Freakonomics

This new book is creating a stir. The authors are not the first to show how the study of economics leads to counter-intuitive results.

Max Borders lists his top ten favorite insights from economics.

1: David Ricardo

Comparative advantage: trade always makes people better off.

2: Arthur Laffer

Raising taxes doesn't necessarily increase revenues, and lowering them may very likely bring in more money.

3: Julian Simon

Don't be afraid of scarcity – we won't run out of resources.

4: F. A. Hayek

Spontaneous order: if the conditions are right, highly complex social orders will emerge on their own without any planning from a central authority.

5: Tullock and Buchanan

politicians operate more out of self-preservation than in the "public interest." (No kidding.)

6: CAMPFIRE

Give local villagers property rights in endangered animals like elephants. When the villagers didn't own the animals, they had no incentive to protect them. Once the villagers owned the brutes, they were able to extract their value. Then, of course, they had an incentive to protect the animals as a resource.

7: Frederic Bastiat

Broken window theory: If someone throws a stone through a shop window, the owner has to repair it. This puts people to work and increases output. Since such creates jobs, wouldn't we be better off breaking lots of windows and repairing them? A little reflection reveals that this is not only destructive to shop windows, but to the economy as well. When shop owners spend their money on repairs, they have less to spend on other goods and services in the economy.

8: Yandle, Vijayaraghavan, and Bhattarai

some environmental degradation along a country's development path is inevitable, especially during the take-off process of industrialization. Second, it suggests that when a certain level of per capita income is reached, economic growth helps to undo the damage done in earlier years. If economic growth is good for the environment, policies that stimulate growth (trade liberalization, economic restructuring, and price reform) should be good for the environment." In other words, environmental quality is part of a land's stored capital. You expend some capital to get going, and if you've spent it wisely, you can recoup that capital later. Growth in a situation where environmental damage is forbidden is like breathing in a situation where you're forbidden to exhale.

9: North, Weingast, and Nye

"There are certain commonalities among prosperous nations. Institutions like property rights, solid judicial systems, and the rule of law are critical elements of wealth creation. Why? These institutions help to reduce the costs of starting up and doing business in a society."

10: Adam Smith

How is it that a bunch of people out scrambling to make a buck simply do a better job of providing for the general welfare (if such there be) than any other social arrangement or central plan? Because the best way to benefit yourself in life is to cooperate with others. And the best way to elicit cooperation is to specialize and to trade freely.