By Thomas Sowell
At a beefy 700 pages, it seems a misnomer to characterize Thomas Sowell's Basic Economics as "basic." This book is a beast! Dig into the fifth edition, however, and you will realize the book is large because the subject is vast. It doesn't take a full trip on this educational journey, however, to realize the author promises us "basic," not short or simplistic.
Sowell opens his book with a discussion, "What is economics?" The first line of the block quote is Dr. Sowell's steady drum beat throughout his text:
Economics is the study of the use of things which have alternative uses. It is about incremental tradeoffs, not about needs or solutions. (p. 36)
This is not a text on American economics, though the U.S. features prominently. It is a foray into the multifaceted warp and woof of economic systems and the factors which facilitate or hinder them.
A few of the words and ideas of Sowell that have impacted me:
On statistical data: Seldom do statistical data contain sufficiently detailed information on skills, experience, performance or absenteeism, much less work habits and attitudes to make possible comparison between truly comparable individuals from different groups. (P. 211 f)
On considering the implications: Less is demanded at a higher price than a lower price whether in goods and services or in the personnel behind them. Think rising minimum wage laws.
On wealth: "Physical wealth may be highly visible, but human capital, invisible inside people's heads, is often more crucial to the long-run prosperity of a nation or a people." (p. 546)
On prices: The most valuable economic role of prices is in conveying information about an underlying reality--while at the same time providing incentives to respond to that reality.
On the free market: A big advantage of the free market is that you don't have to convince anybody of anything. You simply compete with them in the market and let that be the test of what works best. (p. 98)
On spotting and avoiding categorical phrases: Oh those irresistible categorical phrases like "clean water."
On the importance of thinking things not words:"Quantitative easing" is simply "printing more money." (p. 426). Also consider the phrase, "income distribution" and others that are broad and sweeping, but usually emotionally charged. We must consider experience, skill, formal education, on the job training, season of life, maturity, and family.
On politics and politicians: Politicians success does not hinge on learning the lessons of historical economics, but on going along with widely believed ideas by the public and media. (c.f. 160, 162) The government only needs to make superficial prima facie case, based on gross numbers to shift the burden of proof to the accused. (p. 164)
A brief overview: Basic Economics is divided into seven parts:
I - Prices and Markets -- Sowell is a proponent of price-driven (not price-controlled) economics. He will address the role of prices and price controls, helping to clear the fog by differentiating prices and costs. Despite promises to the contrary, politicians are not going to "bring down the cost of medical care." Rather, they usually mean "they will bring down the prices paid for medical care." As Sowell notes, on this single issue (but as he argues similarly in other places), "once the distinction between prices and cost are recognized, then it is not very surprising that price ceilings have the negative consequences that they do, because price ceilings mean a refusal to pay the full costs." (p. 82)
II - Industry and Commerce -- The author addresses business (and BIG business), profits and loss, regulation and anti-trust laws, market and non-market economies.
III - Work and Pay -- Of particular interest to me was his explanation of minimum wage laws (he is against them with very compelling reasons). He addresses other special problems in the labor markets, including private industry vs government controlled services.
IV - Time and Risk -- Here Sowell addresses investments; stocks, bonds, and insurance. Time and risk come into focus.
V - The National Economy -- I loved his discussion of national output as well as his explanations of money and the banking system. He provided an insightful look at the Great Depression. He also discussed how national output is measured (GDP and GNP) and the problematic nature of the "starting year" when it comes to statistical reporting.National wealth is not the total of paper money, but the real goods and services that money can by.
VI - The International Economy -- He addresses trade, transfers of wealth and issues of international discrepancies relative to wealth. "When it comes to international trade and international transfers of wealth, the things are relatively straightforward, but the words are often slippery and misleading." Hence, it is necessary to, as Justice Oliver Wendell Holmes admonished, to "think things instead of words." 502
VII - Special Economic Issues -- I especially appreciated his summary of the history of economics. Sowell gave a brief summary of the Mercantilists and then discussed Classical Economics, including Adam Smith, David Ricardo, and Says Law. As to Modern Economics, he addresses Equilibrium Theory, Keynesian Economics, and Post-Keynesian Economics
Quotes:
1. Interdependence: "We couldn't live a day without depending on everybody." Will Rogers (p. 33)
2. Education: "We need education in the obvious more than investigation of the obscure." Justice Oliver Wendell Holmes (p. 64)
3. Poverty: "The real problem of poverty is not a problem of 'distribution' but of production. The poor are poor not because something is being withheld from them, but because, for whatever reason, they are not producing enough." Henry Hazlitt, Economist (p. 261)
4. Demagoguery: "Demagoguery beats data in making public policy." Congressman Dick Armey (p. 454)
5. Legal tender: "There is no record of prolonged war or a great social upheaval which has not been accompanied by a change in the legal tender, but an almost unbroken chronicle in every country which has a history, back to the earliest dawn of economic record, of a progressive deterioration in the real value of the successive legal tenders which have represented money." John Maynard Keynes (p. 370)
6. Dishonesty: "Those who create incentives toward widespread dishonesty by promoting laws which make honest behavior financially impossible are often among the most indignant at the dishonesty--and the least likely to regard themselves as in any way responsible for it." Thomas Sowell (p. 408)
7. Elections: "Speculation is just one aspect of a market economy but it is the essence of elections." Thomas Sowell (p. 455)
8. Facts: "Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence." John Adams (p. 475)
9. Thinking: "Think things instead of words." Justice Oliver Wendell Holmes (p. 502 et al)
10. Arrogance: "This little poem is an obvious spoof on the famous scholar Benjamin Jowett, master of Balliol College at Oxford: My name if Benjamin Jowett. If it's knowledge, I know it. I am th master of this college, What I don't know isn't knowledge."
11. Goals: "Nothing is easier than to proclaim a wonderful goal." Sowell (p. 629)
12. History: "We shall not grow wiser before we learn that much that we have done was very foolish." F.A. Hayek (p. 626)
Two of the books Sowell referenced:
Keynes, John Maynard. The General Theory of Employment, Interest and Money. 1936
Sowell, Thomas. A Conflict of Visions: Ideological Origins of Political Struggles. 2007
This is gold:
A tourist in New York's Greenwich Village decided to have his portrait sketched by a sidewalk artist. He received a very fine sketch, for which he was charged $100. "That's expensive," he said to the artist, "but I'll pay it, because it's a great sketch. But, really, it took you only five minutes."
"Twenty-five years and five minutes," the artist replied. (p. 269)
More gold:
Wealth gained hastily will dwindle, but whoever gathers little by little will increase it. Proverbs 13:11 CSB
