Commentary

The interesting points in the book:

• the success of the market economy is because it harnesses individuals’ desire to make themselves better-off for the benefit of the general public.  "Fighting greed" through government legislations do not work.
• one of the major reasons that Soviet Union collapsed is because allocating resources without a pricing system is overwhelmingly difficult in the long-run.  So the old joke goes that communist dictators set market prices by reading Walmart catalogs.  
• New York Times columnist Thomas Friedman called the anti-globalization protesters "a Noah’s ark of flat-earth advocates, protectionist trade unions and yuppies looking for their 1960’s fix".
• sweatshops set up by multi-national corporations in third-world countries benefit everyone, including the sweatshop workers.
• the dismal state of public education in most western countries is likely because the teachers’ wages do not correlate in anyway to their job performance.
• let CEO and executives receive a large share of their compensation in the form of stock options give them incentives to make choices that will benefit not just themselves, but also the company’s share-holders.
• the prisoners’ dilemma demonstrates that individuals making choices rationally in their own self-interest can make everyone worse-off in the end; an example is the Paradox of Thrift.
• sometimes, the best way to protect a scarce resource is to privatize it.
• one of the reasons that people in industrialized nations have less children is because the real cost of raising a child has increased.
• George Stigler won the 1982 Nobel Prize in Economics for his observation and supporting evidence that private firms and professional associations often seek government regulations in order to use it to hamper their competitors.
• American Bar Association should lower its standard of admission because a lot of legal procedures such as basic wills and real estate closings do not require brilliant law scholars, and doing so would lower the cost of legal services.
• foreign aid has a positive effect on growth when good policies are already in place and has little impact on growth when they are not.  Thus aid should be predicated on good policy.
• when the exchange rate is fixed, the government has no control over the money supply and exchange rate.
• the depreciation of dollar can turn an economy into the bargain bin of the world.
• corrupt government can maintain an overvalued currency (currency is worth far more than the government’s official exchange rate) in order to pocket the difference.
• strategies such as "self-sufficiency" cause governments to reject free trade; however, economies open to free trade grow much faster than economies that are closed to free trade.
• development expert Jeffrey Sachs posits that climate can explain much of the world’s income distribution; tropical weather is good for vacation but bad for food production and conducive to to the spread of disease.
• excessive regulation goes hand in glove with corruption; government bureaucrats throw up hurdles so that they can extort bribes from those who seek to get over or around them.
• many economies might be able to collect more revenue (and reduce the size of the underground economy) if they implement taxes that were low, simple, and easy to follow.
• 100 years ago, the world economy was in many ways more global than it is today: you could travel without a passport; gold standard was an international currency.
• environmental quality is a luxury good.
• Gandhi, like Lincoln, was a good leader but bad economist: Gandhi proposed that the Indian flag have a spinning wheel on it to represent economic self-sufficiency.
• trade barriers are like a sort of hidden tax, like applying a 30-cent tax on every gallon of orange juice sold domestically.
• deflation begets a dangerous economic cycle; falling prices and slumping economy can feed on each other, plunging the economy into the abyss, this is called the deflationary spiral.
• sometimes government trigger an inflation deliberately in order to devalue the money it lent out to the public - a sort of hidden, inflation tax.
• any cash held in hand will loose its value over time; and any saving deposits and certificates are vulnerable to the risk that their low interest rates may not keep up with inflation; If income is not indexed for inflation, then its purchasing power will gradually fade away.
• paper currency has no inherent worth, its value depends on its purchasing power, which can change gradually over time, or even stunningly fast.
• any paper currency is valid as long as it has a valid serial number, does not matter if it’s torn, dirty, crumpled, or otherwise.
• most country’s paper currency is not backed by gold standard, thus every paper currency is redeemable for nothing.  And many country has banned private money.
• monetary and fiscal policy affect the economy independently; the Federal Reserve implements monetary policies; the government implements fiscal policies.
• the Federal Reserve has no control over the long-term money supply of the economy; it can control the short-term money supply of the economy by buying and selling bonds to commercial banks on the bond market.
• Any system of voluntary payments falls prey to the free riders problem, which is an argument that certain services such as law enforcement be undertaken by the government.
• Supply-side economics doesn’t work in the United States since its tax rates are already low relative to the rest of the world, however, lower taxes may still lead to long-term economic growth by encouraging more investment.
• Human capital is becoming more and more important in the modern economy, sometimes constitute more than 70% of the wealth of an economy, more important than raw material such as oil and diamonds.
• Wage gaps can give entrepreneurs an incentive to take the risks necessary for leaps in innovation.
• According to survey, majority of people would choose to live in an economy in which the overall standard of living is lower but the gap between the rich and poor is narrow rather than an economy in which the overall standard of living is higher but the gap between rich and poor is wider.
• Financial market products such as mutual funds and index funds lessen the risks of investment by spreading investment over hundreds of different ventures.
• When it comes to interest group politics, it pays to be small; small and determined special interest groups can force politicians to pander to their needs by spreading the cost of this benefit over a very large population.  The benefits of creative destruction are not noticed by the general population, but those whose livelihood or community may be disrupted by such process of creative destruction chain themselves to the politician’s office door seeking protection.