Business & Economics: September 2012 Archives
A cool in-class experiment that shows students the value of property rights and free trade.
... I go around allocating trinkets to students at random.I then ask students to assign a value to the trinket they have just received ranging from 0 to 10, with higher values meaning cooler trinkets.
We then go around the room recording those values. Because students often bring their laptops to lecture, it is easy to find a volunteer to record those values, but you can have a teaching assistant do it. Once all values are recorded, total welfare (i.e., the sum total of the values students assign to their trinkets) is announced.
I then tell students that they have five minutes to trade voluntarily between themselves, insisting on the fact that trades must be voluntary (i.e., no stealing) and cannot involve dynamic aspects, or credit (i.e., no "I'll give you my cool dinosaur if you give me your awful trinket and you buy drinks on Friday night.")
Once students are done trading, we once again go around the room recording the values they assign to their trinkets. Once all values are recorded, total welfare is announced once again.
And that's usually where the magic happens. When I ran the Trading Game last week, my class' "aggregate welfare" went from 128 to about 180, if I recall correctly, and you could just see that it had become obvious to students that (in this context of well enforced property rights) trade not only left no one worse off, but it increased aggregate welfare.
This is a great game that should be demonstrated to every elementary school student in the world.
(HT: Greg Mankiw.)
Despite what the Democrats would have you believe the bailout of General Motors was not a success.
GM is once again flirting with bankruptcy despite massive government purchases propping up its sales figures. GM stock is rock-bottom. Losses continue to be revised in the wrong direction. According to The Detroit News, "The Treasury Department says in a new report the government expects to lose more than $25 billion on the $85 billion auto bailout. That's 15 percent higher than its previous forecast."The claims that GM paid back its taxpayer-funded loans "in full" -- a story peddled in campaign ads narrated by Hollywood actor Tom Hanks -- were debunked by the Treasury Department's TARP watchdog this summer. GM still owes nearly $30 billion of the $50 billion it received, and its lending arm still owes nearly $15 billion of the more than $17 billion it received. Bailout watchdog Mark Modica of the National Legal and Policy Center adds: "In addition to U.S. taxpayers anteing up, Canada put in over $10 billion, and GM was relieved of about $28 billion of bondholder obligations as UAW claims were protected. That's an improvement of almost $90 billion to the balance sheet, and the company still lags the competition."
GM basically got $90 billion for free. If Americans wanted to pour money into a successful car company we could have started one from scratch for a lot less cash than that. The GM bailout should be understood for what it was: a bailout of the United Auto Workers union at the expense of shareholders, bondholders, and taxpayers.
