1. The American economist Thorstein Veblen wrote that he believed that over time, economic problems in the USA would be "solved" by the actions of engineers. In his view, the engineers would begin to design and build the goods that Americans needed without having to worry about prices or factor costs. Instead, engineers would know the appropriate production function of a particular production process, receive the factors of production needed to carry out their plans, and then present the final products to the public for consumption.
Please critique the Veblen proposal using the material from our lessons and readings on economic calculation.
2. In the early 1970s, the U.S. Government had a two-tiered system for crude oil prices. Oil that came from older wells (drilled a few years before) was given an approved price per barrel that was considerably lower than the price allowed for crude oil that came from "new" or more-recently dug oil wells. The idea behind the scheme was to keep gasoline prices low by making the main input into gasoline -- crude oil -- less expensive than would be oil sold to U.S. refineries that came from wells in other countries.
One oil executive, Marc Rich, came up with a scheme in which the "old oil" was secretly converted into "new oil" through false bookkeeping entries, which meant that some of the oil Rich sold to refineries had a price attached that was higher than U.S. law permitted at that time. According to the government, these "overcharges" ultimately drove the price of gasoline higher than it would have been otherwise.
However, some economists have argued that Rich's scheme actually could have resulted in lower gasoline prices for consumers. What would have needed to be the case for that scenario to have occurred? Is it plausible, economically speaking? Explain.
3. According to Peter Klein, how does the concept of economic calculation differ from dealing with the agent-principal problem? Explain in detail why Klein says that.
4. The Town of Lookout Mountain, Georgia, had a lot of undeveloped land and became a favorite spot for developers to build subdivisions. In response, the town council voted to restrict building of new houses to lots of one acre or more. Previously, developers had been able to build several houses on an acre.
What effect would this new law have on the price per acre of available land in that municipality?
What effect would this new law have on the price of new houses in that town?
What about the price of existing houses in Lookout Mountain? Explain your answer.
5. During the 1990s, the management "craze" was TQM (Total Quality Management) in which workers used the term "customer" to describe anyone who was receiving their services, not just real customers that were purchasing goods and services from the firm. Government agencies also joined in. For example, IRS workers were told to call taxpayers with whom they dealt "customers," and when I was doing some work at the Tennessee Valley Authority, we were to call people in other departments that ordered a computer from my department "customers."
Using your reading from Peter Klein and F.A. Hayek, explain why the TQM initiatives tended to work better at regular business firms than they did with government agencies.
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Veblen in his book wrote that engineers would work from the efficiency perspective and would know to design and build the products that the Americans would need and they need not worry about its prices and also about the factor costs. This was critiqued by Hayek in his paper as he suggests that no single person would have the requisite knowledge about the factors of production and from where is available from. Engineers would not have the total power to make decisions about the economic problems of USA as they don’t have the knowledge in concentrated form. This knowledge is available with economic agents or individuals in the economy who are often contradictory to one another and only free market system is a perfect place for dealing with the economic problems of the society.
While Veblen argues that planning should done by engineers who will base their knowledge of scientific collectivism to plan for the economy; Hayek argues that planning in the economy is divided amongst different individuals as knowledge is scattered and unorganized....
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