(L75) What is Trust?

How important is trust in establishing long-term business relationship?

When establishing a long term business relationship trust is not only important, but it is quite possibly the number one matter that needs to be established before anything else is done.

One reason that trust is so important is the matter of assets, and commitment. Should one go into business with someone whom they do not trust, it is possible that they could be making a deal with the devil. This deal could seem air-tight and safe, however if both parties have no trusting relationship, they have no commitment to each other. This creates the type of situation where money can be lost, time can be wasted, and business can be lost. It is not a healthy way to do business.

Another reason that trust is so important in a long term business relationsip is the fact that trust means honesty. When you do not fully trust someone, you are not going to tell them everything you know. This secretive behavior leads to mishaps, loopholes, etc. and your business will pay the price for it. If two business partners cannot be completely open and honest with each other, than they are more opponents than partners anyways. This can possibly even lead to competition to be better than one another, to know more or to have more power. Rather than working together to better the business, they could begin to work against one another (sometimes without even knowing it). This will not better the business because while competition on certain levels is good, it can be fatal on others.

Last but not least, trust is mutual respect. Trust is healthy, and will benefit not only the business partners, but the business as well! You just cannot go wrong with the right team of people, and this can be seen time and time again with so many businesses.

(L40) Government Intervention in The United States

1.) Explain the basics of the Austrian theory of the business cycle. What is the difference, in terms of consequences, between lower interest rates that result from the saving choices of individuals, and lower interest rates that are achieved artificially, by a government-established central bank?

The Austrian theory of the business cycle basically dictates that in a free market, there is communication between the consumer and the producer which is translated through interest rates. As long as interest rates are not interfered with, they will read correctly to producers and allow them to meet the needs of their consumers reliably. However, when interest rates are interfered with and pushed down artificially by the central bank, there is no longer clear communication between producers and consumers. This lack of economic coordination creates conflict, and makes society poorer because labor and physical resources have been misallocated. The results of government intervention and false interest rates are recession and depression plagued upon the people.

2.) What are some of the pitfalls of industrial policy?

Industrial policy is what it is called when the government favors certain industries through subsidies, cheap loans, and other specific assistances. One of the biggest downfalls of industrial policy is the fact that it diminishes incentive within the favored business firms to be entrepreneurial. Another large issue with industrial policy is that it eliminates competition to a certain degree, and makes it more difficult for newer firms to compete against pre-established, government supported firms.

Personal Responsibility: The Free Market Vs. The Welfare State (L70)

Which promotes greater personal responsibility, the free market or the welfare state?

The free market promotes greater personal responsibility than the welfare state, by a landslide, to say the least. In fact, the welfare state exemplifies the exact opposite of promoting personal responsibility by using coercion as means by which they steal from working party A, to support party B. What this is really teaching people is that they don’t need to be worried about themselves, or their families, because they can depend on the government. They need not look for a job, because they have comfortably large checks coming in to feed and clothe their children with; checks that were filled with money stolen from the people actually working to earn a living. (Reward the dependent citizens, punish the independents workers.) The free market, on the other hand, not only promotes personal responsibility, but it requires it. If one can not keep up with their finances, supply and demand, marketing, etc. then they can not survive. One must be disciplined and hard working to become a top competitor; no state granted monopolies here.