BASIC ECONOMICS Thomas Sowell
First of all, this is a book about economics. Second, it is eminently readable. These two phenomena rarely if ever coincide; truly it should be the only criteria to receive a Nobel in either Literature or Economics. Or both. The only other examples of readable economics books I can come up with offhand are Henry Hazlitt’s Economics in One Lesson and Walter Block’s Defending the Undefendable. The cover of the latter has a blurb that reads “Something To Offend Everyone”. Good stuff.
There are two principles in this book that should be committed to memory by anyone with an interest in government, politics, economics, human nature, environmentalism, public interest activism or anything like that.
First is the definition of economics that is the foundation of Sowell’s work: “Economics is the study of the distribution of scare resources which have alternative uses“. Anyone who lives on a budget knows intuitively what this means. You have 20 bucks in your pocket, and you need both a tank of gas and a new shirt for your job interview tomorrow. Without the gas, you can’t make it to the interview; without the shirt, you have to interview wearing your faded and tattered “I’m With Stupid” sweatshirt. The process you go through in solving this dilemma is called Economics. The same definition applies across the board whenever we have to make tough decisions about what we want versus what we need versus what we have. We all just fail to apply the same reasoning to big-picture issues such as farm subsidies or minimum wage laws.
Second is the notion that Government can control the price of certain goods and services, but it can never control the cost. The costs will paid by someone, and normally that someone is person who least can afford it. This for example, is why cities that practice rent control invariably have two things: people living on the street, and boarded up buildings which are perfectly inhabitable.
Why? If landlords can’t raise rent, they can’t afford improvements, they can’t afford maintenance, they can’t afford to expand, they can’t afford to pay property taxes, and eventually, they can’t afford to keep on being landlords. Ignoring economic reality in favor of “compassionate”, politically expedient policy creates a disincentive. Less housing is available, even though the actual space for housing exists, or could easily be built, minus the government meddling.
Professor Sowell also tipped me off to a principle which should be obvious, but which has always been stuck in my subconscious, just below the level where it could be called knowledge. That is, that the time frame of economic changes in society is a long-term time frame, while the time frame of political changes is a brief one. In other words, a politician will make the decision which effects his chances in next year’s election, regardless of the consequences of that decision 5-10 years in the future. By that time, when all the damage he’s caused is fully developed, the politician will either be in a different, higher position of government, or enough time will have passed for him to blame the consequences of his policies on someone else. Most likely greedy-capitalist-pig-running-dog-businessmen who exploit the masses.
Not that businessmen are given a free ride in this book. Professor Sowell tells how he has had a standing offer in his Economics classes to give an “A” to any student who could find a good word about businessmen anywhere in the 900+ pages of Adam Smith’s The Wealth of Nations. He has never had to pay up. Businessmen are the first ones to run to the government to have their particular industry protected from market forces, and, ironically, the first ones to clamor for free market reforms when someone else’s industry receives similar protection. Even if we agree wholeheartedly that a businessman will rip you off in a heartbeat, it is only a question of which mechanism is a better monitor: the market or the state. The answer is not always the state, oddly enough.
Last but not least, one of the more important distinctions made in the book is the difference between the goals of economic/political decisions and the incentives created by them. People don’t make decisions based on the lofty goals of government action, they make decisions based on incentives and self-intererst. Minimum wage laws are a good example. If you set an arbitrary minimum wage by government fiat, rather than let the market decide, all you do is guarantee someone is either getting fired or never getting hired in the first place.
Why? Employers have scarce resources with which to pay workers, if these resources are confiscated by the government in the name of minimum wage increases, the employer can only respond by cutting costs elsewhere. Often it is by firing (or just not hiring) a segment of the work force. Which segment? The segment that needs work the most: young, unskilled (and often, minority) workers who need an entry-level job to get them rolling in life.
Oh, and what does “market” mean in this instance? An “invisible hand” that we must trust like the Greeks trusted Zeus? No, really, all it means in this case is individuals making decisions. Some of the individuals are offering work, some of them are seeking. These are the individuals who should decide what amount of wages are offered and accepted. Instead it is usually a slick-talking politician who sincerely opines about how he wants to help “the worker” that he’s about to put on the street.
Basic Economics is filled with fascinating historical examples of economic ignorance, which in themselves are worth the price of the book (if you’re a history buff). The main text isn’t footnoted, to make it easier for the causal, non-academic reader, but there are extensive notes in the back giving primary and secondary sources for all factual material.
I can’t recommend this book highly enough. It should be required reading for all college freshman.
Then again, that would only create a disincentive for college freshmen to read it. Thus the aggregate knowledge of economic principles would decrease rather than increase.
Huh. I learned something. Go figure.
That Thomas Sowell is a genius, I tell you.