The Naked Economics Essay Example

those of Russia and Cuba does not allow for free market economy, which hinder the most productive and efficient societies. This is because, in a communist country, the means of production is owned by a group of bureaucrats who control the allocation of resources to whatever they think the country needs and fix prices to what they deem fair to the markets. The fixing of prices on everything, however, completely eliminates the ability of most companies to complete. Price fixing also means commodity prices will always fail to be at equilibrium with supply and demand, and as a result, there will be inefficiency in either shortage or surplus or a commodity since the floor/ceiling prices are not market efficient. The author explains how the Soviet socialists’ economy failed due to government bureaucracy in controlling the economy.
In a market economy, individuals seek to maximize their utility and work to attain much successful as possible. As a fact, everyone in the world has their unique preferences. These may change over time during our lives as we seek to grow wealthier. One policy question that has often been debated among scholars and Policymakers is that, is it fair to for those who are wealthy and are living comfortably, to impose their preferences on individuals in the developing world? Economists argue that this is wrong despite the fact that it is done most of the time. In this chapter, Wheelan makes a strong point that it's not fair to impose preferences on a particular group of people. He argues that it is “bad economics to impose preferences on individuals whose lives are much different from the rest.” (p. 7).

The future of the world is based on innovation and gradual improvement, and for humanity to achieve this, people must have the freedom to choose what they want in their lives, rather than having their life choices dictated to them.

Incentives Matter.

Chapter 2 elucidates on the central idea that “thinking regarding incentives and disincentives is the best way to formulate policies,” (p. 25). Wheelan goes on to state that one of the most important roles of the government is to regulate this incentive and ensuring that it serves its purpose. It begins with the story of an endangered species, the rhinoceros. The story shows how the decline in the population of the black rhino corresponds to the rise in the back market prices making it a vicious cycle. He also uses other stories in the book to show that it is alright when material things bring profit in our lives, but become dispensable when they no longer serve their purpose. He explains that this has nothing to do with our feelings but everything to do with maximizing the value of scarce resources, as everything in our lives boils down to economics. In the most advanced economies, it is not well understood why some countries do not properly control the use of their scarce natural resources to avoid exploitation. How is not possible to protect endangered black rhinos? The answer lays in the lack of incentives for the locals to protect these markets in the long run, compared to the huge amounts of money, poachers make on rhino’s horns right now.

Economic incentives usually lie above government agenda, including the priorities of its people. When there are no

incentives, the lack of incentives may lead to global inefficiencies. The author argues that incentives should not be thrown off business. If workers are not rewarded for good performance and no punishment for sloths, the productivity of business will be hit. This is what happened in state-controlled Communist economies such as Cuba. It can also happen in any system where individual payoffs are not linked to their work performance. The author explains that a market economy inspires hard work and progress not only because of incentives but because it also harshly punishes losers. Since no one wants to be the loser, everyone fights to remain competitive even if it jeopardizes global development and progress.