THE THEORY
In this area you will learn the framework that will allow
you to understand which government policies make us better off and which
don't. The secret to this framework is simple...at least in principle.
It lies in understanding when markets work and when they don't. When markets
ARE NOT characterized by "imperfections", then any intervention designed
by the government will backfire and actually make us worse off. On the
other hand, when markets ARE characterized by imperfections, government
policies can make us better off. Thus, the secret to analyzing public policy
consists of learning how to identify market imperfections (commonly called
"market failures).
As part of this web site we've built in the book Prices
and Information: A Simple Framework for Understanding Economics by
W. Robert Reed and Max Schanzenbach. Take your time and read through this
book. If it will make it easier for you, feel free to print out portions
of the book. Or the whole thing if you'd like. While the number of chapters
might seem intimidating, each chapter is short... and an absolute delight
to read!
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