Week 7 Tute

1. Freedoms?
• to choose one’s career
• to choose where to live
• to choose family size
Results?
• Walk through any supermarket, Harvey Norman superstore, etc. The quantity and quality of ‘goodies’ is staggering.
• Drive from Sydney to Melbourne of Brisbane. The road network facilitating transport is also staggering.
• Consider the fact that the vast majority of households live in their own home.
Which is more important?
I can’t say. There will be individual perspectives on this. Particularly pertinent may be perspectives from some international students. Is it better to be free but poor, or relatively rich but politically, socially and culturally muzzled?

2. Interest groups attempting to restrict competition?
• Automotive industry opposing tariff reductions?
• Agricultural industry opposing fresh food imports?
• Teachers union opposing the MySchool website?
These may not be great examples because there may be other arguments in each case (other than just protecting ones ‘patch’). Perhaps you can think of better ones.
Pareto suggested that many small losses are likely to be borne by individuals without much fuss. But the aggregate of those losses is likely to be a significant sum, and the gainer(s) of this significant sum is likely to have a strong vested interest in maintaining the status quo. Hence individual consumers (each incurring a small loss) are likely to have no incentive to seek change, whereas the relatively few firms have a great incentive to oppose change (in this case, more competition).
Factors?
Size of the lobby group (number of members, number of employees, contribution to GDP).
Unity of objective and action of members.
$ they are willing to put in for lobbying activities.
Political contacts and friends in ‘high’ places.

3. Usury = charging an interest rate to lend money.
If the interest rate gets ‘too high’, as it might in a free unregulated market, then only “prodigals (recklessly wasteful persons) and projectors (speculators) will likely borrow, for highly risky ventures, leading to much waste.
Hence Sen suggests that there may be a role for some public sector control or regulation to avoid social losses in such circumstances.
“private profit motives may indeed run counter to social interest”.
I would just add that we should also consider the possibilities of failures from poorly designed and/or implemented government regulations, an example of which could be the mess with the Federal government’s recent home insulation scheme. This requires ‘critical scrutiny’ and is not a simple task.

4. (Pure) public goods have two characteristics: they are non-rival and non-excludable in consumption.
• Non-excludable: preventing anyone (say a non-payer) from consuming the good is either very expensive or impossible: e.g. national defence, fireworks display, footpaths.
• Non-rival – once provided, the additional resource cost of another person (non-payer) consuming the good is zero: e.g. national defence.
So such goods will not be provided by private firms because there is no profit that can conceivably be made by doing so.
Markets rely on the existence of profits. If there is no profit to be made, the relevant good or service will not be provided privately, even though it would enhance the social good for those goods or services to be provided.
Education is both excludable and rival, hence it is not a public good. But especially basic education which results in reading, writing, understanding social norms, etc., has some social payoff (I would rather live in a highly educated society than a poorly educated society, other things equal). Hence a purely private market will under-invest in education, from a societal perspective. So governments in many countries provide a basic minimum level of education, which varies across countries often in direct proportion to their wealth.
5. Profit maximization is not enough to ensure the survival of a healthy capitalist society. Pursuit of profits alone will not ensure the adequate supply of:
• public goods
• an appropriate distribution of income
• altruistic activities such as volunteering
• social capital such as trust and an expectation of ethical behaviour in market transactions
• basic research and development
• art and cultural goods and services
Non-profit motives are important because the above list of ‘goods’ greatly enhances social well-being. But these goods and services would not come about with a focus on profits alone.
Which is most important? Again opinions will differ. There is no ‘correct’ answer but a good inclusive discussion is an important outcome