Basic Economics is a citizen's guide to economics-for those who want to understand how the economy works but have no interest in jargon or equations. Sowell reveals the general principles behind any kind of economy-capitalist, socialist, feudal, and so on. In readable language, he shows how to critique economic policies in terms of the incentives they create, rather than the goals they proclaim. With clear explanations of the entire field, from rent control and the rise and fall of businesses to the international balance of payments, this is the first book for anyone who wishes to understand how the economy functions.
Thomas Sowell is an American economist, social commentator, and author of dozens of books. He often writes from an economically laissez-faire perspective. He is currently a senior fellow of the Hoover Institution at Stanford University. In 1990, he won the Francis Boyer Award, presented by the American Enterprise Institute. In 2002 he was awarded the National Humanities Medal for prolific scholarship melding history, economics, and political science.
Sowell was born in North Carolina, where, he recounted in his autobiography, A Personal Odyssey, his encounters with Caucasians were so limited he didn't believe that "yellow" was a hair color. He moved to Harlem, New York City with his mother's sister (whom he believed was his mother); his father had died before he was born. Sowell went to Stuyvesant High School, but dropped out at 17 because of financial difficulties and a deteriorating home environment. He worked at various jobs to support himself, including in a machine shop and as a delivery man for Western Union. He applied to enter the Civil Service and was eventually accepted, moving to Washington DC. He was drafted in 1951, during the Korean War, and assigned to the US Marine Corps. Due to prior experience in photography, he worked in a photography unit.
After his discharge, Sowell passed the GED examination and enrolled at Howard University. He transfered to Harvard University, where he graduated magna cum laude with a Bachelor of Arts degree in Economics. He received a Master of Arts in Economics from Columbia University, and a Doctor of Philosophy in Economics from the University of Chicago. Sowell initially chose Columbia University because he wanted to study under George Stigler. After arriving at Columbia and learning that Stigler had moved to Chicago, he followed him there.
Sowell has taught Economics at Howard University, Cornell University, Brandeis University, and UCLA. Since 1980 he has been a Senior Fellow of the Hoover Institution at Stanford University, where he holds a fellowship named after Rose and Milton Friedman.
You are, of course, familiar with the German word schadenfreude – the malicious joy one gets on hearing of the misfortune suffered by others. I can’t deny that there were times while listening to this book this week – a week in which the US decided to pour $700 billion into the black hole that is the ‘credit crunch’ – that this word popped unbidden to the front of my mind. Listening to the rants of a radical free market economist in the week that the world is forced to pay for the excesses of market capitalism does induce some schadenfreude – except that the joy at the harm is limited by the realisation that the harm caused by these bastards is going to be felt by me as much as by them.
I don’t think anyone could make the mistake of believing that this is a nuanced discussion of economics. Basically, this is a man on a mission who is in possession of ‘the truth’ and that truth is an absolute belief that anything, ANYTHING that gets in the way of the free operation of market forces is always and invariably bad, counter-productive and the cause of all of the harm in the world.
This book is presented as a citizen’s guide to the economy. Its major theme is that politicians have reasons to lie to you – but once you have a grounding in basic economic theory you will not be so easy to dupe.
We are told early in this book that Economics is a science and that economic methods are used in the same ways by Marxists as they are by free market radicals like the author. That this, in fact, is what this book is going to be about – the stuff all economists agree about. On that basis the strongest criticism of this book I can make is how little someone reading it comes away knowing anything about basic economics. You may get indoctrinated, but how much you are likely to learn is open for debate.
For example, one might think that after reading a book setting out to explain basic economics one would come away knowing how the share market works – I mean, beyond a bland assertion that shares are different from bonds in that the holder of a share in a company is a part owner of that company. If you want to know about the relationship between shares, futures, derivatives and foreign currency exchange rates or what short selling is or why it might be that banks not lending money to each other might require tax payers’ dollars to be poured down the toilet to seek to prop them up – this book is not for you.
If you want to know why decades of the US running up huge deficits and owing the rest of the world trillions of dollars is really not a problem – this is a great book. And I hope the rest of the world agrees with Sowell’s commonsense approach.
This book presents as absolute economic ‘facts’ a number of assertions that are, at best, the strongly held opinions of the author, at worst simply false. For example, one of Sowell’s favourite examples is the harm done to everyone by governments imposing rent controls. He asserts that these invariably lead to a shortage of housing and therefore to higher rents. His solution is to allow the market to fix these problems. If there is a shortage of housing then rents will rise. When rents rise more investors will rush (not walk) into the market to build new housing for those not able to afford housing, thereby rents will drop and everyone will be happy.
One of the examples Sowell gives is the housing crisis that afflicted Melbourne, Australia for 9 years following the end of World War Two in which not a single new building was built in Melbourne. This Sowell attributes solely to rent control laws in Melbourne making it unprofitable to build new buildings in Melbourne. At least, one assumes there must have been a crisis in Melbourne at the time as Melbourne is the capital city of Victoria and between 1945 and 1954 Victoria’s population increased by 250,000 people (or by one quarter). How did Melbourne cope with this crisis at a time of mass influx to the city not witnessed since the gold rush? Well, it all depends on what you call Melbourne. I’m assuming Sowell is talking about the City of Melbourne – what North American’s might call Down Town Melbourne.
It is actually true that virtually no new buildings were put up in Melbourne at this time – it is much harder to say why than Sowell glibly assumes, though. In Melbourne, The City’s History and Development Miles Lewis points out that there were a complex of reasons for so little building development occurring at this time in the golden mile – but none of these reasons are related to rent controls. In fact, I’ve yet to find any evidence Melbourne had rent controls at this time. Rather the huge growth in housing needed in suburban Melbourne to meet the influx of so many migrants from Europe after the war and the post-war rationing of building materials accounted for most of the reason no building works occurred in the central city.
The ‘shocking fact’ that is presented by Sowell as conclusive proof that free markets always provide better solutions than ‘socialist’ alternatives such as rent controls evaporates with just a little knowledge of the actual situation. Funny how that works. One does then wonder why he used the history of building development in Melbourne as his example in the first place. Surely it couldn’t be the problem this would cause most of his audience to check is supposed facts? No, surely not.
If Sowell’s economics is a science then it seems to be one that has more in common with Creation Science than Biology. That is, it seems to be wishful thinking designed to reinforce predetermined conclusions – rather than, say, the systemic testing of a hypothesis to expand human knowledge.
The favourite punching bag here is the Soviet Union and its misadventure with a socialist planned economy. What is remarkable in his description is that the Soviet Union lasted the 70 odd years it did. It seems its economy had nothing going for it. All it had were disincentives to production and absolutely no incentives.
Some theorists have spoken about the Soviet Union collapsing because it could not compete with the West not just economically, but in part due to having to complete in an arms race that forced it to redirect a huge proportion of its national productive economy towards this dead weight. Like I said, this book does not provide a nuanced discussion at all and so the sole reason for the collapse of the Soviet Union presented here is its lack of a free market.
Ironically, prior to reading this book I probably would have had more sympathy with the view that the Soviet Union could not compete because it lacked incentives to produce. I have less sympathy with that view now that I have finished this book. It is received wisdom that the major failing of the Soviet system was the lack of incentives to production offered, but the fact this is received wisdom does not make it true.
What struck me in this book was that the planned economy of the Soviet Union was always compared with the free market system of the West as if the free market was made up of mum and dad shop owners or little factory owners all of whom had an intimate and immediate knowledge of their local community. We are repeatedly told that a planned economy can’t work because the poor bureaucrat doing the planning can’t possibly know all of the issues that face everyone in every area of the economy. This is contrasted with the glories of capitalism, the decentralisation of knowledge, in which the local gas station knows when road works are going to reduce his ability to sell petrol (an actual example from this book) and so purchases less petrol until those road works are completed.
Except how does that explain Walmart? What sort of decentralised planning does Walmart allow? In answer to this he gives a remarkably bizarre example – Kentucky Fried Chicken – in which (apparently) local franchise holders in the 1950s kept the quality of their cooked chicken up to scratch because they were living in mortal fear of Colonel Sanders turning up at their restaurant and throwing out their less than finger-lickin’ good chicken and then cooking it all again himself. (This is another actual example given in the book). It beggars belief that these could be presented as arguments for the superiority of the free market – but the issue is much worse than this. Surely KFC and Walmart have the same problems in directing their grand empires as the Soviet Bureaucrats had in coordinating theirs. Naturally, there is no discussion of how private ownership over a certain size remains different from socialist ownership and how the disincentives for a Soviet worker are avoided by Walmart – just surreal examples of Colonel Sanders whipping everyone into shape that sound to me to be the sorts of stories one might have heard about the heroes of socialist labour.
I was greatly disappointed in this book – there are so many things I need to learn about economics and none of them were presented here in this overly ideological text. The bottom line? Don’t waste your time.
Thomas Sowell is a god. I'm a big fan of his writing style because it's clear and concise. Basic Economics is highly informative and easily accessible. This book should be required reading, not just for econ majors or business majors, but everyone.
Big ideas: 1. Economics is about trade-offs, not solutions. 2. Every policy or law has consequences, many of which are negative and unforeseen. 3. Capitalism is the least oppressive or racist system for allocating resources; very few people will refuse to prosper because of their dislike of an ethnic group. 4. Economic efficiency is critically important to increasing standards of living and general happiness. 5. Government interference in free markets is almost always bad because it overrides millions of people's decisions and creates unintended negative consequences. 6. Transactions among willing, informed participants are mutually beneficial. 7. The price system conveys information more quickly and efficiently than any alternative. 8. Economics is about the allocation of scarce resources that have alternative uses. 9. Economics is not about money; it's about the underlying resources that money and prices represent. 10. There are only noneconomic values because economics is not a value in itself; rather, it is a system that supplies information by which decisions can be made.
I picked Basic Economics up thinking that it would be somewhat similar to Naked Economics, by Charles Wheelan: a guide to a wide range of economic topics that gives both sides of an issue when both sides exist. Thomas Sowell gives a guide to a wide range of economic topics, but unapologetically ignores or misrepresents leftist views in any shape or form. This is detrimental to readers and the general discourse in our country (especially as he touts this book as a cover-all for those interested in the impact of economics on their lives, as seen through the political system).
As a student of Economics, as well as a modern American Progressive (who has flirted with the idea of socialism in the past), I am aware of the limitations of my chosen economic philosophies, and I'll acknowledge their weak points (I can't advocate moving away from a price-allocation system to a politically-allocated system of distributing goods, for instance).
One thing for me that was extremely important- not just for my studies as an economist, but for me as a person, was the focus on trade offs. Everything's a trade off. This is paramount to remember, and it pervades every aspect of what I liked and found useful in Sowell's book (the trade-off concept was conspicuously absent in places where it could've shown merit in leftist ideas). He does point out that economics is not a study of values, but a direct study of cause and effect. Unfortunately for everyone, this kind of disclaimer is vastly irresponsible, since he fails to count social benefit (which is well documented) as a benefit, but points out the costs of social programs and anti-free market ideas as costs on the system. This is dishonest.
Things I liked - Did make note that econ is the study of allocation of scarce resources and described that concept well - Conclusively showed that price-allocation was the best system for satisfying people's needs and desires - Clearly depicted the traditional views on supply and demand - Used examples to show the many facets of a business that help it succeed or doom it to failure - Talked about business concepts: return on investment, return on sales - Showed that using political power to save jobs which could be done more efficiently elsewhere is detrimental to the whole economy - Shows flaws in calculating inflation - Describes why international trade is good through comparative and absolute advantages - Describes concept of economies (and diseconomies) of scale, and why and when that's important - *** Describes why national debt isn't an issue at all *** LOVED THIS SECTION. WHOLE NEW WAY OF THINKING - Describes why commodity trading and franchising are good
Things I DIDN'T Like - Didn't even think to seriously address the big flaw with price-allocation: that it only works if people are paid responsibly (somewhat equally; massive inequality destroys the feasibility of the price-allocation system) - Examples of businesses in the last 100 years extremely limited (focuses on 4-6 companies) - Preaches against minimum and fair wages without any historical context or examples as to their necessity - Harps against anti-trust laws in what might almost be construed as a dangerously pro-business stance, not worrying very much at all about monopolies - Ignores why commodity trading and franchising are bad - Makes the common mistake of liberal (traditional sense) economists, and acts as if every nation is on the same footing when it comes to their ability to manage their economy - Says government is bad at picking winners and losers; so too is the free market from time to time ("Capitalism means male baldness research gets more funding than malaria research." - Bill Gates) - Skirts around productivity and workers' pay without providing helpful or conclusive arguments - Tries to argue in favor of private insurance; been proven time and again to be a bad idea - Ignores government's and unions' involvement in creating post-WWII prosperity - Only example for when socialized programs are bad: housing crisis; USSR. Ignores successful Western Europe. - Says outsourcing isn't hurtful; ignores the fact that it IS. Also doesn't discuss possible ways of addressing this.
And all of his "popular economic fallacies" are actually not fallacies. To address his false arguments: - Predatory pricing DOES in fact happen - Economics DOES in fact need to take value systems into account (utility, the end that economics seeks to maximize, has been proven to not rest on the number in your bank account, but largely on your values) - He's a supply-side economist, which means he's wrong about the general economy. Savings do not recycle into the economy the way supply-siders suggest, as has been proven time and again through executive bonuses, falling real worker wages, increasing disparities in income and wealth, and the system of worker protections falling apart over the last 40 years in America. - Ignores that corporations are literally psychopathic, and instead praises them as a savior-ideal
Overall, I say read it, but don't you dare stop here. Taken out of context, this book is dangerous for our country and the world.
I would recommend this introduction to anyone who wants to learn the basics of economics in order to be a better informed citizen. It doesn't use technical jargon, but outlines basic principles clearly and in plain language, without graphs or equations, using real life examples. Sowell is obviously annoyed by the general ignorance of economics experienced by your average person, particularly by journalists and even politicians, and he sets out to make the basics clear. The basic principles he outlines are true of any economy--whether capitalist, socialist, communist, or mixed—but he also goes on to show how specific economic policies work (or don't work) in specific contexts. Most importantly, he encourages "the reader to look at economic policies and economic systems in terms of the incentives they create, rather than simply the goals that they proclaim. This means that consequences matter more than intentions—and not just the immediate consequences. The longer run repercussions of any economic policy need to be considered by the public, especially because so many public officials may not look beyond the next election." He shows how politicians may pursue economically counterproductive policies to gain the votes of two separate groups of people, and he shows how government economic policy can breed shortages, increase the cost of oil and food, and cause the quality of products to decline.
This served as a good refresher for me as someone who majored in economics and reads books dealing with economics but who has not taken a class in the subject in years. It is certainly the most readable yet thorough introduction to Economics I have encountered.
Thomas Sowell is a genius. I knew that going into this book, but now I'm completely convinced. In the spirit of refusing to be passively educated by pop culture and the media, I have decided to educate myself on hot topics by reading material from authorities on the subject. Thomas Sowell and this book fit into that profile (and, yes, I am that much of a geek that I'm exclaiming over an economics book!).
Please note that, although this is not written in high academic prose, it is still not happy-fluffy-after-work reading. It is, however, a book in which Sowell does a wonderful job of covering the basic workings of economic principles, a subject that is so often poorly understood and so often easily misconstrued. In plain English, Sowell explains an economic principle and then illustrates how that principle operates, frequently contrasting the reactions of a capitalistic economy and a socialistic economy. If I could create a required reading list for Americans concerned with their future and their children's future, this would be among the top books on that list.
This is one the the most important books I have ever read. It is clear, concise, and very pertinent to modern day politics and public policy. It explains economic thinking without any of the math. What this book will give you is a understanding of how to use scarce resources that have alternative uses within an economy. This book scrutinizes policies that are meant to help people, but actually do more damage than good such as rent control, education subsidies, minimum wages, social security, "free" health care, and much more. This book or books like it should be required reading for all college students to inform voters of the dangers of bad policy which masquerade as some type of saving ordinance.
This is an amazing book and absolutely a must-read if you want to understand the basic causes and effects of a free market economy.
Here's a warning. If you have any passion at all about politics, or concern about government intruding into your life, or if you're the least bit cynical about politicians, be prepared to pull your hair right out of your head. I wanted to throw this book across the room several times, but finally promised myself I would write a letter to Dr. Sowell when I finished it. And he wrote me back the next day! And sent me a printed out copy of his then-unpublished newest edition of Applied Economics! And he signed the front page! I promptly framed the page and hung it in my living room.
Don't fall in the trap[ of the title the book is n0t basic. The book deals with economic problems without any graphs and statistics that's why the author has coined the term Basic Economics. The book is a general treatise on economics phenomenon that happens around us. It provides a rudimentary knowledge about economics. It talks about the central problems of economics and some other basic understandings. The book is useful for those who want to step in the world of economics where they will have to face the complexity.
"Economic policies need to be analysed in terms of the incentives they create, rather than the hopes that inspire them." page 45
My first observation about most reviewers is that they condemn an author based mostly on his/her political views (Sowell is conservative) and if the reviewers are somewhat intelligent they will hint at a problem or two, offer a few rants about what their "SYMPATHETIC SOCIALIST" leader would do, which turns out to always place more debt, lose more jobs, create less competition and leave everyone worse off... brilliant. Every one is entitled to their opinion but opinions aren't reality. We have 1000's of years of human history without free markets that are filled with poverty and back breaking work just to exist. People are always at fault, not the idea of capitalism, the system works and has lifted more people out of poverty than any other system. If you are unwilling to admit that then you are intellectual dishonest and should not be taken seriously. If you have an axe to grind, look to the source, DISHONEST PEOPLE!
We have faced a myriad of economic problems in the world, mostly caused by the warped ideology of an interventionist government, stemming from decision makers wrapped in the blanket of Keynesian thought or some form there of. If you are an intellectually honest person, you will find this book beyond helpful in understanding (though introductory) the market place and how the role of prices makes the market a much more moral system (no force used) than a bunch of bureaucrats picking winners and losers. It will allow you to decipher the rhetoric coming to us 24 hours a day from the media and Washington as to whether there is a serious problem or just angst created to get the people to give up more money (by force), liberty and peace of mind.
If you are like me you've seen many things that make you scratch your head in confusion, we don't always understand everything we see in the marketplace, or in banking, insurance, government action and international trade. There is however really good answers to the confusion throughout this book. Many people smarter than us make really poor decisions because they are ruled by their need of a job, ruled by their heart instead of their head and sometimes because they are plain unable to see the unintended consequences of their decisions. We of course absorb the brunt of this in the form of increased taxes, loss of monetary value and freedom to pursue the American dream in the way our forefathers did. This book is not meant to turn over every stone, look to Wealth of Nations (A. Smith) , Human Action (LV Mises), Man Economy and the State (Rothbard), Capitalism, Socialism and Democracy (Schumpter) and Capitalism (Reisman) Road to Serfdom (Hayek) if you want to get deeper into economic thinking. **My bias is libertarian econ.
Mr. Sowell has done a great service for the reader, taking a subject many might stay away from and make it relatively clear. At first I was annoyed by some repetition but then I realized it's easier to hold on to key thoughts when they are repeated a few times, and then after each major section he writes an overview to sum up his thinking on various points and add some new material to the subject at hand. Keep in mind there are several editions of His Basic Economics, in this edition the footnotes are left out which was bothersome when I was looking to read follow up information on certain areas of interest. I did not deduct from the overall value of the book though. A great work for those who want to increase knowledge.
"Nothing is easier to proclaim than a wonderful goal" "Much confusion comes from judging economic policies by the goals they proclaim rather than the incentives they create." and by extension, the results they achieve.
This overarching idea, along with numerous examples from history of how government intervention in the economy has almost always led to worse overall outcomes were two strong messages that I took away from this book. I was very disheartened by the discussions in the book about economic decisions made by politicians, which ties right back to the first quote above. Politicians get elected by the great sounding programs they propose and support, and when those programs either fail in their aims or have entirely the opposite result as the stated goal, the collective memory is not long enough that it makes any difference, so we end up with more and more programs that help special interest groups (like farm subsidies) to the detriment of the country's consumers as a whole. Not enough people in the country have enough knowledge of economics to allow a person to be elected on sound economic principles because they are attacked mercilessly as pandering to the rich and haters of the poor.
The most often repeated idea in the book is that the entire scope of economics is about allocating scarce resources with alternative uses. Centuries of experience has shown that free market economics is consistently the best way to allocate resources in a way that most efficiently meets the needs of the people. Government intervention in the form minimum wage laws, pricing limits, import tariffs, rent control, punishment for predatory pricing, etc. always ends up harming more people than it hurts. I will not attempt to explain it all here, but the author does a great job in the book.
I picked up this book hoping to extend the economics education i got in college. What I got instead was an ideologically charged diatribe of the government and a love-fest of the free market.
Everything is backed up with anecdotal evidence and sweeping statements made with much hand waving. It sells itself on the fact that it has no "equations, graphs [or] jargon," but I find that to be a weakness. While it doesn't need be filled with graphs and such, some proofs would be nice. Instead he simply asserts things and moves on.
It does make some good points, but it is incredibly preachy and in most cases over simplified. If this is your only source of economics knowledge, you will become a free marketer, but other economics theories do make the case for government interventions in certain conditions. At $30 US this book is overvalued despite what he says, which is why I picked it up with the help of government intervention (the public library).
Professor Sowell can be quite biased and overly sarcastic at times but I still count this book as one of the most important books I've read in the last few years. Anyone of voting age should seek out a greater understanding of our market economy and this book is a great resource particularly because of the emphasis on how economics affects and is affected by government policy. After reading this book, I am now very interested to find a book that argues against the pro-free markets arguments in this book to better understand what might actually happen when policies like increased minimum wage are put into effect.
First of all, let me say that economics has always sounded to me like a subject that would be about as interesting as watching the proverbial paint dry. But I made an impulse buy on Audible about 5 years ago when this book was on sale for a couple of bucks (a good economic choice, right?), and it's been sitting in my audio library ever since, glaring at me every time I've gone in search of a new title. So I finally caved and decided to give it a chance, telling myself I didn't have to finish it if it ended up boring me to tears.
Well, it did nearly bring me to tears a couple times—but not because I was bored in the least but because it made me feel like I'd been robbed by a) the meddlings of economically clueless bureaucrats with good intentions and b) my (otherwise wonderful) education, which never got around to explaining most of this stuff to me.
One danger of reading a book like this is to suddenly fancy oneself an expert on economics. And I confess that this is the first and only book I've read on the topic, so feel free to take this review with a grain—or maybe a dash—of salt. Nevertheless, it's hard for me to imagine a case against free markets that could stand up against both the empirical evidence and the role of basic human psychology that Sowell presents here.
Nearly everything he says about both the data and the personal motivations resonates with my own experiences. For example, I lived in Poland briefly in 1991, when most of the regulations that dictated the communist-era economy were still (practically if not legally) in effect. Despite the snow falling outside when we arrived, our hotel would not turn the heat on until the government had recorded 3 consecutive days of below-freezing temperatures. And clerks in stores regarded customers not as a source of livelihood worth treating well but as a nuisance to be avoided. Customer service was nearly non-existent. And for fairly obvious reasons. All the high-sounded claims about "fairness" and all the good intentions about "guaranteed wages" can't change the fact that people won't do something that they have no incentive to do. Would you want to serve more customers if your job was secure and the amount on every paycheck was fixed by government fiat? Why do additional or higher quality work without any extra incentive attached to it?
In fact, a great deal of my experience reading this book was simply that of connecting dots that were already fairly obvious upon the briefest reflection. What Sowell does so brilliantly is to break down the various factors that affect what we call "the economy" and to demonstrate, again and again, that everything that we call "the market" is ultimately made of people who will, almost without exception, make monetary choices based on what's personally beneficial. This very basic understanding of human motivation explains what underlies the whole vast and complex system.
This also explains why even the best-intentioned economic policies nearly always have unintended negative consequences. No politician can possibly predict the millions of little repercussions that a single regulation may have on other parts of the economy, but he could, at very least, have some clue if he thought for ten seconds about how individual motivations work.
I suppose it should be obvious, but it's easy to forget that "The Market" is not a huge, mysterious impersonal force; it's just you and me and all the other individuals we meet any day of the week, making decisions about how best to spend and invest our money. And the free market does a far better and far more efficient job, according to Sowell, of taking care of its people than any government regulated system can.
Take milk as just one example: if milk production is low and demand is high, prices for milk will rise. And it won't take long for high milk prices to lead some politician to propose price caps on dairy products. It sounds like such a nice thing to do for the little guy, right? But the almost laughably predictable result will be that dairy farmers will discover that price caps mean there's less money to be made in selling dairy, and they will no longer have the financial motivation to continue producing milk. This leads them to offload their dairy cattle in order to re-invest in some more profitable commodities like beef or produce. This, in turn, creates an even shorter supply of a product that was already in high demand, ultimately worsening the supply-and-demand conditions that drove up the milk prices in the first place.
Sowell makes a fairly incontrovertable case that the better alternative to these government-imposed price caps is to simply let "the market" (made up of real live people, remember?) adjust to the higher milk costs. Dairy farmers, seeing more money to be made in the current high prices, will voluntarily invest in more dairy cows, and as their production increases, the high demand will be better met, meaning the prices will gradually drop—often to prices below what the governmentally enforced price caps would have been. This ultimately makes the milk more affordable for consumers. It's the latter free-market policy, and not the former regulatory policy that benefits both the producers and "the little guy" far more in the end.
Throughout the book, Sowell shows that the same basic principle applies to nearly every commodity, whether it be oil or housing or medicine. Controlling prices by fiat in an attempt to make high-priced commodities more "affordable" and therefore more readily available to low-income earners nearly always backfires, producing nearly the exact reverse of what was intended. And the reason it backfires shouldn't be hard to grasp: price controls remove the basic incentive among producers/builders/growers to continue producing, building, or growing something no longer brings in a profit or the prospect of growth. They will, instead, take their business investments elsewhere, thus leaving a greater shortage of that which was intended to become more accessible.
Sowell also demonstrates that these individual motivations can explain why free markets tend to create wealth and higher standards of living while top-down regulations—from rent controls to minimum wage laws to anti-trust regulations to international tariffs to all-out communism—have led to economic downturns, decay, and even total collapse in nearly every instance that they've been attempted.
This book covers so much (the role of jargon in public policy, the way words like "trade deficit" can actually mean something positive, questions over national debt, the role that "greed" play in the marketplace, the complexities of international trade, the implications of for-profit vs non-profit enterprises, and so on.) The book does, however, have its limitations. It's more of a descriptive book than a prescriptive one, explaining how economics works rather than laying out a path for how to proceed. And I suppose that's his point. The primary "ought" to take away from the book is this: Let the market take care of the market without trying to interfere—because however altruistic your intentions may be, interference nearly always makes things worse.
I certainly don't have the knowledge to say whether he may be wrong on any given point, but I would say that even those who oppose his views on free-market capitalism should weigh his arguments carefully against real world results and real human beings. To me, Sowell's economic views seem more like simple common sense than an ideology he's imposing on economic data. At the same time, Christians also need to be careful to avoid too much of a "laissez faire" approach. We are called to care for the poor and oppressed, not just to let the market (or the government) take care of the poor. We are called to look out for the interests of others, which may not always lead us to make the most economically efficient choices. We are called to love God and neighbor, even with our bank accounts.
But, if Sowell is right, then one way of loving our neighbors and caring for the poor and oppressed may very well mean doing less—at least at the economic policy level—rather than more.
4.5 stars. Karl Marx was not a scientist. Nor was Adam Smith before him. They were philosophers. Theorists. Idea men. That’s what all economists in those days were. They had little tested knowledge, and so which economic system was best was all a matter of opinion.
But things are now much different. Nations and local governments tried the various theories. And we’ve seen the results. We now have a whole century of data. Furthermore, economists now are scientists. They use scientific methods and deal with tested knowledge. Sure, there are still controversies, just as there are in any science, but the basic principles of economics today are NOT matters of opinion.
For example, we know what happens when governments impose price controls in all their many varieties—rent caps, minimum wages, laws against price gouging, and medical care cost limits. These last few years we’ve seen a dramatic demonstration of what happens when they meddle with the prices of home loans. We know what happens when they impose tariffs or give subsidies to special groups like farmers or steel producers. We know what happens when they create barriers to people entering a market to compete, like they’ve done with immigrants. We know what taxes do.
The unfortunate thing is that many of these principles seem to be ignored by our politicians. And by those who vote them in. And so we can have a Congress pass massive health care legislation that will cause health care shortages just as similar laws caused shortages in other countries. This is how we have a president who in a recent speech to the U.S. Chamber of Commerce suggested, in good Marxist fashion, that it was business owners who kept the American workers down by hoarding all the profits. Has he not looked at the data which shows that huge profits invite more competition, which tries to get ahead of the leader by cutting prices, which allows the American workers to get more for less, thus raising their standard of living?
In the 1980′s and 1990′s India and China began to make fundamental changes to their economic policies, doing the things that have been proven to work. Suddenly, the economies of those nations started to grow. It’s estimated that 20 million people in India rose out of poverty in a decade. In China, more than a million people rose out of poverty EACH MONTH.
But this seems lost on a number of politicians. Don’t let it be lost on you. We have critical elections coming up. One of the best things we can do is educate ourselves about these basic economic principles so we can cut through all the political blarney. I haven’t found a better, more enjoyable book on the subject than Basic Economic Principles: A Common Sense Guide to the Economy by Thomas Sowell. Sowell is an economist and Senior Fellow on Public Policy at the Hoover Institution at Stanford University. His book is written for the general public and so foregoes dry charts and lots of theoretical ho-hum for lots of real-life examples and straight-forward explanations. There are times when I wish he would have gone into more detail on a few subjects, but what he lacks in depth in a handful of areas, he makes up with breadth. Furthermore, the way he presents the topic was interesting enough to make me stay up late a number of nights well past my bedtime.
If everyone read this book, the Democratic Party would be out of business, and for good reason. There are certain economic laws; there is economic history; there are economic limits., Liberals ignore this and proceed on good supposedly good intentions. Reality be damned.
Както съм казвал много пъти, огромната част от хората нищо не разбират от икономика, вкл. и повечето от завършилите икономика - нямат представа от елементарни икономически принципи и взаимодействия. Може би причината за това е начинът, по който ��е преподава икономиката, с огромно наблягане на формули, графики и термини и абсолютно пренебрегване на фундаменталните човешки взаимодействия и мотивация, които стоят зад тях.
Резултатът е виден навсякъде - и политици и електорат, че и мнозинството от щатните по сутрешните блокове експерти и икономисти, обсъждат неща като минимална заплата, закони за лихвите и т.н. или на изключително повърхностно, популистично ниво, или на академично-теоретично - и двете еднакво далече от разбирането на реалните проблеми и решения.
Никой от тях няма да ви каже, че като се повиши минималната заплата, се покачва безработицата, примерно. Нито ще ви обясни защо. А Томас Соуел не само ще ви каже, но и ще ви обясни, в това незаменимо ръководство по основи на икономиката и как обикновения човек да разбира икономическите въпроси.
Всъщност, препоръчвам я като основно и първо четиво и на всички студенти по икономика, че и на завършилите я. И на професорите няма да им е излишна, като съм ги слушал какви ги плещят някой път от висотата на академичните си банки :)
I heard it said that you don't know a subject until you can explain in the simplest of terms. This book provides a down-to-earth view of economics that is easy to understand without using unexplained jargon. I recommend this book to anyone just getting into economic theory and trying to understand how our economy works in the free market.
How do you review a book that has been heralded and scorned for years? It’s not likely that my thoughts are going to add anything to the debate. The argument over free markets or centrally planned economies, open or isolationist policies, government regulated or private contracts has been going on for centuries. Both sides have their eloquent apologists. They have all weighed in on this book at great length. Unfortunately, it appears that the tyrants are winning in the court of public opinion. This book goes a long way in exposing the fallacies that allow those socialist ideas to sound so good. Sowell uses history, data, and current events to explain the dangers of many popular ideas and policies. It was fascinating. One thing I did find out… It’s not intimidating. I’m not even sure why, but I always thought of this as some tome to only be attempted by the incredibly smart or fiercely determined. Instead, I found it a fascinating explanation of the way our world works and as easy to understand as any popular history. So, that was my tiny contribution to the supporting reviews of Sowell’s wonderful work. Read it. Give it to your teens. Read it to them if you have to. You need it. They need it.
Thomas Sowell exposes the fallacies and outright lies the American people have been subjected to in the advancement of progressive entitlement centric economic programs by the modern crop of corrupt politicians. If you take anything from this book, it should be this: The intended goals of any type of economic aid can never be considered separately from the actual economic incentives the policies implemented to ostensibly reach that goal will create, without causing more destruction and more harm to the economy and the people as a whole.
It is up to us as citizens of this great nation, to hold our governments accountable and to demand that they consider the full economic ramifications of their plans before they implement them. Why bother, you say? Economics is so boring. But boring as it may be, it is inextricably tied to man's liberty, and if we neglect it, if we leave it to the politicians and corporations, we may awake one day to find that we have somehow lost it, both for ourselves and for our children. Read this book, and begin to take your responsibility as a citizen a bit more seriously.
Exactly what the title describes. The basics of economics for the general audience. Starting out with the observation that we may think we don't own beachfront property because of its price. The reality is -- we don't own beachfront property because there's a lot more people who'd like to own it than there is property to be owned. Price is just the way to sort things out.
Full of concepts and concrete examples. For instance, in the Soviet Union, they usually used about two and a half more metal to produce the same amount of consumer goods as the United States; state planning meant there was no motive to economize. Similarly, rotten fruit would be packed in with good fruit, because a Soviet farmer had no motive to prevent spoilage. The rise of the mail-order catalog, and how the man who persuaded Sears to open department stores to supplement the catalog was originally working for Montgomery Ward, where he got fired for expressing the same notion. How the founders of Sears, Montgomery Ward, and J. C. Penney all started working for a living at an age that would be illegally young nowadays. And much, much, much more.
A clearly and concisely written analysis of how incentives impact the economic decisions people make. Most notable is the idea that communism fails not only because of people's propensity to cheat in an environment free of incentives, but because of the fact that even in a world full of non-cheaters, a price-control system cannot allocate resources with the same efficiency that a market does automatically. Sheds some light on how a country like the USSR can sit on such expansive natural resources and still never be able to feed itself.
If a new civilization was just starting up and deciding between Soviet style price controls and capitalism, they should definitely read this book. Or if you are interested in all the ways rent control made NYC and SF the most expensive cities, this is the book for you. Anyone else not living in a world of black and white, should read a less biased economic book. This book does explain some helpful terms and concepts. But I would hate for anyone who's read this book to think that they understand "economics." What they are getting is just a very "Basic" view of the world.
I learned so incredibly much and thought Sowell did such a fabulous job of writing each economic concept in a clear, concise, informative and non-condescending manner. And I listened to the audio and still got everything (which for those who know me are already aware, I have a harder time grasping things from audios). Not this listen!
I would HIGHLY recommend this book to anyone wanting to learn economics from a logical, conservative point of view; and actually think this should be required reading for high schoolers. My future high schooler will be reading it.
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I wanted a clearer version of the Econ 101 I muddled through in college, and I admired Sowell's work, so I started reading this book. Then I found out it's not about M1 and M2 and how the Fed works. Rather, it's about really meaningful economics -- the kind every adult should understand.
To a large extent, Sowell was preaching to the choir with me. I already understood why rent control is bad and how the minimum wage contributes to unemployment. I knew that cuts in the tax rate tend to increase -- not decrease -- tax receipts. And I've never let my envy of the rich get in the way of my appreciation of them as the ultimate source of my livelihood.
But Sowell still taught me plenty: Like how statistics really CAN be made to say anything. What does the growth of the poor class mean? Quite possibly that the poor are simply living longer and having more children, thanks to better living conditions for poor people. Is "the poor" a static category of people with zero upward mobility? Some are, but most are simply the young, who haven't yet had time to gain the work experience they need to make more money.
Sowell's main thrust is that an informed voting public who understand basic economic principles is vital to curb the excesses of politicians whose economic decisions tend to look no farther ahead than the next election, leaving their successors to deal with the fallout from their counterproductive actions.
Basic Economics should be required reading for any American seeking to register to vote.
A must-read for any intelligent voter. Sowell clearly explains why the market system is the most efficient method of allocating goods in a world where resources are scarce..... and the negative,and sometimes unintended effects of other methods.
One of my favorite quotes was... "Careful and complex mathematical calculations can make the difference between having an astronaut who is returning to earth crashing in the Himalayas or landing safely in Florida. We have also seen similar social disasters from misunderstanding the basic principles of economics."
In some ways, this makes economic calculation sound frightening, but the good news is that by utilizing the market, the calculations are not dependant on one person's limited knowlege but in the collective knowledge of all market actors. Not only that, but in a market system, mistakes are generally self-correcting. Let's all go to Florida!
And yet a crash in the Himalyas is still a possibility because as Sowell also states, "Politicians understand that there are always more people who do not understand economics than people who do."