Naked Economics: Undressing the Dismal Science pdfdrive com

particularly for youth.
The American system is a richer, more dynamic, more entrepreneurial
economy—and harsher and more unequal. It is conducive to creating a big pie in
which the winners get huge slices. The European system is better at guaranteeing
at least some pie for everybody. Capitalism comes in all kinds of flavors. Which
one will we choose?
Will we use the market in imaginative ways to solve social problems? The
easiest and most effective way to get something done is to give the people
involved a reason to want it done. We all nod, as if this were the most obvious
point in the world—and then we go out and design policies that do just the
opposite. We have an entire public school system that still does not really reward
teachers and principals when their students do well (or punish them when their
students do poorly). We talk about how important education is, but we make it
difficult and time-consuming for smart people to become teachers (despite
evidence that this training has little impact). We don’t pay good teachers more

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than bad ones.
We make it artificially cheap to travel by car, implicitly subsidizing
everything from urban sprawl to global warming. We assess most of our taxes on
productive activity, like work, savings, and investment, when we might raise
revenue and conserve resources with more “green taxes,” such as a tax on carbon
dioxide emissions.
If we get the incentives right, we can use markets to do all kinds of things.
Consider the case of rare diseases. However bad it is to have a serious illness, it
is worse to have a serious illness that is also rare. At one point, there were some
five thousand diseases considered so rare that drug companies ignored them
because they had no hope of recovering their research costs even if they found a
cure.
2
In 1983, Congress passed the Orphan Drug Act, which provided
incentives to make such work more profitable: research grants, tax credits, and
exclusive rights to market and price drugs for rare diseases—so-called orphan
drugs—for seven years. In the decade before the act, fewer than ten orphan
drugs came to market. Since the act, roughly two hundred such drugs have come
to market.
Or something as simple as deposits for cans and bottles. Not surprisingly,
recycling rates are much higher in states with deposits than in states without.
There is also less trash and litter. And if landfill space is at a premium—which it
is in most places—shouldn’t we be paying to dispose of our household trash
based on the volume we generate? What effect do you think that would have on
the quantity of consumer packaging?
Markets don’t solve social problems on their own (or else they wouldn’t be
social problems). But if we design solutions with the proper incentives, it feels a
lot more like rowing downstream.