Economic Systems

What is the best way to ensure cooperation?

If the Prisoner’s Dilemma game is set up to result in both players defecting, how would you change the game in better ensure cooperation? What is the best method to ensure cooperation? Reputation and Trust? Impartial Spectator? Coordination of Own-Interests? Voluntary exchanges? Repeating games? Choice? Government? Laws? Contracts? Should people in government force cooperation? If so how? What are the trade-offs?

What would Hobbes say?

According to Hobbes in his book Leviathan Chapter 13. Hereby it is manifest that during the time men live without a common power to keep them all in awe, they are in that condition which is called war; and such a war as is of every man against every man. What does he mean by a “common power to keep them in awe?”

What was Plato’s idea on how to better ensure cooperation? Do you think these leaders exist? Why or why not? Why does the author feel that Plato’s idea is impractical? Do you believe that those in leadership positions use their power to promote their self-interest? Why or Why not? Explain the author’s idea of self-enforcing strategies. 6. Attempt to create a new matrix with the players being individuals outside the government and individuals inside the government. Consider self-interest and cooperation as strategies. What are the payoffs?

What happens when we allow the government to enforce cooperation? Person 2 Person 1 Self Interest Cooperation Government (Authority) People (freedom) Self Interest Cooperation War Anarchy Best, worst Bad, bad Constitutional Republic Limited Balanced Equilibrium Worst, Best Good, good Dictator How is this enforced? Original Dilemma

What would Locke say to those who believe that only the government can ensure cooperation? Isn’t the government filled with people?

1.9 The manner in which individuals form collective decisions defines the economic and political systems.

1.10 The concentration of power is the biggest threat to liberty and free choice

1.11 Collective decisions are restricted by the same parameters that apply to individual decisions.

Regardless of system Economics – Allocation of scarce resources that have alternative uses

3 economic questions that must be answered Who – consumes the goods & services produced in society? “For whom?” is a public choice question. All economic systems must determine which goods and services will be available for public use and which for private use. What –goods & services should be produced? “What to produce?” is an allocation question. All economic systems must determine how to allocate productive resources in the form of land (natural resources/raw materials), labor (work for which we earn pay) and capital (human - education & job training) (physical – buildings, equipment & tools). How – should goods & services be produced? “How to produce?” is an efficiency question. All economic systems must determine how goods and services will be produced. Who answers these questions defines the system.

In Free Markets, resources are own by private individuals and these individuals are free to pursue their self-interest. Private individuals make the main economic decisions. Property/resources own by private individuals Profit motive Individual choice to sell or buy Minimal government involvement- contracts, law, protection of individual and property

A command economy, or a planned economy, is an economic system where the main economic decisions (such as allocating scarce resources like labor, capital, soil and natural resources) are made by people in government. Government ownership of property and resources Centrally-planned economies Lack of consumer choice

Questions to Consider about the system Regardless of intentions, which system results in higher standards of living? Which system better promotes freedom and choice? Which system is better at allocating the scarce resources? Who has better knowledge?

A mixed economy, is an economic system where the main economic decisions are made by a combination of private individuals and individuals in government. Government roles in a mixed market economy. Maintaining Legal and Social Framework Maintaining Competition Providing Public Goods and Services Redistributing Income Correcting for Externalities Stabilizing the Economy

For each headline Determine what role the Government is playing. What are the possible benefits and costs? What are possible unintended consequences?

Minnesota legislature likely to raise minimum wage. Redistribution of Wealth And Competition

Legislator advocates progressive income tax Redistribution of Wealth

Council OKs new street light program City Council unanimously agreed Monday night to a contract with Black Hills Energy to replace at least 7,800 of the city’s street lights with more energy-efficient low-energy light-emitting diodes or LED lights. Public Goods

The era of unlimited carbon pollution is over By DANIEL LASHOF | 9/17/13 5:02 AM EDT This week, the Environmental Protection Agency will move against climate change by continuing the job it was created to do, 40 years ago, by a bipartisan Congress Solving for externalities

Airline merger entangled in inane anti-trust laws. Tue Aug 20, 2013 8:04 PM US Airways and American Airlines claim their merger will benefit consumers by allowing them to provide more robust competition to market leaders Delta and United. Competition

Rock, Paper, Scissors

1, -1 -1, 1 1, -1 -1, 1 -1, 1 1, -1

30 person class 4 people will receive 1 dollar 5 people will receive 2 dollars 8 people will receive 4 dollars 5 people will receive 5 dollars 3 people will receive 8 dollars 2 people will receive 10 dollars 1 person will receive 11 dollars 1 person will receive 12 dollars 1 person will receive 14 dollars

2 4 2 4 4 5 8 5

10 11 12 14

Equal Opportunity? Under the law (rules)? In game? In life? Resources? In game? In life? Equal Results? Should the government rearrange incomes to ensure equality

1. Do you feel that this game was fair? Why or why not? 2. Does this game do a good job or demonstrating free markets? Why or why not? Consider the following: How did you win (get rich) in this game? How does one make money in free markets? This game was a zero-sum game. Is capitalism a Zero – sum game? Competition and cooperation Innovation Did you need authority to function 3. In this game your income was distributed, is income distributed in real-life? Did this game involve free trade? Mutual benefit of transactions? What are some messages of this game?

The game leads to zero sum and fixed pie fallacies In this country is someone “winning” because someone else is “losing” If this was how capitalism worked then what should the government do to make it fair? redistribute? If this isn’t how government works then what should the government do to make things more equal? This leads to a the modern dilemma- economic freedom or economic equality President Obama http://www.youtube.com/watch?v=Pao3ZV03HdM Friedman http://www.youtube.com/watch?v=gMLjkt87ICo

To what to extent do you agree with Milton Friedman?

Economic Equality Vs. Economic Freedom The Modern Dilemma Economic Equality Vs. Economic Freedom Brainstorm a list of government activities designed to promote economic equality. Brainstorm a list of actions that the government could do to promote economic freedom.

Brainstorm ways to make this game fair.

To what extent does equal opportunity result is equal outcomes? To what extent does equality of outcomes restrict equal opportunity?

Play the game again but this time all start with $ Did everybody end up with the same? What should we do?

Communism Rock Paper Scissors

3 economic questions For who? What to produce? How to produce it? How do free market systems answer these questions? How do command economies answer these questions? Who owes the factors of production land, labor, capital (resources)? In free markets? In command economies?