Your Teacher Said What?! by Joe Kernen Page B

the brownies should be fifty cents apiece?”
    â€œThe person who made the brownies, I guess.”
    â€œIf you sold all the brownies, and people asked for more, does that mean that fifty cents was the right price?”
    â€œI guess.”
    â€œAnd if you didn’t sell any?”
    â€œMaybe they liked chocolate cookies more.”
    â€œWould you think the person might have picked the wrong price?”
    Blake gave me a wordless what-a-stupid-question look. “Of course.”
    â€œWould you still want the person to set the price next time?”
    â€œNope. I’d want to set the price myself.”
    The idea that efficient exchange demands price signals seems pretty obvious, but there’s still a ten-year-old inside most people who doesn’t trust a system without someone running it. Hayek’s great insight was that even without anyone at the controls, a price-signaling system (as we’ll see in chapter 4, he called it “catallaxy,” though no one else does) actually spontaneously organizes itself.
    Of course, such a system depends on private property, freely traded, which is one reason that he was one of Ronald Reagan’s favorite economists.
    Higgs effect. Noun. Sometimes known as the Higgs ratchet effect. The phenomenon that transforms temporary economic crises into permanent government involvement in the economy, to no good effect.
    The experience described by libertarian economist Robert Higgs in his 1987 book Crisis and Leviathan was really just the latest in a series of cautionary tales that dates back to James Madison, who warned against “the old trick of turning every contingency into a resource for accumulating force in government.” The “ratchet” of his effect refers to the reliable fact that, even though every crisis—the Great Depression or the recession of 2008—eventually ends, and the enthusiasm for state intervention may recede, it never returns to the level it occupied before the crisis. Consider, for example, the Export-Import Bank of the United States, which was created in 1934 to combat the worst effects of the Great Depression by providing loan guarantees to banks that agreed to lend to buyers of American exports.
    Partly because it costs the American taxpayer nothing, covering its costs by charging fees to foreign borrowers, the Ex-Im Bank has a lot of supporters. None of them is bigger than the aircraft manufacturer Boeing, which accounted for 40 percent of Ex-Im Bank’s business in 2009. This is not a misprint; a government agency established to fight an economic crisis seventy-five years ago now exists in large part as an ongoing subsidy for a single company. The distortions of this sort of cronyism are hard to miss: by some estimates, an oversupply of nearly 10 percent in commercial airplanes. (This is nothing compared to the record of Freddie Mac and Fannie Mae; see chapter 10). The only certain thing about emergencies is that, over time, every one of them increases government involvement in the economy.
    For people who actually think government knows best—you know, the people who never want to “waste” a crisis—this is a good thing. For free markets, however, it’s like increasing Blake’s allowance; once we give her a raise, we find it next to impossible to take it back.
    Income tax. Noun. The part of the earnings of people and businesses that are levied (this is another word for “taken”) by local, state, and national governments.
    Income taxes can be flat —where everyone pays the same percentage of their income— progressive , where the more you earn the higher the percentage you pay, or regressive , where the more you earn the lower the percentage you pay. This sounds simple, but it isn’t. In fact, the federal law that defines what income can be taxed and at what rates is now more than 55,000 pages long. This is not a misprint. Once upon a time, before the tax code