Policy Pub College of Social Sciences and Public Policy March 12, 2019 Joe Calhoun Teaching Professor, Department of Economics and Director, Gus A. Stavros Center for the Advancement of Free Enterprise and Economic Education

Part I. Twelve Key Elements of Economics 1. Incentives matter. 2. There is no such thing as a free lunch. 3. Decisions are made at the margin. 4. Trade promotes economic progress. 5. Transaction costs are an obstacle to trade. 6.Prices bring the choices of buyers and sellers into balance.

Part I. Twelve Key Elements of Economics 7. Profits direct businesses toward activities that increase wealth. 8. People earn income by helping others. 9. Production of goods and services people value, not just jobs, provides the sources of high living standards.

Part I. Twelve Key Elements of Economics 10. Economic progress comes primarily through trade, investment, better ways of doing things, and sound economic institutions. 11. The “invisible hand” of market prices directs buyers and sellers toward activities that promote the general welfare. 12. Too often long-term consequences, or the secondary effects, of an action are ignored.

Part II. Seven Major Sources of Economic Progress Legal System Competitive Markets Limits on Government Regulation An Efficient Capital Market Monetary Stability Low Tax Rates Free Trade

Per Capita Income: The last 1000 years Income stagnated for the 800 years following year 1000, but growth has exploded during the last 200 years. (Measured in 1990 dollars) world per capita income was $667 in 1820 – only about 50% higher than year 1000. By 2003, however, income had risen to $6,516 – 10 times the level of 1820. During the past 200 years, the income growth of the high-income industrial countries (West) has grown even more – nearly 20 fold. $25,000 GDP Per Capita 2003: $23,710 $20,000 West GDP per capita $15,000 2003: $6,516 $10,000 World GDP per capita 1820: $1,202 $5,000 1820: $667 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2003

Part III. Economic Progress and the Role of Government

Part IV. Twelve Key Elements of Practical Personal Finance

Applications and Myths

Businesses pay taxes Simplified formula: Total Revenue - Total Cost = Profit x 21% = Taxes paid to government

Businesses do not pay taxes Total Revenue to business = Price x Quantity Total Expenditure by consumer = Price x Quantity Business only gets revenue from consumers

Only people pay taxes Simplified formula: Total Expenditure - Total Cost = Profit x 21% = Taxes paid to government by people

The minimum wage is both helpful and harmful This is a classic case of “the seen versus the unseen” Unfortunately, it’s also a case of the measurable versus the unmeasurable Workers who have jobs versus jobs that don’t exist because of the minimum wage

The minimum wage will reduce poverty This is dubious Characteristics of minimum wage workers: About 80% are in a household with incomes above the poverty level 50% are 16-24 years old, most part-time 15% are the primary earner in the family Nearly 60% of people below poverty level have zero work hours

Government spending creates jobs Government has to take before it can give

Trade wars are good for the economy War, what is it good for? Absolutely nothing (say it again)

A country cannot simultaneously reduce imports and increase exports for an extended period of time

Trade Openness, Income, and Growth The income levels and growth rates of the ten most and ten least open economies (as measured by the Trade Openness Index – TOI) are displayed here. Note that more open economies both achieved higher income levels and grew more rapidly. Source: Derived from Economic Freedom of the World 2015 Dataset and World Bank, World Development Indicators. The purchasing power parity method was used to convert the per capita GDP figures into 2011 international dollars.

Total employment is positively related to exports and imports

Thank you for coming! Joe Calhoun jcalhoun@fsu.edu