: air pollution, 153, 170, 210, 399, 401–2; costs, 152, 404–5; effects of resource consumption, 151–52, 375; externalities, 170; as market failure, 202; property rights issues, 202–3; toxic waste, 203, 400–401, 436; water pollution, 400. See also environmental quality; global warming
environmentalism, free-market, 202–5
environmental organizations, 64, 300
Environmental Protection Agency (EPA): costs of pollution, 152; emissions-trading programs, 210, 440; establishment, 399; regulations, 441, 442, 447; Superfund program, 400–401; toxic waste cleanup, 203, 400–401, 436
environmental quality, 158–60; ethical issues, 162–63; improvements, 158–59; local standards, 202–3; measures, 158; property rights and, 160, 202–3, 204–5, 431–32; as public good, 202, 431–32; relationship to economic freedom, 159–60; relationship to economic growth, 158, 300; resource use issues, 151–52, 162–63, 375; role of markets, 400; waste disposal issues, 162–63, 203. See also environmental damage; recycling
environmental regulation: approaches, 170, 441; benefit-cost analysis, 38–39, 441–42; compliance costs, 152, 153, 165, 170, 399, 400, 401; effects on energy production, 143; effects on home prices, 246; federal role, 399–400; pollution controls, 399–402, 441; risk levels, 447; standards, 153, 400, 401; tradable permits, 170, 210, 401–2, 440; water pollution, 400
equation of exchange, 263–64, 532, 546
equilibrium prices, 271, 481
equipment obligations, 42
equities. See stock
Erhard, Ludwig, 163, 217–18
estate taxes, 492–93, 596
ethics, 160–63. See also corruption; crime
E-toys, 302
Eucken, Walter, 217
euro: criteria for joining, 360; criticism of, 73; effects on trade, 199; future effects, 359; introduction, 164, 186. See also currencies; European Monetary Union
Euronext.liffe, 209
Europe: anti-inflation policies, 318–19; central banks, 354, 360; depression of 1980s, 318–19; guild system, 575, 599; social security programs, 463; wages, 543. See also Eastern Europeand individual countries
European Central Bank (ECB), 73, 164, 360
European Coal and Steel Community, 163
European Economic Community (EEC), 163, 299
European Free Trade Area, 299
European Monetary Union (EMU), 186, 319, 358, 359–60. See also euro
European System of Central Banks, 360
European Union (EU), 163–66; agricultural subsidies, 5, 166; bureaucracy, 165; Common Agricultural Policy, 166; common market, 164, 299; constitution, 164; distributive programs, 166; enlargement, 164, 165, 499, 502; free-trade agreements with nonmembers, 300; harmonization, 165, 299; internal trade, 164, 199; labor mobility, 572; Maastricht Treaty, 186, 360; members, 164; “Open Skies” agreements, 9; origins and development, 163–64; regulation, 165; sanctions on other countries, 18, 455–56; Single European Act, 164
exchange rates: appreciation, 197; definition, 197; depreciation, 197; determination, 198; devaluations, 341; effects of trade barriers, 207; fixed, 197, 222–23, 230–31, 358, 571; floating, 197, 356, 571; forward, 199; future, 199; impact of fiscal policy, 183; long-run equilibrium, 198; managed float, 197–98; monetary policy and, 356; nominal, 198; overshooting model, 198; pegged, 198; purchasing power parity, 198, 297, 528; random walk, 198; real, 198; relationship to interest rates, 183, 198; relationship to international trade, 341, 359; relationship to investment, 358–59; spot, 199; volatility, 198. See also currencies; foreign exchange market; gold standard
exchange-risk premium, 199
exchanges: futures, 207, 209; options, 210, 585. See also stock exchanges
exchange-traded funds (ETFs), 479
excise taxes, 328, 490, 495
expansions, 47; causes, 48, 49; inflationary, 48; during World War II, 50. See also business cycles
expectations, 432–33. See also rational expectations theory
expectations-augmented Phillips curve, 393, 394
expenditures tax. See consumption tax
experimental economics, 166–69, 592–93
exports: mercantilist view, 340, 341; subsidies, 5; voluntary restrictions, 426. See also international trade
externalities, 169–72; arguments against government intervention, 171; of energy use, 151–52, 170; government intervention justified by, 170, 440–41, 577, 596–97; measuring, 170; negative, 169, 170–71, 577; positive, 169, 171, 577
extinctions, 159
Exxon Valdez, 506

F

FAA (Federal Aviation Administration), 9, 10
facilitation payments, 98, 99
factor proportions model, 296, 576, 583
Fair Labor Standards Act, 320, 346
“fair trade” laws, 426–27
Fama, Eugene, 139, 140, 584
families: economic mobility, 123, 250; education levels, 250; income inequality, 119–20; influences on children, 250. See also households
famines, 403, 588
fascism, 172–74; central planning, 124; compared to socialism, 172; distinction from interventionism, 172; economic policies, 172; in Germany, 173; influence on New Deal, 173; in Italy, 173, 577; state role in economy, 172, 173
FDIC (Federal Deposit Insurance Corporation), 179, 180, 181, 459
Federal Aviation Administration (FAA), 9, 10
Federal Communications Commission (FCC): cell telephone licenses, 495–96; radio licenses, 99, 496; spectrum management, 495–97; wireless bandwidth auctions, 22–23, 522
Federal Deposit Insurance Corporation (FDIC), 179, 180, 181, 459
Federal Energy Regulatory Commission (FERC), 142, 143, 144, 370, 487
federal funds, 355
federal funds rates, 355, 356, 357, 362
federal government. See U.S. government
Federal Highway Administration, 486
Federal Home Loan Bank Board (FHLBB), 461, 462
Federal Housing Administration (FHA), 513
Federal Open Market Committee (FOMC), 176, 178, 355, 357
Federal Republic of Germany. See Germany
Federal Reserve, 174–78; anti-inflation policies, 50, 178, 264, 266, 318, 353, 554; Burns as chairman, 177, 528; discount rate, 175, 176, 231, 232, 355, 361, 362; establishment, 50; financial regulation function, 179; functions, 174; gold holdings, 175, 176, 231; Greenspan as chairman, 178, 353, 362, 554; independence, 176, 353; inflation targets, 362; interest rate policies, 49, 355, 357; lending to illiquid banks, 180, 355–56; Martin as chairman, 176–77; member institutions, 355; monetarist policies, 175, 351–52; monetary policy procedures, 355–56, 361, 362; money supply control, 48–49, 177, 178, 263; in 1920s, 175–76, 231; open-market operations, 176, 263, 355, 357, 361, 362; original system, 174–75; power, 353; recessions caused by policies, 48–49, 353, 357; reserve requirements changes, 233, 357, 361; reserve tests, 355; responses to Great Depression, 175–76, 231, 232, 233; responsibility for Great Depression, 534; Volcker as chairman, 177–78, 351, 353, 357, 362, 460
Federal Reserve Act, 174, 175
Federal Reserve Banks: borrowing from, 355; currency holdings, 361; customers, 355; functions, 175; organization, 174
Federal Reserve Board, 174–75
Federal Savings and Loan Insurance Corporation (FSLIC), 180, 459, 461–62, 498
Federal Trade Commission (FTC), 3, 12, 82, 259, 366
Feinstein, Charles, 260
Feldstein, Martin, 484, 504, 506
FHA (Federal Housing Administration), 513
FHLBB (Federal Home Loan Bank Board), 461, 462
fiat monies, 71, 72, 73, 172, 351, 360
FILP (Fiscal Investment and Loan Program), 310
finance, behavioral, 35–36, 140
financial crises, in transition economies, 500–501
financial distress costs, 87, 89
financial economics, 562, 589, 598
financial futures, 207, 208, 209, 210
financial institutions: credit unions, 178–79, 180; deregulation of industry, 177; international transactions, 291; purposes, 178; types, 178–79. See also banks; depository institutions; insurance companies; savings and loans
financial regulation, 178–82; agencies, 179; capital requirements, 179, 531; compliance, 178, 179, 181–82; deposit insurance, 180–81, 459–60, 462, 498; enforcement, 179, 182; goal, 182; history, 179; insolvency, 179–80; reforms, 180–81; safety-and-soundness, 178–80; savings and loans, 180, 459–61, 462–63; securities markets, 91, 179, 277, 279–80
financial reports: accounting scandals, 90, 98; auditing, 91; Sarbanes-Oxley Act, 90, 91
Finsbury Group Ltd., 315
Firestone, 43
first-mover advantages, 302
fiscal gap, 187–88
Fiscal Investment and Loan Program (FILP), 310
fiscal policy, 182–85; automatic stabilizers, 184; contractionary, 182, 184; countercyclical, 184, 550; definition, 182; effects on economy, 182–84; effects on exchange rate, 183; effects on saving rate, 184–85, 458; effects on trade balance, 183; in European Union, 164, 360; exchange rate regimes and, 571; expansionary, 182–83, 184; during Great Depression, 233, 234; Keynesian, 355, 483, 550; long-run effects, 184; political issues, 185; in recessions, 184, 226–27, 550; relationship to monetary policy, 355; responses to Great Depression, 232; Ricardian equivalence, 185, 226–27, 378; supply-side approach, 482–84; sustainability, 185–88. See also budget deficits; taxes
fiscal relativity, 186–87
fiscal sustainability, 185–88, 402–3
Fisher, Irving, 79, 265, 305, 350, 433; biography, 531–32; theory of interest, 531, 603
Fisher relationship, 265
Fitzsimmons, Cotton, 472
flat tax, 60, 85, 484, 489, 492, 568
Fleming, J. Marcus, 571
flood insurance, 115, 282
FMC, 327
Fogel, Robert W., 532–33
FOMC (Federal Open Market Committee), 176, 178, 355, 357
food: effects of global warming, 220; famines, 403, 588; population growth and supply of, 561; price controls, 115; prices, 166, 403, 437; production increases, 403, 562. See also agriculture
Food and Drug Administration (FDA), 82, 83, 239, 388–90, 447, 505–6
food stamps, 407, 510, 512–13, 514
football, 420, 473, 475
Ford, Gerald, 486, 488
Ford Motor Company, 43–44, 154, 276
forecasting, 188–94; accuracy, 190–91; input errors, 190; model errors, 190; time-series, 191–93
foreign aid, 194–97; arguments for, 194; conditionality, 195–96; corrupt use of, 194; economic case for, 195, 196; effects on poverty, 194, 195, 196; humanitarian motives, 194, 196; industry, 196; Marshall Plan, 218–19, 342; origins, 194; political motives, 194; to transition economies, 501
Foreign Corrupt Practices Act, 99
foreign direct investment: in developing countries, 293–94; income from, 293; outflows from industrialized countries, 293–95; from United States, 295; in United States, 293, 295
foreign exchange market, 197–200; arbitrage, 528; forward, 199; futures, 207, 209; hedging, 198–99, 209; options, 197, 210; participants, 197; spot, 197; trading volume, 197, 199. See also currencies; exchange rates
forests, 158, 160
fossil fuels: coal, 143, 399, 546; electricity generation from, 143, 399; global warming caused by burning, 204, 219, 375; natural gas, 370–72; use in United States, 150. See also energy; oil
401(k) plans, 36–37
France: budget deficits, 186; cultural protectionism, 20; European Coal and Steel Community, 163; gold standard, 223, 231; labor force participation, 330; laissez-faire policies, 579, 599; marginal tax rates, 330; Mississippi bubble, 46–47; nuclear weapons tests, 453; Physiocrats, 579, 599–600; shipping laws, 341
Franklin, Benjamin, 288
Fraser Institute, 124
fraud, in securities firms, 181. See also accounting scandals
free banking systems, 71–73
Freedom House, 68, 124, 148
free-market environmentalism, 202–5
free markets, 200–202; arguments for, 534; creative destruction, 101–4, 155, 272, 586; criticism of, 201–2, 596–97; development, 200–201; entrepreneurship, 201; exchanges, 200; French policies, 579, 599; government roles, 591–92; importance of property rights, 201; innovation in, 275; institutional flexibility, 566; moderate view, 588. See also economic freedom; markets
free-rider problems: examples, 431; in national defense, 107–8, 431; private solutions, 593; for shareholders, 334. See also public goods
free trade, 205–7; arguments for, 425, 537; benefits, 298; as component of economic freedom, 125; definition, 298; fears of lost jobs, 206, 342; mercantilist argument against, 200; public attitudes toward, 205; within United States, 206. See also international trade agreements; protectionism; trade liberalization
free-trade areas (FTAs), 299. See also North American Free Trade Agreement
Freiburg school, 217
French, Kenneth, 140
Friedland, Claire, 595
Friedman, Milton: accelerationist hypothesis, 351; biography, 533–34; constant-money-growth rule, 351; criticism of Phillips curve, 351, 392, 534, 559; on free markets, 217, 534; on gold standard, 224; on inflation, 264, 396, 534; Knight and, 551–52; as monetarist, 350, 354–55, 534; monetary reform proposals, 434; on money, 71, 350–51; on money supply, 354–55, 534; on natural rate of unemployment, 318, 351, 354, 392–93, 504; on occupational licensing, 82–83; permanent income theory of consumption, 433–34; on price and wage flexibility, 316–17; on privatization, 159; on socialism, 467; Solow on, 593
fringe benefits, 347
Frisch, Ragnar, 535
FSLIC (Federal Savings and Loan Insurance Corporation), 180, 459, 461–62, 498
full employment, 48, 317, 354, 526, 550
functional finance, 557
futures: air pollution, 210; commodity, 151, 207, 208, 209, 210; currency, 207, 209; definition, 207–8; energy, 151, 210, 371; financial, 207, 208, 209, 210; hedging with, 209; options on, 210; political, 210; prices, 208; stock-index, 207, 210
futures markets, 207–11; clearinghouses, 208; electronic trading, 208; exchanges, 207, 209; participants, 209–10; speculators, 209–10; trading volumes, 209; uses, 208–9

G

Galbraith, John Kenneth, 59, 124, 411, 535–36, 593
game theory, 211–14; analysis of monopolies, 13; application to economics, 574, 575; application to sports, 472; brinkmanship strategy, 213; cooperative and noncooperative games, 573–74; incomplete information, 539–40; independence of strategies, 211–12; leading figures, 211, 570, 573–74; Nash equilibria, 212, 573–74, 587; negative-sum games, 201, 211; positive-sum games, 200, 211; “trembling hand” equilibrium, 587–88; win-win transactions, 200; zero-sum games, 211. See also prisoners’dilemma
GAO (General Accounting Office), 462
gasoline: automobile fuel efficiency, 153, 374; consumption, 153; lead in, 402; price controls, 382, 409–10; taxes, 153. See also oil
Gates, Bill, 53, 154
GATS (General Agreement on Trade in Services), 299, 342
gender-based discrimination, 215, 273
gender gap, 214–16; definition, 214; in earnings, 117–18, 214–16; factors in, 215–16; in labor force participation, 214, 215; in occupations, 214–15
General Accounting Office (GAO), 462
General Agreement on Tariffs and Trade (GATT): agricultural subsidy programs excluded from, 5–6; founding, 298–99, 342; negotiating rounds, 299, 342; tariff reductions, 299; trade liberalization, 164
General Agreement on Trade in Services (GATS), 299, 342
General Aviation Revitalization Act of 1994, 326
General Electric, 319
general equilibrium theory, 378, 523–24, 530, 544, 602
generalized ARCH, 531
general obligation bonds, 42, 224
generational accounting, 187, 458
generations, sizes, 403. See also baby boomers; elderly
generic products, 2, 44, 391
George, Henry, 536–37
German economic miracle, 216–19; abolition of price controls and rationing, 115, 216, 217–18; comparison to East German economy, 146; currency reform, 216, 217–18; free-market policies, 146, 163; growth, 145, 146; industrial production, 218; results, 218; speed, 113; tax cuts, 218; U.S. advisers, 218, 544
Germany: Allied occupation, 216–18, 219; Bundesbank, 354; conditions after World War II, 216–17; conscription, 77; defense spending, 109; economic freedom, 125; economic growth of East and West, 145, 146; European Coal and Steel Community, 163; historical school, 23; hyperinflation, 251, 252, 354; insider trading regulations, 277; Marshall Plan aid, 218–19; monetary policy, 319; Nazi rule, 173, 216–17, 252, 541; population movements, 115; reparations after World War I, 549; resistance to Nazis, 217; social security programs, 463; welfare state, 229; World War II, 67, 114, 536
Gerry, Elbridge, 111
Gillette, 275
Giuliani, Rudolph, 314, 315
globalization: of art, 20; benefits, 471; competition, 469, 470–71; criticism of, 59, 300
global warming, 219–22; adjustment to, 221; benefits, 171, 220–21; causes, 204, 219, 375; costs, 171, 204, 220, 221; debate on, 159, 171; economic effects, 220; evidence, 159; international agreements, 219–20, 221; predictions, 219, 221; sea levels and, 220; speed, 221
Goering, Hermann, 216–17
gold: Federal Reserve holdings, 175, 176, 231; prices, 222; production costs, 224
Goldberger, Arthur, 551
gold exchange standard, 222, 231
gold standard, 222–24; abandonment, 222, 360; classical period, 222; costs, 224; current interest in, 222, 224; definition, 222; free banking systems based on, 72; in interwar period, 222, 230–31; operation, 222–23, 360; performance, 223–24; in United Kingdom, 222, 223, 232; in United States, 174, 175, 222–24, 230–31
Gompers, Samuel, 322
Gorbachev, Mikhail, 68, 467
Gordon, David, 435
Gordon, Robert, 318
Gore, Albert, Jr., 51
government debt, 224–27; defaults, 186; definition, 224; effects on economy, 225–26; future tax burden, 318, 378, 458; market values, 225; measuring, 225; service obligations, 253; types, 224; of United States, 40, 224–25, 293, 355. See also municipal bonds; U.S. government bonds
government deficits. See budget deficits
government growth, 227–30; employment, 230; expenditures, 227; in future, 229; regulation, 227; responses to crises, 228, 230; scope, 227–28, 229; structural change and, 228–29
governments: advertising by, 3; bankruptcies, 185–86; bulk purchases of drugs, 391; bureaucracies, 399, 429–30, 468, 603; coercion, 201; corruption, 98–99; credibility, 559; expenditures as proportion of GDP, 227; incentives of officials, 597; interventionism, 60, 342; intervention justified by externalities, 170, 440–41, 577, 596–97; labor unions representing employees, 320, 322, 416; measuring sizes, 227; promotion of economic freedom, 124; provision of public goods, 107–8; redistribution programs, 119–21, 437–39, 576; roles in free markets, 591–92; time-consistency problem, 553–54. See also regulation; state; state governments; U.S. government
Granger, Clive W. J., 537–38
Granger causality, 538
Great Britain. See United Kingdom
Great Depression, 230–35; banking crises, 30, 175–76, 180, 232; causes, 225, 230, 534, 581; charitable giving, 64–65; countries affected, 230, 231; economic policy lessons, 50, 230; effects on individuals, 230; Federal Reserve responses, 175–76, 231, 232, 233; Federal Reserve responsibility, 534; population movements, 115, 230; recovery, 230, 233, 234; stock market crash, 231; unemployment, 230, 231, 233–34; wage rates, 231, 233. See also New Deal
Greenfield, Robert, 73
greenhouse gases. See global warming
Greenspan, Alan, 178, 353, 362, 554
gross domestic product (GDP): components, 367–68, 369; definition, 367–68; deflator, 263; effects of fiscal policy, 183–84; per capita, 369; as welfare measure, 369. See also economic growth
Grossman, Gene, 426
Grunberg, Emile, 570
guild system, 575, 599
gun control, 105
gun ownership rights, 105, 111, 325

H

Haavelmo, Trygve, 305–6, 538
Haiti, sanctions on, 455
Hall, Robert E., 434
Hammarskjöld, Dag, 604
Hardin, Garrett, 404
Harrod, Roy F., 539
Harrod-Domar model, 539, 593
Harsanyi, John C., 539–40
Hartrich, Edwin, 218
Hart-Scott-Rodino Act of 1978, 259
Hayek, Friedrich August: biography, 540–43; business cycle theory, 569; criticism of Galbraith, 535; Denationalisation of Money, 71; differences from Keynes, 541; on economic freedom, 545; on government roles, 542; influences on, 24, 545; on information, 269; on innovation, 273; on labor unions, 319; on law and economics, 323; on monetary competition, 73; on monetary theory, 541; on prices, 25; on socialism, 467–68, 541, 542, 554; students, 561
head taxes, 489
health: causes of death, 446–47; safety regulation, 446–51
health care, 235–41; competition, 237; consumer-driven, 240, 242–43; demand for, 242, 332, 392; differences from other industries, 235; for elderly, 185, 402, 403; expenditures, 235, 242, 243, 392; improvements, 477; industry structure, 240; lack of competition, 241–42; malpractice cases, 325, 327; managed care, 237–38, 239, 242, 391; marginal analysis, 332; outlook, 240; overuse of, 236, 237; problems with system, 243–45; as proportion of GDP, 236; regulation, 239–40, 241; socialized, 238, 391; vaccines, 326; value of, 236. See also hospitals; pharmaceutical industry
health insurance, 241–45; asymmetric information, 596; community rating, 245; cost-plus reimbursements, 241; costs, 237; coverage, 281; demand for, 236; development of market, 241; effects on prices, 236; employer-provided, 235–37, 242, 244, 245, 283; future of, 240; incentives for use of health care services, 236, 237, 332, 392; lack of portability, 244; premiums, 241; prescription drug coverage, 391; proportion of health care spending, 235; regulation, 239–40, 244; subsidies in tax code, 235–36, 244, 283; uninsured individuals, 236, 240, 244–45, 391–92. See also insurance; Medicaid; Medicare
health reimbursement arrangements (HRAs), 242
health savings accounts (HSAs), 242–43
Heckman, James J., 543–44
Heckscher, Eli, 296, 576
hedging: foreign exchange risk, 198–99, 209; with options, 210
Heller, Walter Wolfgang, 218, 483, 544, 598
Helms-Burton Act, 454
Herfindahl-Hirschman Index (HHI), 257–58
Heritage Foundation, economic freedom index, 124, 148
HHI (Herfindahl-Hirschman Index), 257–58
Hicks, John R., 432–33, 544–45, 582
Hicks compensation test, 544
Higher Education Act, 135
highways: congestion, 499, 507–8; subsidies, 509; toll roads, 415, 431, 499, 507, 509, 551, 601
high-yield bonds. See junk bonds
historical school, 23
history, economic: cliometrics, 575; historians, 532–33, 575, 596, 601–2
Hitler, Adolf, 67, 173, 216–17, 229
Holt, Charles, 168
homelessness, 246, 347
Hong Kong, economic freedom, 125
Hooker Chemical Company, 203
Hoover, Herbert, 231–32, 483
Hope tax credit, 135
horizontal contracts, 12, 13
hospitals: bulk purchases of drugs, 391; competition among, 238; consolidation, 240; cost-plus reimbursements, 241; Medicare payments, 238–39, 241, 242; not-for-profit, 240; prices, 241–42; regulation, 239. See also health care
households: debt, 225; income distribution, 119–21, 122. See also families
housing, 245–48; affordability, 245, 247; amenities, 245; effects of new construction, 247; government assistance, 513, 514; government expenditures, 246; homelessness, 246, 347; price controls, 246–47; prices, 245–46; public, 246, 513, 516; regulation, 245–47; sizes of houses, 245; subsidies, 246, 437–38, 513, 516. See also rent control
HRAs (health reimbursement arrangements), 242
HSAs (health savings accounts), 242–43
human capital, 248–51; family influences, 250; importance in economic growth, 250; investment in, 147, 248, 305, 525, 586; training, 249–50. See also education; health care
human rights, 201, 422, 424
Hume, David, 24, 545, 558, 571
Hungary: hyperinflation, 251; privatization, 501. See also Eastern Europe
hurricanes, 114. See also disasters
Hutterites, 498
hyperbolic discounting, 37
hyperinflation, 251–53; causes, 251, 253, 264; definition, 251; effects, 252–53; ending, 252; in Germany, 251, 252, 354; in Hungary, 251; in Latin America, 253; rates, 251, 262; in transition economies, 500
hysteresis hypothesis, 395

I

IATA (International Air Transport Association), 74
IBM, 154, 275
ICC (Interstate Commerce Commission), 366, 485–86, 487, 488
image advertising, 2
IMF (International Monetary Fund), 99, 500, 596, 597
immigrants: economic performance, 254–55; illegal, 254; impact on native earnings, 255–56; in labor force, 122; national origins, 254, 255; proportion of U.S. population, 407; skilled workers, 255, 256; wages, 254–55; welfare use, 255, 256, 515
immigration, 253–57; debates on, 254, 470; economic impact, 256; illegal, 254, 470; impact on poverty rates, 407; rates in United States, 253–54; selection methods, 254, 256; U.S. policies, 254, 256, 515
imperialism, 341, 591
import barriers: agricultural, 5; costs, 206–7, 437, 506; mercantilist support, 340, 341; political support, 298, 342; quotas, 207, 506; unintended consequences, 506; wealth transferred by, 437. See also tariffs; trade barriers
impossibility theorem, 428, 523, 588
inclusionary zoning, 246–47
income, national. See national income
income distribution, 119–23; causes of inequality, 121–22; economic mobility and, 123, 406; effects of economic growth, 553; effects of Industrial Revolution, 261; effects of minimum wages, 347–48; global, 145–47; Pareto’s law, 577; redistribution by government, 119–21, 437–39, 576; relationship to economic freedom, 127; in transition economies, 501; trends, 119–21; in United Kingdom, 261
income mobility, 123, 406, 457
incomes: gender gap, 117–18, 214–16; marginal utility, 526; per capita growth, 128, 476, 557–58; real, 261. See also gross domestic product; poverty; standard of living; wages
income taxes: average rates, 329; disincentives for working, 600–601; distribution of burden, 491–92; on dividends, 83, 87, 94, 492; Earned Income Tax Credit, 122, 408, 438, 510, 513–14; education credits, 135; flat, 60, 85, 484, 489, 492, 568; in former communist countries, 484; in Germany, 218; health insurance subsidies, 235–36, 244, 283; incentives for saving, 458, 491, 492; income distribution data from returns, 120; inflation indexing, 265, 492, 572; on interest income, 84, 87, 94, 289, 308; in Japan, 308; optimum rates, 568; personal, 84, 92, 490; rate cuts, 318, 355; rates, 92, 491; self-employment and, 155. See also capital gains taxes; corporate taxation; marginal tax rates; taxes
incorporation, 95. See also corporations
increasing-returns model of international trade, 296
India: economic freedom, 125–26; economic policies, 129–30; education system, 132; rents created by regulation, 446
individualism, 57
individual retirement accounts (IRAs), 36–37, 84, 85, 491
industrial concentration, 257–60; causes, 258; definition, 257; effects, 258–59; measuring, 257–58; public policy, 260; relationship to advertising, 2; relationship to prices, 258; relationship to profits, 12, 258–59, 365; trends, 258; in United States, 257–58. See also antitrust; monopolies; oligopolies
industrial development bonds, 42
industrial organization, 11, 561
industrial policy, Japanese, 308–9
Industrial Revolution, 260–62; agricultural productivity and, 67; capital sources, 96; in communist countries, 67; effects on living standards, 260–62, 476; in England, 58, 260–62, 575; working conditions, 58
inequality: economic case for, 122; income distribution, 119–23, 127, 501; relationship to economic freedom, 127; social function, 122
inferior goods, 112–13
inflation, 262–66; adjusting bond values for, 225; anticipated rates, 264–65, 393; Austrian School view, 25–26; benefits, 266; causes, 263–64; central bank policies, 318–19, 554; consequences, 264–66; consumer price indexes, 77–81; controlling, 264; costpush explanation, 264; costs, 25–26; creeping, 545; definition, 262; demand-pull explanation, 264; estimating, 78, 80; expectations and interest rates, 264–65, 289, 362; Federal Reserve policies, 50, 178, 264, 266, 318, 353, 554; under gold standard, 223; hyper;n-, 251–53, 264, 354, 500; Keynesian view, 317; measuring, 262–63; menu costs, 265, 379–80; monetarist view, 396, 534; in 1970s and 1980s, 177, 351, 353, 534; optimal rate, 265; quantity theory of money, 25; reduced (disinflation), 266, 354, 361, 412; repressed, 115; Social Security cost of living adjustments, 463; in transition economies, 500; Treasury Inflation-Protected Securities, 41; unanticipated, 265–66; in United States, 262–63; during World War II, 230–31, 411. See also Phillips curve; price controls
inflation-protected securities, 41
information: assumption of perfect, 267–68, 269, 521; costs, 267–68; efficient markets hypothesis and, 35; failures, 267; in game theory, 213; imperfect, 268–69; in insurance market, 282; overreactions to new, 35; prices and, 73–74, 270–72. See also asymmetric information
information economics, 267–70
information technology. See computer industry; Internet
inheritance. See estate taxes
initial public offerings (IPOs), 56, 141
innovation, 272–76; benefits, 273–74; as competitive advantage, 74; conditions for, 274–76; definition, 272; demand for, 274; discouraged by liability concerns, 327; discovery of social values, 273; effects of regulation, 21; by entrepreneurs, 25, 155, 274, 586; intellectual property protection and, 276, 554; lock-in concept, 302; in natural resource extraction, 373–74, 384, 546; opposition to, 273; promoted by trade, 296; role in economic growth, 128–29, 130; role of large firms, 275. See also research and development; technological change
input-output analysis, 555
insider trading, 276–80; debates on, 279–80; definition, 276, 277; economic analysis, 277–78; efficiency, 278; examples, 276, 277; by market professionals, 279; profitability, 278; regulations, 277, 279–80
Instinet, 335
institutions: as by-product of human actions, 26; role in economic growth, 575. See also legal systems; property rights
insurance, 281–84; adverse selection, 282; basic concepts, 281–82; disability, 463, 464, 513; economic role, 281; equity issues, 283; flood, 115, 282; government programs, 182, 283; government roles, 283–84; liability, 283, 326, 327, 328; premiums, 281, 282; property, 282, 283, 326; workers’ compensation, 311, 313. See also deposit insurance; health insurance; moral hazard; unemployment insurance
insurance companies: categories, 179; regulation, 181, 283. See also financial institutions
intellectual property, 284–88; alternatives, 286–87; consumption/production trade-off, 285–86; definition, 284; demand for, 285; government role, 287
intellectual property rights protection: controversies, 287–88; international agreements, 299; limited term, 286; results, 276, 286, 554; role in economic growth, 129, 130; trademarks, 81. See also copyrights; patents
interest-group competition, in South Africa, 14, 15. See also special interests
interest income: compounding, 288; taxes on, 84, 87, 94, 289, 308
interest rates, 288–90; covered interest parity, 199; determinants of, 288–89; discount rate, 175, 176, 231, 232, 355, 361, 362; explanation of positive, 526; federal funds, 355, 356, 357, 362; Federal Reserve policies, 176, 355, 357; long-term, 356; natural, 603; real vs. nominal, 350, 353, 532; regulation of, 460, 558; relationship to bond prices, 289; relationship to exchange rates, 183, 198; relationship to expected inflation rate, 264–65, 289, 362; relationship to money supply, 362; relationship to stock prices, 480; short-term, 356; term structure, 290; uncovered interest parity, 199; usury, 409, 460
Intergovernmental Panel on Climate Change (IPCC), 219, 220, 221
interindustry analysis, 555
International Air Transport Association (IATA), 74
International Bank for Reconstruction and Development, 194. See also World Bank
International Brotherhood of Teamsters, 487
international capital flows, 290–95; composition, 293–94; controls, 199; between developed countries, 291; historical, 294–95; relationship to international trade, 290–92, 297; unreported, 293. See also capital account; foreign direct investment
International Monetary Fund (IMF), 99, 500, 596, 597
International Monetary Market, 207
international organizations, 291
international trade, 295–98; agricultural, 5–6, 427; in arts, 20; economists’ views of, 295; effects of exchange-rate fluctuations, 341, 359; effects on wages, 300; factor proportions model, 296, 576, 583; financial flows, 290–92, 297; gains from, 296–97, 300; impact of agricultural subsidies, 5–6; increasing-returns model, 296; intrafirm, 291; Leontief paradox, 555; mercantilist policies, 340–43; sanctions, 452, 453, 454; in services, 27, 299, 342. See also exports; free trade; protectionism; trade barriers; trade liberalization
international trade agreements, 298–301; bilateral, 298, 299–300, 427; common markets, 299; environmental and labor standards, 300, 427; free-trade areas, 299; labor and environmental standards, 300, 427; regional, 299–300, 427. See also customs unions; General Agreement on Tariffs and Trade; World Trade Organization
Internet, 301–4; advertising on, 303–4; business strategies, 303–4; e-commerce, 82, 302, 303; economic effects, 301–2, 469; expectations for, 301; file sharing, 287; first-mover advantages, 302; information transmission costs, 301, 469; lock-in concept, 302–3; network effects, 302; occupations created by growth of, 102; telephone service, 495; travel sites, 8; usage estimates, 304; winner-take-all conditions, 302
Internet stocks: booms, 54; bubble, 44–45, 140, 141, 301; prices, 44–45
Interstate Commerce Commission (ICC), 366, 485–86, 487, 488
interventionism. See mixed economies
investment, 304–8; decisions, 307; definition, 304; distinction from saving, 456; domestic saving as source, 305; effects of exchange-rate fluctuations, 358–59; effects of monetary policy, 598; foregone consumption and, 304–5, 307, 419–20; influences of government policy, 306; international agreements, 299; international flows, 293; irreversibility, 307; in Japan, 308; liquidity constraints, 306; neoclassical theory, 306; relationship to economic growth, 147, 304–5; resources, 304; share of GDP, 304, 368; sunk costs, 307; tax incentives, 306, 491, 554; theories, 306–7; user-cost model, 306. See also foreign direct investment
investment analysts, 138
investment banks: functions, 179; spreads on underwriting municipal bonds, 365. See also financial institutions
investment tax credits, 306
invisible hand, 102, 413, 505
Iowa Electronic Market, 210
IPCC (Intergovernmental Panel on Climate Change), 219, 220, 221
IPOs (initial public offerings), 56, 141
Iraq, sanctions on, 452, 454–55
IRAs (individual retirement accounts), 36–37, 84, 85, 491
iron ore, 373
IS-LM model, 544
Italy, fascist regime, 173, 577

J

Jack-in-the-Box, 44
“January effect,” 139–40
Japan, 308–11; agricultural subsidy programs, 5; automobile industry, 309, 426; bank failures, 310; culture, 308; deposit insurance, 181; economic freedom, 308; economic growth, 150, 308, 309; fiscal policy, 309; futures markets, 209; government role in economy, 308–9, 310; industrial policy, 308–9; investment, 308; Ministry of International Trade and Industry, 308–9; monetary policy, 309–10; natural gas imports, 372; population movements, 115; postwar recovery, 113, 115; recessions, 309–10; sanctions on, 453; savings, 308, 310; tax code, 308, 309; voluntary export restrictions, 426
Jevons, William Stanley, 23, 545–46, 565
job safety, 311–13
Johnson, Harry Gordon, 547
Johnson, Lyndon B., 99, 177, 544, 576
Johnson and Johnson, 44
Jorgenson, Dale, 306
judicial system. See courts
junk bonds, 41, 313–16, 462
Justice Department. See U.S. Department of Justice

K

Kahneman, Daniel, 450, 547–48
Kantorovich, Leonid Vitalievich, 549
Kendall, Maurice, 139
Kennedy, John F., 306, 320, 486, 536, 544, 576, 598
keyboard designs, 302–3
Keynes, John Maynard: biography, 549–50; biography by Harrod, 539; on classical economics, 376; differences from Hayek, 541; on expectations, 432–33; General Theory of Employment, Interest, and Money, 305, 379, 541, 544, 550, 556, 568, 576, 582; influence, 379, 550; Lerner and, 556; Marshallian user cost theory, 305; on speculative nature of stock prices, 138–39, 140
Keynesian economics, 316–19; acceptance, 230; business cycle theory, 49, 432–33; compared to monetarism, 353–55; consumption function, 433; debates with new classical economists, 317, 376, 379; fiscal policy, 355, 483, 550; focus on aggregate demand, 376, 483, 550, 581; full employment goal, 354, 550; inflation-unemployment relationship, 266; monetary policy, 316, 350, 353–55, 550; natural rate of unemployment, 266, 317–18, 354, 393, 504–5; price, wage, and interest-rate rigidities, 268, 316; recessions, 376; relative importance of unemployment and inflation, 317; stabilization policies, 317, 318, 341–42; unemployment, 266, 317. See also new Keynesian economics; Phillips curve
Kirzner, Israel, 24, 155
Klein, Benjamin, 73
Klein, Lawrence Robert, 551
Klemp, Katherine Hussman, 424
Knight, Frank Hyneman, 411, 527, 551–52, 574, 583, 602
Koch, Ed, 444
Koopmans, Tjalling Charles, 552
Korea, economic growth of North and South, 145, 146
Krueger, Anne, 445
Krugman, Paul, 296, 426
Kuznets, Simon: biography, 552–53; Friedman and, 533–34; national income measurement, 369, 570; students, 533
Kydland, Finn E.: biography, 553–54; business cycle theory, 377, 578; on time-consistency problem, 553–54
Kyoto protocol, 219–20, 221

L

labor: child, 58; exploitation, 320; productivity, 416–19, 594; self-selection of workforce, 543. See also employment
labor and environmental standards, in international trade agreements, 300, 427
laboratory experiments. See experimental economics
labor force participation: disincentives in welfare system, 438, 515, 576; in France, 330; gender gap, 214, 215; of women, 214, 215, 249, 457–58. See also employment; unemployment
labor market: competitiveness, 320; demand, 504; effects of generation sizes, 403; elasticity of supply, 543, 578; gender gap, 117–18, 214–16; mobility, 572; regulation, 321; supply curve, 481. See also occupations
labor theory of value, 337–38, 563, 565, 584
labor unions, 319–22; as cartels, 319–20; compulsory dues, 319; craft, 321; decline, 321–22, 487; discrimination by, 321; economic analysis, 319, 321; effects of Wagner Act, 230, 233, 320; growth, 320; industrial, 321; influence on wages, 319, 321–22, 345, 395, 504; legal privileges, 319–20; membership, 319, 322; monopoly power, 319, 320, 321, 345; political activities, 319; public-sector, 320, 322, 416; in South Africa, 16–17, 18; support of labor standards in trade agreements, 300; support of minimum wages, 321, 347; of teachers, 133; wage negotiations, 380
Laffer, Arthur, 483, 491
Laidler, David, 350
laissez-faire principles. See free markets
LaLonde, Robert, 543
land: rents, 580; single tax, 536–37
Landes, David, 165, 274–75
land trusts, 204
land-use regulation, 246
Lange, Oskar Ryszard, 467, 554–55
Latin America: average incomes, 146; economic freedom, 125; economic inequality, 122; hyperinflation, 253. See also individual countries
Latin Monetary Union, 358
law: bankruptcy, 31–33; civil, 107; contract, 82, 324; copyright, 284, 287; criminal, 106–7, 323, 325; economic efficiency, 105; property, 323–24; tort, 82, 323, 324–25, 327–28. See also antitrust; legal systems
Law, John, 46, 47
law and economics, 322–26; analysis of crime, 104–7; Coase theorem, 323, 529; history, 323; legal efficiency theories, 322–23
law enforcement, 105, 325. See also crime
law of large numbers, 281
Law of Single Price, 268, 297
Layard, Richard, 59
LBOs (leveraged buyouts), 335
lead: in gasoline, 402; prices, 373
legal systems: corporate governance decisions, 90–91; effects on corporate financial structures, 89; functions, 323; importance in markets, 324, 592; rule of law, 75, 145, 148, 159–60. See also courts; law; property rights
legislatures, 429
Leijonhufvud, Axel, 24
Lenin, Vladimir, 66, 67–68, 114, 466, 529
Leontief, Wassily, 555–56, 593
Leontief paradox, 555
Lerner, Abba Ptachya, 124, 556–57
leveraged buyouts (LBOs), 335
Lewis, Carl, 471–72
Lewis, Michael, 472–73
Lewis, W. Arthur, 557–58
liability, 326–28; consequences, 326; costs, 326, 327, 328; crises, 328; damages, 327; effects on innovation, 327; legal criteria, 326–27; medical malpractice, 325, 327; product, 325, 327–28; reforms, 327; strict, 324, 326
liability insurance, 283, 326, 327, 328
Liberal Democratic Party (LDP), Japan, 310
licensing: as barrier to entry, 13; occupational, 13, 82–83, 321, 440, 506, 533–34. See also intellectual property
life-cycle model of saving and consumption, 36, 569–70
life expectancies, 127, 129, 236, 261, 402, 446, 458, 533
life insurance, 281, 282. See also insurance
Lifetime Earnings tax credit, 135
lighthouses, 530
Lincoln, Abraham, 433
Lindbeck, Assar, 443
Lindert, Peter, 260
Lindsey, Lawrence, 484
linear programming, 549, 552
liquefied natural gas (LNG), 371–72
literature. See arts
living standards. See standard of living
living wages, 349
Lloyd, William Forster, 497
LNG (liquefied natural gas), 371–72
loans: bank, 181; time periods, 289. See also debt
local governments: municipal bonds, 42, 224, 365; outsourcing services, 416; tax revenues, 490
locational arbitrage, 469–70
Locke, John, 505, 558–59
lock-in concept, 302–3
Lomborg, Bjørn, 158–59, 220, 221, 435
Long Term Capital Management (LTCM), 566, 585
“Lords of Poverty,” 196
loss aversion, 34, 548
lotteries, present value of prizes, 409
Louis XV, King of France, 579, 599
Louis XVI, King of France, 599
Love Canal, 203
LTCM (Long Term Capital Management), 566, 585
Lucas, Robert E., Jr.: biography, 559–60; new classical economics, 376, 379; policy-ineffectiveness proposition, 378, 434; rational expectations theory, 559–60, 578; on Samuelson, 582; on tax rates, 330

M

M3, 357, 360
Maastricht Treaty, 186, 360
Machlup, Fritz, 561
Madison, James, 31, 430, 497
Major League Baseball, 472–73, 474
Malkiel, Burton, 141
Malthus, Thomas Robert, 403, 561–62, 584
managed care, 237–38, 239, 242, 391
management: accountability, 91; equity ownership, 90; relations with independent directors, 90; separation from ownership of corporations, 60, 87, 89, 95, 96–97, 334
Mandatory Oil Import Quota (MOIP) program, 382
Mandela, Nelson, 18
Mandelbrot, Benoit, 139
manufactured goods, tariff reductions, 299
M&M theorem, 86, 567, 570
Mao Zedong, 67, 68
Marcuse, Herbert, 59
marginalism, 331–33, 565, 569; development, 23, 545–46, 602; diminishing marginal returns, 580, 599
marginal productivity, 603
marginal tax rates, 329–31; definition, 329; effects on behavior, 330, 333, 458, 482, 491; on highest incomes, 568, 576, 600–601; reducing, 329–30, 482, 483, 484, 491, 572; relationship to economic growth, 329–30, 482, 484; relationship to government revenue, 483, 484; relationship to labor supply elasticity, 578; relationship to pensions, 387. See also income taxes
market concentration. See industrial concentration
market discipline, 333
market experiments, 166–68, 592–93. See also experimental economics
market failures. See externalities
market for corporate control, 90, 333–37
markets: allocation of resources, 270–72; asymmetric information, 88, 96, 268, 282, 521, 596–97; emergence, 344; energy, 153–54; equilibrium, 530; importance of property rights, 202; intermediaries, 74, 81–82, 269; periods, 563; profit-loss signals, 74; transaction costs, 74; use of information, 269. See also capital markets; competition; demand; prices; stock markets; supply
market socialism, 201, 555
Markowitz, Harry, 562
marriage, gains from, 529–30. See also divorce
Marshall, Alfred: biography, 562–63; as classical economist, 376; on externalities, 577; investment theory, 305; on objective costs, 24; on representative firm, 581; students, 549
Marshall, Ray, 321
Marshall Plan, 218–19, 342
Martin, William McChesney, 176–77
Martinique, 194
Marx, Karl, 58, 124, 337, 466, 497, 526; biography, 563–64; Capital, 337, 563; Economic and Philosophic Manuscripts of 1844, 338
Marxism, 337–40; alienation, 338–39; appraisal of, 339–40; class struggle, 339, 563; criticism of capitalism, 58, 59, 338–39; labor theory of value, 337–38, 563, 565; post-, 340; scientific socialism, 339. See also communism; socialism
Massengill Company, 388
mass transit, 118, 508, 509, 564
maximizing behavior, 344, 428
McDonald, Robert, 306
McFadden, Daniel L., 564
McGee, John S., 587
Meade, James Edward, 564–65, 597
Means, Gardiner C., 89, 97
median-voter theorem, 428–29
Medicaid, 510; administration, 513; drug prices, 391; establishment, 242; expenditures, 235, 513; impact on poverty rates, 407–8; individuals covered, 239, 513, 514; Medically Needy Program, 514; problems, 243
medical care. See health care
medical insurance. See health insurance
medical malpractice cases, 325, 327
medical savings accounts (MSAs), 242
Medicare, 238–39; covered individuals, 236, 437; establishment, 242; expenditures, 235, 243, 403, 407–8, 437; future of, 240, 465; hospital payments, 238–39, 240, 241, 242; physician payments, 239; prescription drug benefit, 239, 243; problems, 243; taxes, 490
Meltzer, Allan, 350
Menger, Carl, 23, 24, 545, 565–66
mental accounting, 34
menu costs, 265, 379–80
mercantilism, 340–43; argument against free trade, 200; criticism of, 545, 579, 591; definition, 340; domestic policies, 340; economic rationale, 340; end of era, 341, 342; international trade policies, 340–43; in post–World War II period, 341–42; remnants, 342
mergers: agreements, 335; industrial concentration measures, 257–58; regulation, 11, 257, 260; vertical integration, 12. See also antitrust; takeovers
Merton, Robert C.: biography, 566; options pricing model, 210–11, 566
meta-ideas, 130
Mexico: free trade agreement with United States, 427; North American Free Trade Agreement, 299–300, 427; oil exports, 382
MFN (most-favored-nation status), 299, 427
MFP (multifactor productivity), 418
microeconomics, 343–46; Austrian School propositions, 24–25; supply and demand, 343–44, 345; use of term, 535
Microsoft, 12, 53, 154
middlemen, 81–82, 269
military: all-volunteer forces, 76, 77; base closings, 108; central planning, 110; conscription, 76–77, 234, 534; in fascist states, 172; procurement, 109–10; Soviet, 67, 499; standing armies, 111
military-industrial complex, 342
militias, 111
Milken, Michael, 314, 315
Mill, James, 566, 584
Mill, John Stuart: biography, 566–67; on disaster recovery, 113; Principles of Political Economy, 154, 566–67
Miller, Merton H., 584; biography, 567–68; Modigliani-Miller theorem, 86, 567, 570
Mincer, Jacob, 586
minerals: nonfuel, 373; prices, 404. See also mining; natural resources
minimum wages, 346–50; as antipoverty measure, 347–48; in Australia, 346, 347; debates on, 161–62; distributional effect, 347–48; effects, 346, 347–49, 573; employment losses, 346, 347, 348–49; history, 346; labor union support, 321, 347; living wages, 349; losses to employers, 161; losses to workers, 346, 347, 573; in New Zealand, 346; in United States, 346; workers earning, 347–48. See also wages
mining: coal, 546; environmental consequences, 375; innovations, 373–74, 546; in South Africa, 15, 16, 116. See also minerals
Ministry of International Trade and Industry (MITI), Japan, 308–9
mints, 361
Mirrlees, James A., 568–69, 600–601
Mises, Ludwig von: biography, 569; business cycle theory, 569; influences on, 24; on socialism, 25, 390, 467–68, 569; students, 540–41, 561, 569; on unions, 319
Mississippi bubble, 46–47
MITI (Ministry of International Trade and Industry), Japan, 308–9
mixed economies, 60–61, 172
MMMFs (money-market mutual funds), 179, 180
Modigliani, Franco, 86, 567, 569–70
Modigliani-Miller theorem, 86, 567, 570
MOIP (Mandatory Oil Import Quota program), 382
monetarism, 350–53; compared to Keynesianism, 353–55; constant-money-growth rule, 351; evidence against, 352; Federal Reserve policies, 175, 351–52; growth of money stock, 350–51, 357; influence, 352–53; in Japan, 309–10; monetary neutrality and nonneutrality, 350; quantity theory of money, 25, 175, 178, 198, 263, 532, 534; rise to prominence, 351; role of monetary aggregates, 350–51; view of inflation, 396, 534
monetary aggregates: growth targets, 351, 357; M1, 351, 352, 356–57, 360; M2, 350–51, 357, 360, 361; M3, 357, 360; monetary base (M0 or MB), 350–51, 355, 362. See also money supply
monetary base (M0 or MB), 350–51, 355, 362
monetary competition, 71–73
monetary policy, 353–58; Austrian School view, 25, 26; control of M1 and M2, 177, 178; definition, 354; differences between monetarist and Keynesian, 353–55; in European Union, 164, 318–19; exchange rates and, 356, 571; expansionary, 354, 362, 526; of Federal Reserve, 176, 177, 263; during Great Depression, 233; influence on balance of payments, 547, 571; influence on consumer spending, 356; influence on employment, 379, 526; influence on investment, 598; influence on production, 379; Keynesian, 316, 350, 353–55, 550; mechanics, 355–56, 361; in monetary unions, 358, 359; priorities, 353–54; in recessions, 49, 50; relationship to fiscal policy, 355; responses to Great Depression, 231, 232; role in business cycles, 48–49; strategies, 354–55; tactics, 356, 362; tightening, 362. See also money supply
monetary unions, 358–60; benefits and costs, 359, 572; definition, 358; examples, 358; increased trade in, 199; monetary policy in, 358, 359; theories, 358–59, 571–72; United States as, 359. See also European Monetary Union
money: definitions, 360; fiat, 71, 72, 73, 172, 351, 360; real quantity, 251; use in markets, 200–201; velocity, 178, 357, 532. See also currencies
money laundering, 181–82
money-market mutual funds (MMMFs), 179, 180
money multiplier, 357
money supply, 360–63; competition, 71–73; currency component, 355, 360, 361; declines, 363; definition, 360; determinants of, 361; equation of exchange, 263–64; under gold standard, 222–23, 360; growth and inflation, 264, 362, 363, 534; growth rates, 362–63; hyperinflation and, 251, 264; importance, 360–61; indirect effect on prices, 603–4; relationship to interest rates, 362; shocks, 264; in United Kingdom, 547; in United States, 360, 362–63. See also monetary aggregates
monopolies, 363–66; argument against, 364; barriers to entry, 2–3; definition, 363; erosion by new competition, 363–64; government corruption and, 99; government protection, 13, 75, 364; innovation and, 276, 586; in movie industry, 276, 594; natural, 365, 366, 370; prices, 345, 363; profits, 363, 365, 420; regulation, 364, 365, 366; restraint of trade, 11; in sports, 420, 474; theories, 12–13; welfare reduced by, 364. See also antitrust; industrial concentration
monopolistic competition, 581–82
Moody’s, 41, 82, 313
moral hazard, 282–83; in government insurance programs, 181; in health insurance, 236, 237; in insurance, 568; minimizing, 181
morality, 161. See also ethics
Morgan Stanley, 479
Morgenstern, Oskar, 570, 574
mortality rates, 476
mortgage bonds, 41–42
mortgages, adjustable rate, 460
most-favored-nation (MFN) status, 299, 427
motion picture industry. See movie industry
motor vehicles. See automobiles
movie industry: copyright issues and file sharing, 287; monopolistic practices, 276, 594
MSAs (medical savings accounts), 242
multifactor productivity (MFP), 418
multinational corporations: bribery by, 99; taxation, 94
Mundell, Robert A., 571–72
municipal bonds, 42, 224, 365
Municipal Sewage Treatment Construction Grants, 400
music, file sharing issues, 287. See also arts
Mussolini, Benito, 173, 452, 577
Muth, John F., 377, 432, 434
mutual funds: closed-end, 35; money-market, 179, 180; regulators, 179
Myrdal, Gunnar, 443, 572–73, 604

N

NAFTA (North American Free Trade Agreement), 299–300, 427
NAIRU (nonaccelerating inflation rate of unemployment), 394, 395
Napoleon Bonaparte, 76
NASD (National Association of Securities Dealers), 90
NASDAQ, 335, 478–79
Nash, John F., Jr., 212, 573–74
Nash equilibria, 212, 573–74, 587
National Association of Securities Dealers (NASD), 90
National Basketball Association (NBA), 472
National Bureau of Economic Research (NBER), 48, 528, 553
National Collegiate Athletic Association (NCAA), 320
National Credit Union Administration, 179
National Credit Union Share Insurance Fund (NCUSIF), 180, 181
national defense. See defense
National Endowment for the Arts, 19, 20–21
National Football League (NFL), 420, 473, 475
National Guard, 111
National Highway Traffic Safety Administration (NHTSA), 82, 441–42
national income: definition, 367; measuring, 367, 570, 597
national income accounts (NIAs), 366–70; double-entry bookkeeping format, 597; errors in, 570; history, 369, 552–53, 597; limitations, 369; publication, 367; public policy use, 367, 368; in United Kingdom, 597; United Nations system, 369; in United States, 369, 552–53, 597; uses, 367
National Industrial Recovery Act, 173
National Labor Relations Act (Wagner Act), 173, 228, 230, 233, 320
National Labor Relations Board (NLRB), 319
national parks, 204
National Park Service, 399
National Recovery Administration (NRA), 63, 232–33
national security. See defense
NATO (North Atlantic Treaty Organization), 77, 109
natural gas, 370–72; consumption, 370, 371, 372; evolution of industry, 370–71; imports and exports, 370, 371; liquefied, 371–72; local distribution companies, 370, 371; markets, 370–72; pipelines, 370–71; price controls, 370; prices, 371; reserves, 371; U.S. output, 370
natural growth rate, 539
natural monopolies, 365, 366, 370
natural rate of unemployment, 266, 317–18, 354, 393, 504–5
natural resources, 372–76; as constraint on population growth, 403; cost of finding, 384; demand for, 373; effective stocks, 372–75; minerals, 373, 404; prices, 373, 375, 384, 404; productivity increases, 372–73; recycling, 372, 374–75; substitutability, 374. See also coal; energy; oil
Nature Conservancy, 204
NBA (National Basketball Association), 472
NBER (National Bureau of Economic Research), 48, 528, 553
NCAA (National Collegiate Athletic Association), 320
NCUSIF (National Credit Union Share Insurance Fund), 180, 181
Neal, Stephen, 178
negligence, 324, 326
neoclassical growth model, 147, 149
neoclassical synthesis, 376, 381, 583
neo-Malthusians, 158, 160, 561
Netherlands: commercial shipping, 341; industrialization, 575; tulip bubble, 45–46
network effects, 258, 302
network industries, 7, 8, 10, 258
Neumann, John von, 211, 570, 574–75
new classical economics, 376–79; assumption of perfect information, 269; debates with Keynesians, 317, 376, 379, 381; explanation of business cycles, 49, 318, 319, 376–77; fundamental tenets, 376; individuals as optimizers, 376; investment theory, 306; legacy, 378; Lucas critique, 378; origins, 376; policy-ineffectiveness proposition, 378, 434; policy of noninvariance, 378; price adjustments, 376, 395; rational expectations theory, 351, 377, 378, 395; rejection of Phillips curve, 377; Ricardian equivalence, 185, 226–27, 378; theory of value, 546; wage and price flexibility, 379, 395
New Deal: Agricultural Adjustment Act, 4, 173, 232–33, 572–73; business reactions, 234; corporatist features, 173; effects on blacks, 233, 572–73; increased government role in economy, 124, 228, 230; industry cartelization, 233, 578; National Industrial Recovery Act, 173; National Labor Relations Act, 173, 228, 230, 233, 320; National Recovery Administration, 63, 232–33. See also Great Depression
new institutional economics, 575
new Keynesian economics, 379–82; acceptance, 353; causes of recessions, 380, 381; coordination failures, 380–81; debates with new classical economists, 379, 381; efficiency wage theories, 381; policy implications, 381–82; rational expectations assumption, 559–60; sticky wages and prices, 379, 521; on unemployment and wages, 378–79, 381, 395. See also Keynesian economics
Newton, Isaac, 222
New York City: blackouts, 114; rent controls, 228, 443, 444; taxi medallions, 366
New York Mercantile Exchange (NYMEX), 210, 371
New York Stock Exchange (NYSE), 90, 478–79; crash of 1929, 231; crash of 1987, 210, 480; purchase of, 335. See also stock markets
New Zealand, minimum wages, 346
NFL (National Football League), 420, 473, 475
NHTSA (National Highway Traffic Safety Administration), 82, 441–42
Niskanen, William, 430
Nissan, 309
Nixon, Richard M.: abandonment of gold standard, 222, 360; appointment of Burns to Federal Reserve, 177, 528; creation of EPA, 399; Friedman as adviser, 533; price controls, 177, 382, 412
NLRB (National Labor Relations Board), 319
nonaccelerating inflation rate of unemployment (NAIRU), 394, 395
nongovernmental organizations (NGOs), 194–95
nonprice competition, 74
nonprofit organizations: in arts fields, 19, 64; hospitals, 240; volunteers, 34–35, 64; work with poor, 65. See also charity
nonrivalrous consumption, 284–85, 431. See also public goods
North, Douglass C., 24, 575
North American Free Trade Agreement (NAFTA), 299–300, 427
North Atlantic Treaty Organization (NATO), 77, 109
North Korea, economic growth compared to South Korea, 145, 146
NRA (National Recovery Administration), 63, 232–33
nuclear power, 143
nursing home regulation, 239
NYMEX (New York Mercantile Exchange), 210, 371

O

occupational safety. See job safety
Occupational Safety and Health Act of 1970, 312
Occupational Safety and Health Administration (OSHA), 312–13
occupations: created by technological change, 102; gender gap, 214–15; licensing, 13, 82–83, 321, 440, 506, 533–34
Office of Management and Budget (OMB), 416, 441, 442
Office of Price Administration, 411, 536
Office of Thrift Supervision, 179
Ohlin, Bertil Gotthard, 604; biography, 575–76; factor proportions model, 296, 576, 583
oil: expenditures, 151; future demand, 384; import quotas, 382; imports, 150; price controls, 382; prices, 143, 151, 158, 373, 382, 383, 404, 557; reserves, 150, 158–59, 374; strategic reserve, 151. See also energy; gasoline; OPEC
oil tankers, 506
Okun, Arthur M., 438, 576–77, 598
Okun’s law, 576
Old Age, Survivors and Disability Insurance. See Social Security
oligopolies, 365. See also industrial concentration
Olson, Mancur, 24, 308
Olympic Games, 471–72
OMAs (orderly market arrangements), 426
OMB (Office of Management and Budget), 416, 441, 442
OPEC (Organization of Petroleum Exporting Countries), 382–84; as cartel, 382–83; cheating by members, 383; effectiveness, 383; establishment, 382; future of, 384; Lerner’s plan to break, 557; members, 382; oil embargo, 382; output quotas, 383; prices, 143, 373, 383, 404, 557; production, 382, 383; tensions within, 383–84
open-market operations, 176, 263, 355, 357, 361, 362
“Open Skies” agreements, 9–10
Open Society Institute, 501
opportunity costs, 25, 385, 525
optimal currency areas, 358–59, 571–72
optimal taxation theory, 108, 596
options: currency, 197, 210; energy, 210; on futures, 210; pricing model, 210–11, 566, 584–85; stock, 584; uses, 584
options markets, 210–11; exchanges, 210, 585; over-the-counter, 211; participants, 211
orderly market arrangements (OMAs), 426
Organization for Economic Cooperation and Development (OECD): agricultural subsidies in member states, 4–5, 427; anticorruption treaty, 99; international trade, 297; relationship of economic freedom and entrepreneurship, 156
Organization of Petroleum Exporting Countries. See OPEC
organized crime, 105
organized labor. See labor unions
OSHA (Occupational Safety and Health Administration), 312–13
outsourcing: opposition to, 416; performance standards, 416; rationale, 415–16; of services, 414, 415–16
ozone layer, 402

P

Paramount Pictures, 276
Pareto, Vilfredo, 577
Pareto optimality, 577
Pareto’s law of income distribution, 577
Parkin, Michael, 350
parks, 204
partnerships: comparison to corporations, 95; unlimited liability, 96
patents: description, 284; encouragement of innovation, 276, 554; issue rates, 274; monopoly conferred by, 285–86; pharmaceutical, 391; role in economic growth, 129; terms, 284, 286. See also intellectual property rights protection
Pattanaik, Prasanta, 588
PBGC (Pension Benefit Guaranty Corporation), 181, 283, 387
Peltzman, Sam, 429
Pension Benefit Guaranty Corporation (PBGC), 181, 283, 387
pensions, 385–88; assets, 385, 387; basic features, 385–86; costs, 402; defined benefit plans, 386–87; defined contribution plans, 386; economic issues, 387–88; employment-based, 385, 457; federal guarantees, 283; functions, 385; funding methods, 387–88; government commitments, 185; hybrid plans, 386; inflation indexing, 188; private plans, 385; regulation, 386; tax advantages, 385; termination, 386–87
perestroika, 467, 468
permanent income theory of consumption, 433–34
perpetuities, 224
personal bankruptcy, 31, 32, 33
Personal Consumption Expenditure (PCE) deflator, 78, 79
Personal Responsibility and Work Opportunity Reconciliation Act of 1996, 438, 511–12
petroleum. See gasoline; oil
pharmaceutical industry, 388–92; advertising, 1; delays in new drug approvals, 389, 505–6; development costs, 390; economics of, 390–92; generic drugs, 44, 391; patents, 391; patient assistance programs, 391; prices, 390–91; regulation, 82, 83, 239, 388–90, 440, 505–6
Phelps, Edmund, 318, 392, 504, 534, 559
Phillips, A. W. H., 354, 392
Phillips curve, 316, 354, 392–96; criticism of, 392–93, 396; early versions, 266; expectations-augmented, 393, 394; forecast errors and, 434; Friedman on, 351, 392, 534, 559; long-run, 393; Lucas critique, 378, 559; output gap version, 395–96; policy uses, 392–93; rejection by new classical economists, 377; short-run, 393; slope, 394; typical, 392
physicians: licensing, 533–34; Medicare payments, 239; number in United States, 240; restrictions in managed care, 242. See also health care
Physiocrats, 579, 599–600
Pigou, Arthur Cecil, 305, 376, 432–33, 529, 549, 551, 577–78
pipelines: natural gas, 370–71; regulation, 370–71, 485, 487
Plato, The Republic, 273
Plaza Accord, 309, 310
poison pill, 336
Poland: collapse of communism, 499; communist government, 555. See also Eastern Europe
policy-ineffectiveness proposition, 378, 434
policy of non-invariance, 378
political behavior, 396–99; challenges, 397; differences from markets, 396–97; experiments, 168; motives, 397, 428; problems for citizens, 397–98; public choice analysis, 427–30; rent seeking, 445–46; role of money, 51; special interests, 108, 342, 398, 429; support of subsidy programs, 6. See also campaign finance; democracy
political freedom: relationship to economic freedom, 125, 545; as requirement for innovation, 275
political futures market, 210
political rights: country rankings, 148; relationship to economic freedom, 125; relationship to economic growth, 148–49
politicians: corruption, 98–99; wealthy, 51. See also campaign finance; elections
pollution controls, 399–402; air pollution, 170, 210, 399–400, 401–2, 441; benefits, 400–401; on coal-fired power plants, 399, 441; costs, 400, 401; economic effects, 401; funding methods, 400; market-based approach, 170, 210, 401–2; standards, 400, 401. See also environmental regulation
poor countries. See developing countries
Popov, Vladimir, 468
population, 402–5; aging trends, 402–3; causes of death, 446–47; generation sizes, 403; median ages, 402, 403; mortality rates, 476; ratio of workers to elderly, 185–88, 402–3. See also life expectancies
population growth: economic growth and, 160, 403–5; fear of, 158, 403, 404–5; in industrialization, 261–62; Malthusian view, 158, 561, 603; projections, 402; relationship to food supply, 561; saving rates and, 457; in twentieth century, 402
population movements, after disasters, 115. See also immigration
portfolio risk, 589
portfolio theory, 562, 598
Posner, Richard, 323
post-Marxism, 340
Poterba, James, 140
poverty: antipoverty programs, 407–8, 437; charitable programs, 65; of children, 406, 408; decline, 406, 407–8; of developing countries, 129, 405; of elderly, 406, 459; in European regions, 166; feminization, 407; of immigrants, 407; measures, 405–6, 588; persistence, 406; relationship to corruption, 98; relationship to unemployment, 407; rural, 405, 585–86; temporary, 406; in transition economies, 501; in United States, 405–8. See also incomes; standard of living; welfare system
poverty line, 405, 588
PPF (production possibilities frontier), 67
precautionary principle, 450–51
predatory pricing, 12, 587
preferential trade agreements (PTAs), 427. See also international trade agreements
prejudice, 117
Prescott, Edward C.: biography, 578–79; business cycle theory, 377, 578; on marginal tax rates and labor force participation, 330; new classical economics, 376; on time-consistency problem, 553–54
prescription drugs. See pharmaceutical industry
present value, 138, 408–9, 478, 531
price controls, 409–12; abolition in postwar Germany, 115, 216, 217–18; drawbacks, 271, 409–10; effects on supply, 409–10; evasion, 410; on food, 115; on gasoline, 409–10; general, 411–12; history, 409; housing, 246–47; justifications, 60, 411–12, 481; on natural gas, 370; in Nazi Germany, 216–17; in 1970s, 177, 382, 412; on oil and gasoline, 382, 409–10; purpose, 409; removing, 411, 440; results, 344, 409–10; unintended consequences, 506; during World War I, 410; during World War II, 176, 216–17, 234, 410, 411, 536, 552. See also rent control
price discrimination, 11
price-fixing, 12
price indexes, 78. See also consumer price indexes
prices: adjustment costs (menu costs), 265, 379–80; advertising, 3; demand curve, 111; equilibrium, 271, 481; information signaled by, 73–74, 270–71; Law of Single Price, 268, 297; predatory pricing, 12, 587; rigidities, 381; role in market, 25, 271; staggered changes, 380; sticky, 379, 521; of substitutes, 113. See also asset prices; inflation; stock prices
price-specie-flow mechanism, 222
prisoners’ dilemma, 412–13; applications to economics, 412–13; cooperation in, 35, 413; description, 212, 412; examples, 391; as Nash equilibrium, 574; punishments, 413; in takeover bids, 335. See also game theory
private goods, government spending on, 108
private placements, 313
private property, 25, 422. See also property rights
private schools, 132–33, 134
privatization, 414–17; corruption reduced by, 100; definition, 414; in former communist countries, 159, 414–15, 500, 501, 502; forms, 414; infrastructure partnerships, 414, 415, 416–17; motives, 414; outsourcing services, 414, 415–16; of state-owned enterprises, 414–15, 416, 500, 501; of telecommunications, 494; of transportation services and facilities, 509; in United Kingdom, 414, 509
probability theory, 281, 538
producer surplus, 562–63
production: roundaboutness, 526, 531, 603; spatial distribution, 469–70
production possibilities frontier (PPF), 67
productivity, 416–19; agricultural, 102–3, 403; asymmetric information on, 594; growth, 102, 417, 477; labor, 416–19, 594; marginal, 603; measures, 417; multifactor, 418; relationship to employment, 417–18; relationship to prices, 417; relationship to standards of living, 417; relationship to wages, 206; shocks to, 578; technical change and, 250, 403–4, 418, 494; total factor, 418, 578
product liability, 325; for design defects, 325, 327; mass toxic torts, 327–28
products: differentiated, 74; innovations, 74; nonprice competition, 74; warranties, 521
product safety, 81–82. See also consumer protection
profits, 419–21; definition, 420; effects of Great Depression, 232; by industry, 420–21; Marxist explanation, 338; maximization, 561; measuring, 420; of monopolies, 363, 365, 420; relationship to industrial concentration, 12, 258–59, 365; sources, 419–20; taxation, 92–93
promotion. See advertising
property: common ownership, 423; private, 25, 422
property insurance, 282, 283, 326. See also insurance
property law, 323–24
property rights, 422–25; accountability and, 204; characteristics, 202, 203, 320; of children, 424; as component of economic freedom, 124, 125; contribution to economic growth, 148–49; criticism of, 60; definitions, 323, 422; efficiency and, 137; eminent domain and, 60; environmental quality and, 160, 202–3, 204–5, 431–32; exclusivity, 324, 422; importance, 57, 75, 201, 202, 422; legal issues, 424; private, 422, 423–24, 522; purpose, 422; as requirement for innovation, 275; restrictions on, 422–23; right to exchange, 422
property taxes, 536–37
prospect theory, 548
protectionism, 425–27; administered, 426; agricultural, 342, 427; costs, 166, 425, 426; criticism of, 524, 537, 547, 580; cultural, 20; efforts to save jobs, 206–7, 342; “fair trade” laws, 426–27; gains from, 564–65; in interwar period, 231, 299, 341; mercantilist support, 340–43; rationales for, 425–26; retaliation, 207, 425, 592. See also trade barriers
Protestant work ethic, 57–58, 506, 603
public assistance programs. See welfare system
public choice, 427–30; constitutional and postconstitutional levels, 527; failure of government attempts to promote entrepreneurship, 156; foundational principles, 427–28; government provision of public goods, 108; impossibility theorem, 428, 523, 588; lessons, 430; mechanisms, 428–30; political marketplace, 51
Public Company Accounting Oversight Board, 91
public goods, 431–32; characteristics, 431; definition, 583; examples, 530; intellectual property, 284–85; market failures, 202; market solutions, 431–32; national defense, 107–8, 431; private solutions, 593; role of government, 107–8; tied to private goods, 431. See also environmental quality
public housing, 246, 513, 516
public-private partnerships, 415
Public Utility Regulatory Policies Act (PURPA) of 1978, 143, 144
Pujo Committee, 277
purchasing power, 251
purchasing power parity, 198, 297, 528
Puritan work ethic. See Protestant work ethic
PURPA (Public Utility Regulatory Policies Act of 1978), 143, 144
Putin, Vladimir, 484

Q

quality: brand names and, 2, 43–44, 81; promotion in advertising, 82
quantitative models. See econometric models
quantity theory of money: evidence for, 534; Federal Reserve policies, 175, 178; Fisher on, 532; inflation and, 25; international, 198; Locke on, 558; of price level, 263; Ricardo on, 580; Wicksell on, 603–4
Quesnay, François, 579, 590, 599
quotas, import, 207, 506

R

radio licenses, 99, 496
railroads: deregulation, 486, 488; employment, 321–22; freight rates, 488; intermodal carriage, 487; regulation, 485–86, 488; role in economic growth, 533; unions, 321–22; urban, 508. See also surface freight transportation
RAND Health Insurance Experiment, 236
random walk: of exchange rates, 198; of stock prices, 138
Rapping, Leonard, 376
rational expectations theory, 432–35; adopted by new classical economists, 351, 377, 378, 395; business cycles, 434; consumption, 433–34; development, 570; Keynesian view of, 317, 351; Lucas’s work, 559–60, 578; macroeconomic policies, 434–35, 559. See also efficient markets theory
rational markets theory, 139. See also efficient markets theory
rationing, 410
Ravenna Park (Seattle), 204
Rawls, John, 540
raw materials. See natural resources
RCA, 275
Reagan, Ronald, 178, 454, 483, 572
Reagan administration, 383, 416, 441, 453, 460, 491
real-business-cycle school, 377
real estate. See housing; land
real quantity of money, 251
recessions: beginnings and endings, 48, 528; causes, 48–49, 151, 318, 380, 381; definition, 47–48; duration and severity, 49–50; effects on individuals, 51; Federal Reserve role, 48–49, 353, 357; fiscal policies, 184, 226–27, 550; impact on poor, 407; industrial production declines, 49, 50; Keynesian view, 376; of 1937, 176, 230, 233–34; of 1981–1982, 351–52, 353, 354, 357; of 1990–1991, 353; role of monetary policy, 48–49, 50; unemployment rates, 48. See also business cycles
recycling, 435–36; aluminum, 162, 435; costs, 436; curbside, 436; debates on, 162–63, 435; definition, 435; economics of, 435–36; mandatory, 436; of natural resources, 372, 374–75; rates, 435–36; technological change facilitating, 374–75
“redistribution,” 119–21, 437–39, 576
regime uncertainty, 234
regulation, 439–42; of advertising, 3; agricultural price supports, 5, 344; of airlines, 6, 7–8, 9–10; banking, 174, 178–82, 440, 460; benefit-cost analysis, 441–42; benefits, 82, 580; campaign finance, 51, 52, 53; capture of regulatory agencies, 426, 427, 595; causes, 595; consumer protection, 82–83; corruption opportunities created, 99, 100; costs, 82, 152, 165, 227, 239–40, 441–42, 486, 488, 599; definition, 439; economic, 439–40; effects on innovation, 21; of electricity, 142–45, 151, 169, 595; in European Union, 165; health care, 239–40, 241; housing, 245–47; increase in, 227, 228; insider trading, 277, 279–80; insurance, 181, 283; justified to correct market failures, 440–41; labor market, 321; land-use, 246; monopolies and cartels protected by, 13; occupational safety, 312–13; pharmaceutical, 82, 83, 239, 388–90, 440, 505–6; precautionary principle, 450–51; risk levels, 447–50; securities markets, 91, 179, 277, 279–80; shipping, 341, 506; social, 440; of takeovers, 334, 336, 337; telecommunications, 494–95; unintended consequences, 506; as violation of economic freedom, 125. See also antitrust; deregulation; environmental regulation; licensing; price controls
religious institutions, charitable giving to, 64
rent control, 442–45; beneficiaries, 411; debates on, 161–62, 445; definition, 442; effects, 161, 422–23, 442–44; rationale, 228, 442; reforms, 445. See also price controls
rents: definition, 445; economic quasi;n-, 481; farmland, 580
rent seeking, 99, 345, 445–46
Republic of Korea. See South Korea
reputational equilibria, 435
reputations, corporate, 43, 44, 58, 81, 82, 268–69
research and development (R&D): in energy, 152–53; government involvement, 152–53; private, 275. See also innovation; technological change
Research Seminar in Quantitative Economics (RSQE), University of Michigan, 191
reservation wage, 503–4
resource allocation: central planning, 549; in markets, 270–72; optimum, 549, 552
resources: full employment, 267–68; opportunity costs, 385. See also natural resources
restraint of trade, 11. See also monopolies
retailers, 81. See also middlemen
retirement: ages, 458; of baby boomers, 240, 458–59, 464; costs, 402
retirement savings: annuities, 457; effects of Social Security, 506; 401(k) plans, 36–37; individual retirement accounts (IRAs), 36–37, 84, 85, 491; life-cycle model, 456; partial privatization of Social Security, 465; proposed accounts, 86. See also pensions
revenue bonds, 42, 224
revenue equivalence theorem, 22
Reynolds Metal Company, 435
Rhodesia, sanctions on, 454
Ricardian equivalence, 185, 226–27, 378
Ricardo, David, 69, 206, 295–96, 338, 376, 445, 579–81
rights, of accused, 325. See also political rights; property rights
risk: aversion, 548; causes of death, 446–47; dangerous activities, 447; estimation errors, 312, 450, 548; hedging, 198–99, 209, 210; insurance and, 281–82, 284; interest rates and, 289; job hazards, 311, 312, 591; managing with futures, 208–9; perceptions, 450; portfolio, 589; safety and, 446–51; shifting, 88; value-at-risk analysis, 531
risk premiums, 199
risk-premium theory of yield structure, 289–90
Robbins, Lionel, 541, 581
Robbins Principle, 581
Roberts, Harry, 139
Roberts, Paul Craig, 483
Robinson, Joan Violet, 581–82
Robinson-Patman Act, 365
Rockefeller, John D., 58
Rogoff, Kenneth, 554
Roosevelt, Franklin D., 176, 222, 232, 411, 463. See also New Deal
Roosevelt, Theodore, 11
Röpke, Wilhelm, 217
Rothbard, Murray, 24
Roth IRAs, 84, 85
Royal Dutch/Shell, 506
RSQE (Research Seminar in Quantitative Economics), University of Michigan, 191
rule of law: economic growth and, 145, 148, 159–60; as prerequisite for competition, 75
rule of 72, 128, 288
rural areas: entrepreneurship, 155–56; poverty, 405, 585–86. See also agriculture
Russell 2000 index, 479
Russia: economic freedom, 126; economic reforms, 423, 500; financial crises, 500–501; government debt default, 186; income tax rates, 484; military spending, 501; privatization, 414–15, 501. See also Soviet Union; transition economies
Russian Revolution, 66, 337

S

Sachs, Jeffrey, 423, 500, 501, 541
safety regulation, 440, 446–51. See also accidents; job safety
sales taxes, 84, 492
SALP (South African Labour Party), 16
Salvation Army, 347
Samuelson, Paul A.: biography, 582–83; on capital aggregation, 582; on comparative advantage, 69; Economics textbook, 524, 534, 583; on Johnson, 547; on Lerner, 556; on minimum wage, 346; national income measurement, 369; neoclassical synthesis, 376, 583; on Phillips curve, 392; random walk model, 139
sanctions, 451–56; definition, 452; effectiveness, 453–54, 455; evasion, 453, 455; financial, 452–53; historical use, 451–52; on Iraq, 452, 454–55; purposes, 452, 453; on South Africa, 18, 452; targeted, 455; trade, 452, 453, 454; types, 452–53
San Francisco earthquake, 113
Sarbanes-Oxley Act, 90, 91
Sargent, Thomas, 376, 378, 379, 559
Saudi Arabia, 383, 384
“Save More Tomorrow” program (SMarT), 37
saving, 456–59; behavioral analysis, 36–37; definition, 456; in developing countries, 195; distinction from investment, 456; encouraging, 37; impact of fiscal policy, 184–85, 458; in Japan, 308, 310; labor-supply decisions and, 457–58; life-cycle model, 36, 569–70; marginal rates, 333; motives, 456–57; population growth and, 457; taxes on income, 84; tax incentives, 458, 491, 492; in United States, 318, 456, 458–59. See also investment; retirement savings
saving rates: effects of taxes, 184–85, 458; relationship to economic growth, 147, 457
savings and loan crisis, 459–63; causes, 179–80, 181, 459–62, 498; consequences, 462; costs, 459; as example of tragedy of the commons, 498
savings and loans (S&Ls): deposit insurance, 180, 459–60, 462, 498; deregulation, 460–61; failures, 461, 462; functions, 178–79; future of, 462–63; lending, 460; regulation, 180, 459–61, 462–63. See also financial institutions
savings bonds, 40, 41
Say, Jean-Baptiste, 584
Say’s law, 562, 584
scale economies. See economies of scale
Schmookler, Jacob, 274
Scholes, Myron S.: biography, 584–85; options pricing model, 210–11, 566, 584–85
schools. See education
Schultz, Theodore William, 585–86
Schumpeter, Joseph Alois: biography, 586–87; on creative destruction, 101, 102, 272, 273; on entrepreneurship, 155, 586; on monopoly, 276
Schwartz, Anna J., 71, 350, 534
scientific method, 274
scientific socialism, 339
S corporations, 94
SEA (Single European Act), 164
Searle and Company, 327
Seattle: Ravenna Park, 204; recycling, 436; WTO meeting (1999), 300
Securities Acts of 1933–1934, 277
Securities and Exchange Commission (SEC): consumer protection function, 82; enforcement activities, 91; establishment, 228; examiners, 180; funding, 90; insider trading cases, 276, 277; insider trading regulations, 279; regulatory function, 179
Securities Investor Protection Corporation (SIPC), 181
segregation, racial, 118, 119, 572. See also apartheid
self-employment, relationship to income tax rates, 155
self-fulfilling prophecies, 506
self-interest: actions based in, 63–66, 73, 162, 428; bounded selfishness, 34–35; charity motivated by, 64; creative destruction and, 102; criticism of, 59–60; legitimacy, 57; moral nature of, 161, 162; Smith on, 64, 162, 590–91; tragedy of the commons and, 497; win-win transactions, 162
Selten, Reinhard, 587–88
semiconductors, 207, 309
Sen, Amartya, 588
services: international trade in, 27, 299, 342; offshoring of jobs, 469; productivity growth, 417
sewage treatment plants, 400
Shapiro, Carl, 596
shareholders: collective action problems, 334, 335; relations with bondholders, 88; rights, 423; stock purchase decision, 97–98; as victims of accounting scandals, 98. See also stock
shark repellant amendments, 336
Sharpe, William F.: biography, 589; capital asset pricing model, 566, 589
Shaw, George Bernard, 212
Sherman Act of 1890, 11, 14, 58. See also antitrust
Shiller, Robert, 140
shipping: cabotage laws, 342; falling costs, 469; regulation, 341, 506
shocks: to money supply, 264; to productivity, 578
shock therapy, 68, 499–500, 502
short-run economic fluctuations. See business cycles
Siegel, Daniel, 306
Simon, Herbert Alexander, 34, 60, 589–90
Simon, Julian, 158, 160, 404
Singapore: congestion pricing, 507; economic freedom, 125; wages of government officials, 100
Single European Act (SEA), 164
single tax, 536–37
SIPC (Securities Investor Protection Corporation), 181
slavery: economics of, 533; in South Africa, 15
Small Business Administration, 439
“small-firm effect,” 139–40
Smelev, Nikolai, 468
Smith, Adam: on benefits of capitalism, 59; biography, 590–92; on cartels, 61; on charity, 590–91; on division of labor, 19, 494, 591; on economic freedom, 124, 127, 341; on economic individualism, 57; on efficiency and market size, 164; on government roles, 591–92; Hume and, 545; influence on Austrian School, 24; on invisible hand, 413, 505; on labor theory of value, 584; on mercantile system, 340, 341, 545; on self-interest, 64, 162, 590–91; on small firms, 60; on specialization, 156, 205, 425, 494, 591; The Theory of Moral Sentiments, 64, 590; on utility, 331; The Wealth of Nations, 27, 57, 162, 338, 341, 425, 580, 590–91
Smith, Ian, 454
Smith, Jeffrey, 543
Smith, Vernon L., 24, 166, 167–69, 592–93
Smoot-Hawley Tariff, 231
Social Democratic Party, German, 217
socialism, 466–68; compared to fascism, 172; definition, 466; distinction from communism, 66; failures, 25, 339, 499; Hayek on, 467–68, 541, 542, 554; ideals, 58; market, 201, 555; Mises on, 25, 390, 467–68, 569; opposition to economic freedom, 124; predictions of demise, 467; property rights and, 423; scientific, 339; state-owned enterprises, 414–15; state role in economy, 201, 423, 466; syndicalism, 172; view of capitalism, 57, 58; Weber on, 603. See also central planning; communism; Marxism
Socialist Party (U.S.), 229
socialized medicine, 238, 391
social mobility, 123
Social Security, 463–66; benefit formulas, 463–64; cost of living adjustments, 463; creation, 230, 233; definition, 463; eligibility, 463–64; expenditures, 407–8, 437, 438, 464; future challenges, 463–65; history, 463; number of recipients, 463; partial privatization proposal, 465; reform proposals, 465; Supplemental Security Income, 510, 513, 514; taxes, 186, 233, 463, 464, 465, 490; trust fund, 187, 464; unintended consequences, 506
Social Security Act, 228
software companies, 130, 154, 275, 302, 303. See also Internet stocks
soldiers, as capital, 76. See also military
Solomon, David, 315
Solow, Robert Merton, 147, 392, 404, 582, 583, 593–94, 598
Solow residual, 593
Sonny Bono Copyright Term Extension Act of 1998, 287–88
Sony, 309
Soros, George, 501
sources-of-growth accounting, 593
South Africa: agriculture, 17; apartheid system, 14–19; international sanctions on, 18, 452; mining, 15, 16, 116; racial groups, 15, 18, 116
South African Labour Party (SALP), 16
South America. See Latin America
South Korea, economic growth compared to North Korea, 145, 146
South Sea bubble, 46–47
South Sea Company, 46–47
Soviet Union: agriculture, 66, 423; brand names in, 2, 43; collapse, 67–68, 124, 499; collective property ownership, 423; communism, 66–68, 114, 115, 466–67; economic policies, 67–68, 114, 115, 466–67, 468, 499, 529, 555; environmental damage, 202; industrialization, 67; military, 67, 499; perestroika, 467, 468; terror, 66; trade embargo on, 454; war communism, 114. See also Russia
Soziale Marktwirtschaft (social free market) school, 217
spatial economics, 468–71, 494
special interests: defense industry, 108; influence, 429; support of government intervention, 342; wool and mohair producers, 398
specialization: comparative advantage and, 69–71, 296, 580; of production, 343–44, 494; in trade, 206, 296, 425, 576. See also division of labor
speculation: in futures markets, 209–10; influence on stock prices, 138–39, 140
speculative bubbles, 198. See also bubbles
Spence, Michael, 594
sportometrics, 471–73
sports, 473–75; amateur, 475; drafts, 474; economic factors in team success, 473–75; leagues as cartels, 474, 475; monopolies, 420; Olympic Games, 471–72; player associations, 322; public subsidies for facility construction, 475; racial integration, 472; risks, 447; salaries, 320, 474
SPR (Strategic Petroleum Reserve), 151
Sprinkel, Beryl, 532
SSI (Supplemental Security Income), 510, 513, 514
Stalin, Joseph, 66, 67, 466, 555
Standard and Poor’s, 41, 82, 313, 584
Standard and Poor’s 500 Stock Index, 479; futures on, 207; options on, 584
standard of living: effects of Industrial Revolution, 260–62, 476; historical, 476; meaning, 261