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Common Sense Economics
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Footnotes

  1. While the tendency to develop markets can be said to be almost a universal part of human nature, it is possible, if a society tries hard enough, to remove them from normal human action. Con­sider the early days of post-communist transition (or even of the Roman Catholic Church) when citizens were taught that items had an intrinsic value and would often refuse to sell for less than that supposed “value” even if hunger resulted. ↩︎
  2. P. C. Roberts and K. L. Follette, Meltdown: Inside the Soviet Economy (Washington, DC: Cato Institute, 1990). ↩︎
  3. Philip K. Howard, The Death of Common Sense (New York: Random House, 1994): 3–5. ↩︎
  4. National Statistics Office of Georgia. www.geostat.ge ↩︎
  5. https://armstat.am and https://tradingeconomics.com. ↩︎
  6. World Bank Group and World Trade Organization, “The Role of Trade in Ending Poverty” (Geneva: World Trade Organization, 2015). ↩︎
  7. For example, if a corporation invests USD 100 million in buildings and equipment to produce a product, say shirts, it is forgoing what it could have earned if these funds had been invested in other ways, such as producing motorcycles. The corporation could have simply put the USD 100 million in the bank and let it draw interest at, say, a 5 percent rate. In a year’s time, the interest earnings would sum to USD 5 million. This USD 5 million in forgone interest is an opportunity cost of the activities of the corporation, but it will not be reflected on the firm’s accounting statement. Because of this omission, accounting costs understate the opportunity costs of the resources utilized. Therefore, net income overstates profit. ↩︎
  8. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, vol. II, Glasgow Edition (Indianapolis: Liberty Fund [1776] 1981), 660. Also available at: www.econlib.org. ↩︎
  9. F. A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35 (September 1945): 519–530. ↩︎
  10. Henry Hazlitt, Economics in One Lesson (New Rochelle: Arlington House, 1979), 103. ↩︎
  11. William Nordhaus, “Schumpeterian Profits in the American Economy: Theory and Measurement” (National Bureau of Economic Research Working Paper 10433, April 2004), www.nber.org. ↩︎
  12. Smith, Wealth of Nations, 454. ↩︎
  13. T. Gayer and E. Parker, Cash for Clunkers: An Evaluation (Washington, DC: Brookings Institution, March 9, 2022), www.brookings.edu. ↩︎
  14. World Bank Publication: Detox Development: Repurposing Environmentally Harmful Subsidies, 2023. World Bank: Transforming Trillions: Repurposing Subsidies for Climate Action and Economic Health. ↩︎
  15. See Parable of the broken window, Wikipedia (last edited June 2019): wikipedia.org. ↩︎
  16. Wilson, James Q., and George L. Kelling.“Broken windows.” Atlantic monthly 249, no. 3 (1982): 29-38. ↩︎
  18. See Robert E. Lucas Jr., “On the Mechanics of Economic Development,” Journal of Monetary Economics 22, No. 1 (1988): 3–42. ↩︎
  19. The twenty-one high-income countries are Australia, Austria, Belgium, Canada, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Iceland, Italy, Japan, Luxembourg, Netherlands, Norway, New Zealand, Sweden, and the United States. They are commonly lumped together as “the West.” ↩︎
  20. Maltus must be responsible for economics being known as the “dismal science.” He wrote “The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race. The vices of mankind are active and able ministers of depopulation. They are the precursors in the great army of destruction, and often finish the dreadful work themselves. But should they fail in this war of extermination, sickly seasons, epidemics, pestilence, and plague advance in terrific array, and sweep off their thousands and tens of thousands. Should success be still incomplete, gigantic inevitable famine stalks in the rear, and with one mighty blow levels the population with the food of the world. — Malthus T.R. 1798. An Essay on the Principle of Population. Chapter VII ↩︎
  21. The improvement in quality of life was probably much greater. It is hard to account for price changes over long periods of time when new goods are introduced and quality improves. Consumers in 1950 had televisions and refrigerators that were unheard of in 1800. ↩︎
  22. Although ethnic wars and corrupt regimes mean that only some sub-Saharan countries have managed sustained growth. ↩︎
  23. Source: World Bank Open Data. (worldbank.org). ↩︎
  24. Tom Bethell, The Noblest Triumph (New York: St. Martin’s Press, 1998): 10. ↩︎
  25. To learn more about the private sector’s impressive contribution to total agricultural production in the Soviet Union, see J. W. Pauw, “The Private Sector in Soviet Agriculture,” Slavic Review 28, no. 1 (1969): 63–71, at doi.org. ↩︎
  26. For additional information, see John McMillan, Reinventing the Bazaar: A Natural History of Markets (New York: W. W. Norton, 2002): 94–101. As McMillan points out, real privatization would have been preferred. Nonetheless, the movement toward private ownership was still “the biggest antipoverty program the world has ever seen.” ↩︎
    • Amess, K., & Roberts, B. M. (2007). The productivity effects of privatization: The case of Polish cooperatives. International Review of Financial Analysis, 16(4), 354-366.
    • Rondinelli, D. A., & Yurkiewicz, J.(1996). Privatization and Economic Restructuring in Poland: An Assessment of Transition Policies. The American Journal of Economics and Sociology, 55(2), 145–160. www.jstor.org
    .     ↩︎
  28. Predictions cited in Charles Maurice and Charles W. Smithson, The Doomsday Myth: 10,000 Years of Economic Crises (Stanford, CA: Hoover Institution Press, 1984), 12. ↩︎
  29. Robinson, W. C. (1973). The Limits to Growth: A Report for the Club of Rome's Project on the Predicament of Mankind. ↩︎
  30. See Byamugisha F. and N. Dubosse (2023), “The Investment Case for Land Tenure in Sub-Saharan Africa,” Journal of Cost Benefit Analysis, 13(S1). ↩︎
  31. Clair Wilcox, Competition and Monopoly in American Industry, monograph no. 21, Temporary National Economic Committee, Investigation of Concentration of Economic Power, 76th Cong., 3d sess. (Washington, DC: U.S. Government Printing Office, 1940). ↩︎
  32. Indeed, the development of the cellphone is much more remarkable. One of the authors of this book bought a “portable” (weighing 12 kilos) computer in 1986 that had 1 MB of RAM a 20MB hard drive and a 1.2MB floppy drive and paid over $14,000 in 2024 prices for it. Now your phone, in addition to enabling you to call anywhere in the world is an infinitely more powerful computer. ↩︎
  33. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, vol. I, Glasgow Edition (Indianapolis: Liberty Fund, Inc., [1776] 1981): 18. Also available at www.adamsmithworks.org. ↩︎
  34. Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books, 2006); Hernando de Soto, The Other Path: The Economic Answer to Terrorism (New York: Basic Books, 2002). ↩︎
  35. archive.doingbusiness.org. ↩︎
  36. World Bank, Doing Business Project, 2015. Available at: www.worldbank.org The World Bank Group ended the Doing Business Project in 2020, with the latest report covering 2019 data. ↩︎
  37. EuroStat. ec.europa.eu/eurostat. ↩︎
  38. See David Neumark and William Wascher, Minimum Wages (Cambridge, MA: MIT Press, 2008). Also, see David Neumark, “The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns,” German Economic Review 20 (August 2019): 293–329. ↩︎
  39. Richard B. McKenzie, “On the Minimum Wage, Both Sides Have Their Economics Wrong,” Regulation, Summer 2021, www.cato.org. ↩︎
  40. Knabe, A., & Schöb, R. (2011). Minimum wages and their alternatives: A critical assessment. German Politics, 20(4), 506-526. ↩︎
  41. Dolado, J., Kramarz, F., Machin, S., Manning, A., Margolis, D., & Teulings, C. (1996). The economic impact of minimum wages in Europe. Economic policy, 11(23), 317-372. ↩︎
  42. Muravyev, A., Oshchepkov, A. (2016) “The effect of doubling the minimum wage on employment: evidence from Russia.” IZA J Labor Develop 5, 6. ↩︎
  43. The employer cannot recover their costs by paying the worker less than the value of what they produce after being trained because another employer who spent nothing on the training could hire the worker away at the full value of their output. ↩︎
  44. Access to the labour market for admitted migrant workers in Asia and related corridors. www.ilo.org ↩︎
  45. For evidence on this point, see Edward Bierhanzl and James Gwartney, “Regulation, Unions, and Labor Markets,” Regulation, Summer 1998, 40–53. To compare unemployment rates across countries, see data.worldbank.org. ↩︎
  46. Burdens from Occupational Licensing, ([Arlington, VA]: Institute for Justice, Nov 2022). Available at: https://ij.org. ↩︎
  47. Maria Koumenta and Mario Pagliero, 2018. “Occupational Licensing in the European Union: Coverage and Wage Effects,” CEPR Discussion Paper 12577, CEPR Discussion Papers Series. ↩︎
  48. See the De­part­ment of Treas­ury, Of­fice of Eco­nom­ic Policy, Oc­cu­pa­tion­al Li­cens­ing: A Frame­work for Poli­cy­makers, 2015; Mor­ris M. Klein­er, “Why Li­cense a Flor­ist?” New York Times, May 28, 2014; Jac­ob Gold­stein, “So You Think You Can Be a Hair Braid­er?” New York Times, June 12, 2012; and Dick M. Car­penter II, Lisa Knep­per, An­gela C. Er­ick­son, and John K. Ross, Li­cense to Work: A Na­tion­al Study of Bur­dens from Oc­cu­pa­tion­al Li­cens­ing, In­sti­tute for Justice, May 2012. ↩︎
  49. Kaule, S., Bock, A., Dierke, A., Siewert, S., Schmitz, K. P., Stiehm, M., & Grabow, N. (2020). Medical Device Regulation and current challenges for the implementation of new technologies. Current Directions in Biomedical Engineering, 6(3), 334-337. Available at: www.degruyter.com. ↩︎
  50. Van Norman, G. A. (2016). Drugs and devices: comparison of European and US approval processes. JACC: Basic to Translational Science, 1(5), 399-412. Available at: www.jacc.org. ↩︎
  51. Stewart DJ, Stewart AA, Wheatley-Price P, et al: Impact of time to drug approval on potential years of life lost: The compelling need for improved trial and regulatory efficiency. 16th World Conference on Lung Cancer. Abstract ORAL12.05. Presented September 7, 2015. ↩︎
  52. The sharp-eyed among you may have noted that the earliest picture in this sequence comes from 1990, after the fall of the Soviet Union. In part this is because aerial photographs from Soviet airspace were not easy to take. More critically, the shrinking after 1990 is still largely a legacy of Soviet policies. Once a regional economy is built around schemes to force illogical production activities, it is very hard to change the infrastructure and worker skills involved. What will Caspian Sea fishermen do if all of a sudden they are told, “No more fishing, find another job?” ↩︎
  53. See Peter Nyberg (2011) Report of the Commission of Investigation into the Banking Sector in Ireland (Dublin) merrionstreet.ie, and Ron Wright Strengthening the Capacity of the Department of Finance (Dublin) web.archive.org. ↩︎
  54. Since credit cards are a popular means to make payments, students often wonder why credit-card balances are not included in the money supply. The outstanding balance on your credit card is a liability that must be repaid. In contrast, money is an asset. Thus, credit-card balances are not money. ↩︎
  55. Of course, as economists like to say, “correlation does not mean causation.” Maybe countries facing high inflation simply print more money to try and keep up. Sophisticated data analysis, however, strongly supports the conclusion that it is excess printing of money (usually to pay for government spending without raising taxes) that causes inflation. As Milton Friedman famously said: “inflation is always and everywhere a monetary phenomenon.” ↩︎
  56. www.centralbanknews.info. ↩︎
  57. The definition includes assets that are easily accessible such as savings accounts, small time deposits and money market mutual funds. ↩︎
  58. Franklin D. Roosevelt, Campaign Address on the Federal Budget at Pittsburgh, Pennsylvania, October 19, 1932. The American Presidency Project, managed by Gerhard Peters and John T. Woolley, presidency.ucsb.edu. ↩︎
  59. taxsummaries.pwc.com Retrieved March 17, 2024. ↩︎
  60. For more information read more in The Washington Post article: Britain’s new ‘winter of discontent’ is about more than just wages www.washingtonpost.com. ↩︎
  61. For additional information on taxes and other dimensions of economic policy during the Great Depression era, see the supplementary reading “Lessons from the Great Depression,” available on the CSE website: commonsenseeconomics.com. ↩︎
  62. See www.doingbusiness.org. ↩︎
  63. archive.doingbusiness.org. ↩︎
  64. Henry George, Protection or Free Trade (New York: Robert Schalkenbach Foundation, 1980). ↩︎
  65. Ministry of Economy and Sustainable Development of Georgia. www.economy.ge. ↩︎
  66. Many of the “job savers” act as if foreigners are willing to supply us with goods without ever using their acquired dollars to purchase things from us. But this is not the case. People in other countries who export products to us don’t want our money; they want what the money can buy. Otherwise, we could just print the dollars we send them to get their goods as cheaply as possible, without fear of inflation, because the dollars would not come back to buy things in our market. But most of the dollars do come back in the form of foreign purchases. Thus, our purchases from foreigners—our imports—generate the demand for our exports. ↩︎
  67. The same logic applies to “outsourcing,” undertaking certain activities abroad to reduce cost. If an activity can be handled at a lower cost abroad, doing so will release domestic resources that can be employed in more-productive activities. As a result, output will be larger and income levels higher. ↩︎
  68. An abridged version of Frédéric Bastiat’s “Competition with the Sun” is available on the CSE website: commonsenseeconomics.com. ↩︎
  69. While Bastiat is often credited with this statement, it cannot be found in his published writings. The nineteenth-century writer Otto T. Mallery made the following similar statement in his Economic Union and Enduring Peace: “If soldiers are not to cross international boundaries, goods must do so. Unless the Shackles can be dropped from trade, bombs will be dropped from the sky.” For additional details, see Nicholas Snow, “If Goods Don’t Cross Borders . . . ,” Foundation for Economic Education, October 26, 2010, fee.org. ↩︎
  70. A Carthaginian peace is the imposition of a very brutal peace intended to permanently cripple the losing side. The term derives from the peace terms imposed on the Carthaginian Empire by the Roman Republic following the Punic Wars. ↩︎
  71. As quoted in Frank Whitson Fetter, “Congressional Tariff Theory,” American Economic Review 23 (September 1933): 413–27. ↩︎
  72. Douglas A. Irwin, “GATT’s contribution to economic recovery in post-war Western Europe” in: Europe’s Postwar Recovery, ed. B. Eichengreen (Cambridge: Cambridge University Press, 1995): 127–150. See text in Irwin for references in charts. ↩︎
  73. These conversions are always, to an extent arbitrary and depend on the basket of goods and services used to make the comparison. Should it be based on the purchasing patterns of Uzbeks or Americans? ↩︎
  74. Mueller, Haynes and Julia Tobias (2016), “The Costs of violence: Estimating the Economic Impact of Conflict,” International Growth Center. ↩︎
  75. James Buchanan was awarded the 1986 Nobel Prize in Economics for his role in the development of public-choice economics. For a clear and comprehensive presentation of public-choice analysis, see Randy Simmons, Beyond Politics: The Roots of Government Failure (Oakland, CA: Independent Institute, 2011). ↩︎
  76. First Inaugural Address, March 4, 1801. ↩︎
  77. JM Keynes, (1926) “The End of Laissez-Faire,” Hogarth Press. ↩︎
  78. The Wealth of Nations, Book 1, Chapter 11, Part 1. ↩︎
  79. For an easy to follow book on game theory in everyday life see: Avinash K. Dixit and Barry J. Nalebuff (1991) “Thinking Strategically, the Competitive Edge in Business, Politics, and Everyday Life”, Norton. ↩︎
  80. Case M.8677 - SIEMENS/ALSTOM. ec.europa.eu. ↩︎
  81. Peter Davis, “Theories of Water Pollution Litigation,” Wisconsin Law Review 3 (1971): 738–816, at 777–80. ↩︎
  82. Acid Rain. Science and policy interactions over 50 years. www.diva-portal.org. ↩︎
  83. Ronald Coase (1960) “The Problem of Social ost” Journal of La and Economics, pp: 1-44. ↩︎
  84. A. C. Pigou, whom many consider to be the father of welfare economics, makes this same point. In his 1932 classic The Economics of Welfare (pt. II, chap. 20, sec. 4), Pigou stated, “It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any public authority will attain, or will even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure and to personal corruption by private interest. A loud-voiced part of their constituents, if organised for votes, may easily outweigh the whole.” ↩︎
  85. Thomas Sowell, BrainyQuote.com, retrieved January 14, 2023, from BrainyQuote.com. ↩︎
  86. Voltaire took a somewhat more cynical view, writing; “The best government if a benevolent tyranny tempered by an occasional assassination.” ↩︎
  87. See Jared Meyer and Preston Cooper, “Sugar Subsidies Are a Bitter Deal for American Consumers,” Economic Policies for the 21st Century at the Manhattan Institute, Manhattan Institute, June 23, 2014, manhattan.institute. ↩︎
  88. ourworldindata.org. ↩︎
  89. www.dw.com, www.euronews.com. ↩︎
  90. Jef­frey Frankel, “The ar­gu­ments against food and en­ergy sub­sidies,” World Eco­nom­ic For­um, Au­gust 18, 2014. www.weforum.org. ↩︎
  91. See Holman W. Jenkins Jr., “How Uber Won the Big Apple,” Wall Street Journal, July 24, 2015, www.wsj.com. ↩︎
  92. James Buchanan, The Deficit and American Democracy (Memphis, TN: P. K. Steidman Foundation, 1984). ↩︎
  93. Eichengreen, B., El-Ganainy, A., Esteves, R., & Mitchener, K. J. (2019). Public debt through the ages (No. W25494). National Bureau of Economic Research. ↩︎
  94. John Maynard Keynes (1936) Essays in Biography, Cambridge: MacMillan, pp: 383–384. ↩︎
  95. www.imf.org. ↩︎
  96. We are indebted to E. C. Pasour Jr., emeritus professor of economics at North Carolina State University, for this example. ↩︎
  97. www.imf.org. ↩︎
  98. Eurostat, Statistics Explained, “Government expenditure on social protection.” ec.europa.eu. ↩︎
  99. Eurostat, Statistics Explained, “Population structure and ageing.” ec.europa.eu. ↩︎
  100. James R. Schlesinger, “Systems Analysis and the Political Process,” Journal of Law & Economics, October 1968, 285. ↩︎
  101. data.worldbank.org. ↩︎
  102. ec.europa.eu. ↩︎
  103. Others attribute this statement to Lord Thomas Macaulay. The author cannot be verified with certainty. For additional information on this topic, see Loren Collins, “The Truth About Tytler,” at www.lorencollins.net. ↩︎
  104. See James Gwartney and Richard Stroup, “Transfers, Equality, and the Limits of Public Policy,” Cato Journal, Spring/Summer 1986, for a detailed analysis of this issue. ↩︎
  105. See Lucca, David O., Nadauld, Taylor, & Shen, Karen. (2017). Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs (Federal Reserve Bank of New York Staff Reports, no. 733). ↩︎
  106. The issue of whether these tuition cost increases also increased the quality of education thought things such as smaller classes or more library books or merely provided amenities such as rock climbing walls or increased pay to administrators remains open and controversial. ↩︎
  107. See, for example, Anna Kiersztyn, “Stuck in a mismatch? The persistence of overeducation during twenty years of the post-communist transition in Poland,” Economics of Education Review, 32:1 (2013), p. 78–91. ↩︎
  108. Fred A. Shannon, “The Homestead Act and the Labor Surplus,” American Historical Review 41 (July 1936): 637–51. ↩︎
    • For evidence on this point, see Lawrence Katz and Bruce Meyer, “The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment,” Journal of Public Economics 41, No. 1 (February 1990): 45–72. Also see Daniel Aaronson, Bhashkar Mazumder, and Shani Schechter, “What Is Behind the Rise in Long-Term Unemployment?” Federal Reserve Bank of Chicago, Economic Perspectives (Second Quarter 2010): 28–51.
    • The article on Sweden also suggests that more generous unemployment benefits can lead to higher unemployment rates. Fredriksson, P., & Söderström, M. (2008). Do Unemployment Benefits Increase Unemployment?: New Evidence on an Old Question. Inst. for Labour Market Policy Evaluation.
     ↩︎
  110. OECD Data (2019), “Financial disincentive to return to work” (indicator). doi.org. ↩︎
  111. Seymore Drescher, translator (London: Civitas, 1997): 27–28. ↩︎
  112. Ron Haskins and Isabel V. Sawhill, Opportunity Society (Washington, DC: Brookings Institution Press, 2009). ↩︎
  113. Adam Smith, The Theory of Moral Sentiments, Glasgow ed. (Indianapolis: Liberty Fund [1759], 1976): 233–34. Also available at www.econlib.org. ↩︎
  114. Li, W., & Yang, D. T. (2005). The great leap forward: Anatomy of a central planning disaster. Journal of Political Economy, 113(4), 840–877. ↩︎
  115. F. A. Hayek, “Pretence of Knowledge,” Nobel Prize Lecture in Economics, Stockholm, Sweden, December 11, 1974. ↩︎
  116. M. Czaika and C.R. Parsons, “The Gravity of High-Skilled Migration Policies,” Demography, 54 (2017): 603. ↩︎
  117. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 2002). ↩︎
  118. Stefan Voigt, Stefan, Jerg Gutmann, and Lars P. Feld (2015) “Economic growth and judicial independence, a dozen years on: Cross-country evidence using an updated Set of indicators,” European Journal of Political Economy 38 p: 197–211. ↩︎
  119. For a discussion of how the possibility of EU membership contributed to more successful reform in the post-communist countries, see Chapter 6 of Oleh Havrylyshyn, Present at the Transition (Cambridge: Cambridge University Press, 2020). ↩︎
  120. Hard but not impossible, at least in the short run. It will be interesting to see if China can maintain rapid economic growth in the context of recent rapidly increasing limits on personal and political freedom. ↩︎
  121. This quotation was provided in correspondence with the authors. John Morton was a legendary economics instructor at Homewood-Flossmoor High School in the Chicago area. He was also the founder and president of the Arizona Council on Economic Education and vice president for program development for the Council for Economic Education. Literally tens of thousands of students have used his Advanced Placement Economics book in their preparation for the AP exams in economics. ↩︎
  122. See Janae Ernst, “Are You Emotionally Intelligent (EQ)? Here’s How To Tell,” Performance Magazine, February 12, 2021, www.performancemagazine.org. ↩︎
  123. Adidas AG, Financial Publications: www.adidas-group.com. ↩︎
  124. Michael Jarrett and Quy Nguyen Huy, “IKEA’s Success Can’t Be Attributed to One Charismatic Leader,” Harvard Business Review (hbr.org), February 2, 2018. https://hbr.org/. ↩︎
  125. Self-employed people are 4 times wealthier than workers, on average: www.businessinsider.com. ↩︎
  126. Thomas J. Stanley, The Millionaire Mind (Kansas City, MO: Andrews McMeel Publishing, 2000). ↩︎
  127. Harvard professor Arthur C. Brooks wrote several articles and columns on this topic. A good summary can be found on an American Enterprise Institute video, December 14, 2013, www.youtube.com. ↩︎
  128. Ayn Rand, Atlas Shrugged (New York: Random House, 1957), 411. ↩︎
    • “A common rule of thumb is the 50-30-20 rule,” says Kerrie Saephanh, founder and certified budget coach at Mindful Budgets. “The idea is that you divide your net income into three categories, spending 50% on needs, 30% on wants and 20% on savings. mindfulbudgets.com.
    • money.usnews.com. The link has a lot of good information embedded in it, along with clickable articles on how to set up a budget, wants vs. needs, and how to deal with them.
    • Free for the basic version. Could be a good place to start. goodbudget.com.
    • There are very few free budgeting apps. time.com.
     ↩︎
  130. Thomas Stanley and William D. Danko point out in their bestseller The Millionaire Next Door (Atlanta: Longstreet Press, 1996) that the most common characteristic of millionaires is that they have lived beneath their means for a long time. Over half of them never received any inheritance, and fewer than 20 percent received 10 percent or more of their wealth from inheritance (p. 16). ↩︎
  131. See Dave Ramsey, Brainyquote.com, www.brainyquote.com. ↩︎
    • Some may need creative methods of controlling impulse purchases with a credit card. If this is the case, economist and financial advisor William C. Wood suggests that you freeze your credit card inside a block of ice in your refrigerator. By the time the ice thaws, your impulse to buy may have cooled. For an excellent book on personal finance written from a Christian perspective, see William C. Wood, Getting a Grip on Your Money (Downers Grove, IL: Inter-Varsity Press, 2002).
    • Many Islamic scholars go so far as to regard credit cards as haram even if paid back on time because they may be a contract requiring interest if unforeseen circumstances require delaying payment.
     ↩︎
  133. data.ecb.europa.eu. ↩︎
  134. One word of warning. For used cars it is important to buy from a trusted source who will back the car if there are problems with it. There is always a danger that the previous owner knew about invisible problems with the car and was anxious to get rid of it. See: Akerlof, George A. (1970). "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism". Quarterly Journal of Economics, 84 (3). The MIT Press: 488–500. doi.org. ↩︎
  135. Professor William C. Wood calls such items “SIT expenditures.” Wood indicates that “SIT stands for two things: (1) sit down when you get an unexpected bill; and (2) surprises, insurance and taxes.” ↩︎
  136. Mignon McLaughlin, BrainyQuote.com, supposedly quoting Albert Einstein, www.brainyquote.com. There is some controversy about whether this statement was actually made by Albert Einstein, but he clearly made similar statements highlighting the power of compound interest. ↩︎
  137. Retirement ages vary among countries and may also differ based on gender. www.weforum.org. ↩︎
  138. A life that is likely to be much longer without all those beers and cigarettes! ↩︎
  139. The 0.1 is to allow for girls who never reach reproductive age. ↩︎
  140. The derivation of the terms “stock” and “share” is interesting. The first businesses organized as joint-stock companies were trading missions during sailing days. Sending a ship from England or the Netherlands to faraway places such as Asia was too much risk for any one merchant, so merchants banded together to combine their “stock” of goods to trade, each taking a “share” of the profit (or assuming a share of the loss). ↩︎
  141. Once major players in their respective industries, these companies eventually encountered significant challenges, including technological disruptions, shifting consumer preferences, and competitive pressures. These difficulties led to substantial declines in their stock prices over time as they struggled to adapt to changing market conditions. ↩︎
  142. As we saw in the previous section a 7 percent real rate with dividends reinvested is about the average rate in large, developed markets. Of course, some stocks for some period, do much better while others do much worse. The trick is nobody can consistently tell which ones will do so in advance! Anyone who does, does so by pure chance. 7 percent compounded rate of return means that the value of your savings will double every ten years. In contrast, it will take thirty-five years to double your money at a 2 percent interest rate, the approximate after-tax return earned historically by savings accounts and money-market mutual funds. Note: You can approximate the number of years it will take to double your funds at alternative interest rates by simply dividing the yield (the average annual return on your money) into seventy. This is sometimes referred to as the Rule of 70. ↩︎
  143. Krystyna Krzyzak, “CEE: A System In Flux,” Investment & Pensions Europe, January 2018 (Magazine). www.ipe.com. ↩︎
  144. Christopher Jarvis, “The Rise and Fall of Albania’s Pyramid Schemes,” Finance & Development, a quarterly magazine of the IMF, March 2000, Volume 37, Number 1. www.imf.org. ↩︎
  145. Any mention of specific funds does not mean that we think that they are preferable to any alternative. You should engage in careful research yourself before you buy an investment. Remember, the future you are investing in is yours. ↩︎
  146. Dimitar Boyadzhiev et al., Morningstar Manager Research EMEA, “Morningstar’s European Active/Passive Barometer,” February 2019. www.morningstar.com. ↩︎
  147. See Jeremy J. Siegel, Stocks for the Long Run, 3rd ed. (New York: McGraw Hill, 2002), 342–43. ↩︎
  148. See Burton Malkiel, A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (New York: W. W. Norton, 2015), 177–78. For additional evidence that a mutual fund yielding a high rate of return during one period cannot be counted on to continue to do so in the future, see Mark M. Carhart, “On Persistence in Mutual Fund Performance,” Journal of Finance 52, no. 1 (March 1997), 57–82. ↩︎
  149. See Malkiel, A Random Walk (2020), 173. ↩︎
  150. Malkiel, A Random Walk (2015), 177–78. ↩︎
  151. Abraham Okusanya, “Lessons from 118 years of asset class returns data,” FinalytiQ, March 28, 2018. finalytiq.co.uk. ↩︎
  152. Even those investing in index funds should obtain some advice from experts. There are tax and legal considerations, such as taking advantage of tax-deferred possibilities, establishing wills and trusts, making wise insurance choices, and so on, which do require input from specialists. ↩︎
  153. See Liqun Liu, Andrew J. Rettenmaier, and Zijun Wang, Social Security and Market Risk (National Center for Policy Analysis Working Paper No. 244, July 2001). The stock market changes of recent years do not alter the data of Exhibit 27. ↩︎
  154. In most countries here are two types of financial advisers: “fee based” who charge you a set price per hour to give you advice, and “portfolio based” who charge you a percentage of your money to invest it for you. Since, as we have already seen, “professional” managers on average do no better than monkeys or cats in picking winning stocks, the advice paying for is from fee-based advisers who can inform you about general policies (as we have done) with steering you to specific investments. ↩︎
  155. OECD, Directorate for Employment, Labour and Social Affairs: Pension systems: “Ukraine: Pension system profile.” www.oecd.org. ↩︎
  156. OECD Project on Financial Incentives and Retirement Savings, Policy Brief N°1, “The tax treatment of retirement savings in private pension plans,” December 2018. www.oecd.org. ↩︎
  157. www.goingmerry.com. ↩︎
  158. Indeed, if the Chicago student came from better high schools or had other advantages from rich parents, San Diego may have even provided MORE education for these lower costs. ↩︎
  159. Tranio, “Real estate agency commission rates in different countries,” September 18, 2017. tranio.com. ↩︎
  160. Bank for International Settlements, Joint Forum, “Mortgage insurance: market structure, underwriting cycle and policy implications,” August 2013. www.bis.org. ↩︎