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Ten Key Principles in Economics

ASR-10Everything has a cost. There is no free lunch. There is always a trade-off.Cost is what you give up to get something. In particular, opportunity cost is cost of the tradeoff.

 

One More. Rational people make decisions on the basis of the cost of one more unit (of consumption, of investment, of labor hour, etc.).

iNcentives work. People respond to incentives.

Open for trade. Trade can make all parties better off.

Markets Rock! Usually, markets are the best way to allocate scarce resources between producers and consumers.

Intervention in free markets is sometimes needed. (But watch out for the law of unintended effects!)

Concentrate on productivity. A country’s standard of living depends on how productive its economy is.

Sloshing in money leads to higher prices. Inflation is caused by excessive money supply.

The Dragon bubble

something to remember as you hear this idiocy about China being the most powerful country on earth…

chinadragonChina is still a poor country. Notwithstanding the complexities of measurement, income per head, according to the World Bank, is roughly $3,000, a little less than Jordan and Tunisia.

In the extreme scenario in which US income per head remains the same forever more, and China’s income per head grows by a constant 8 per cent a year, convergence would happen in 2045. But this is silly maths.

The US will not stand still and China’s economic path is likely to be punctured sooner or later by a credit or asset crisis.

Further, it cannot grow by 8 per cent a year for that much longer, not least for demographic reasons. China is the fastest-ageing nation on Earth, with an age structure rather like that of Germany.

Its labour force will begin to decline in 2010 or so and fall every year for the foreseeable future. For a while, the transfer of the 80 million rural migrant pool to higher-productivity urban jobs will mask much of this impact, but only for a few years. (more…)

Stunning Time Lapse Video Of China Completing 15 Story Hotel In 6 Days

As the United States and China battle over the finer points of currency manipulation at the G-20 summit, American negotiators may want to take note of this startling testimonial to the productivity of Chinese workers: A construction crew in the south-central Chinese city of Changsha has completed a 15-story hotel in just six days. If nothing else, this remarkable achievement will stoke further complaints from American economic pundits that China’s economy is far more accomplished than ours in tending to such basics as construction.

The work crew erected the hotel — a soundproofed, thermal-insulated structure reportedly built to withstand a magnitude 9 earthquake — with all prefabricated materials. In other words, a crew of off-site factory workers built the sections, and their on-site counterparts arranged them on the foundation for the Ark project.