Basic Economics: A Common Sense Guide to the Economy
Sowell (Thomas)
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BOOK ABSTRACT:

Introductory Notes


Comments
  1. Introduction
    1. I am adding thoughts in this section as I read through the book. Many will no doubt have to be revised in the light of subsequent reading and reflection.
  2. Prices and Markets
    1. In general, I’m impressed by the arguments for the management of the economy by prices, as expounded in Chapter 2. I agree that “the Market” is a much more efficient way of ensuring that resources are deployed where they are most wanted than is a planned economy. The planners just don’t have enough information.
    2. However, there are some obvious snags. Clearly, prices favour those with the ability to pay. This applies to major economies as will as the Third World, but there’s a particularly ludicrously sanguine account of the efficiency of the Free Market economy in famine relief. The idea is that in this situation, prices will rise and will attract interest from free marketeers to satisfy the need by taking advantage of the higher prices they’d get for their goods. But if those in the famine-afflicted areas can’t afford these higher prices, then there’s no market to be had. People just starve. Has the author not read Grapes of Wrath?
    3. Secondly, it’s not clear how the Free Market on its own can deliver the efficient infrastructure that its own efficiency depends on. I was wondering how the railways got built by private enterprise in the UK during the Victorian era. It did follow the Free Market model, but I imagine it was facilitated by land being in the hands of relatively few people – the landed grandees – who could be persuaded to provide passage for the trains in return for a share in the profits. Not so easy these days.
    4. Of course, there’s no mention (yet) of the impact of economic activity on the environment, climate and the like. All these issues shout out for a mixed economy.
    5. Also, no doubt the theory of Free Market Economics depends on markets being efficient and transparent, and market participants being rational.
    6. I’m convinced by his distinction between the intentions of economic policies and the incentives they imply, which may have the opposite effect. The example (pp. 42/43) of private rent control is a good one. Rent controls have the effect of reducing private investment, so increasing the shortage and reducing the quality of rental property, the opposite of the intention. It also disincentivises people with more room than they need from moving to smaller properties. This is a recognised problem in council housing as well.
    7. An important distinction is made between scarcity – an actual physical lack – and shortage – where some of the physically-available commodity is unavailable because of hoarding (or other sub-optimal distribution). The idea is that price controls cause shortages where there is no real scarcity.
    8. Sowell – an American – thinks that free or subsidised healthcare is a form of price control and is therefore to be discouraged. To a degree he’s right that making healthcare cheaper than its real cost (or free) means that people use it for trivial reasons, and scarcity of resources means that waiting lists rise as a result. To a degree he’s correct, but this sort of thing can be policed. The alternatives are worse, and end up in the same place. If people can’t afford health insurance, their situation is dire. But if they can, then they use it for the same trivial reasons as anything else that’s “free”, and in so doing push up the insurance costs for everyone. That’s why I don’t have pet insurance.
    9. In any case, healthcare is inexhaustible – there are always more things to treat, or to treat more efficiently. A degree of “nuisance” – queueing for appointments and the like – keeps away at least some of the time-wasters. But discouraging people from getting healthcare purely on the grounds of cost is a false economy, as it leaves attention to health conditions too late for economical intervention.
    10. All this notwithstanding, how does this impact on the general case against price controls? He points out that price controls lead to a black market, where less is available legally because some is siphoned off illegally. I suppose private healthcare (in countries that have an NHS) is – though legal – along these lines. The same’s true of private education where there’s free state education. I didn’t see state education criticised as a form of price control.
    11. An interesting point was that the cost of satisfying regulation (“red tape”) should not exceed the benefits supposed to accrue from such regulation. Also, that those dreaming up regulations seldom have to worry about such things. I’ve been thinking of the fall-out from the Grenfell Tower disaster. It seems that the disaster would have been greatly mitigated if the evacuation procedures had been different, which they would have been had the flammability of the cladding and other structural faults been known. Also, of course, if the owner of the flat with the inflammable fridge had known this so as not to have cleared off with his flat on fire (were fire extinguishers supplied?). But, given these facts now known, isn’t it sensible just to take these into account in other like buildings, and take other sensible precautions, rather than insisting on round-the clock fire-marshals and repairs that no-one can afford. After all, if someone pours petrol through your letter box and sets your house on fire, you’re likely to die unless you have a working fire alarm, and sometimes in any case. But that doesn’t mean that every house urgently needs to have a fire escape fitted.
    12. Sowell gives an example of “red tape” on p. 81, taken from the situation in Italy, as reported by the Wall Street Journal (undated). This raises a host of issues (mostly not discussed by Sowell):-
      1. Economic measures are often used to achieve social ends. This does distort the free market (and the free-wheeling of “entrepreneurs”) to some degree, but how else are these aims to be fulfilled? The examples are of racial and sexual inequalities and of the difficulty of handicapped people finding employment.
      2. Obviously, such measures put those who have to implement them at a disadvantage compared with those that don’t – both within a nation and between. That’s the whole issue (more a potential or perceived issue) between the UK and the EU post-Brexit.
      3. There are all sorts of reasons of national prudence why certain national industries need protecting. This ought not to be just to “keep people in jobs”, because jobs should change as needs change. But some industries are too important to be left under the control of other countries over which we have no control. We at least need a fall-back option if our food, medicines, technology or defence capability is compromised by global instability.
      4. The cut-off levels for certain measures of regulatory reporting or company action mean that “one more employee” makes a huge difference to a company in certain circumstances. But this is a common problem where boundaries occur (think of Covid-19 areas; one side of the street rule X, the other rule Y; but what are you to do? Rules have to be clear, but are thereby often arbitrary (and would be applied arbitrarily if unclear). Otherwise there has to be one rule for all.
      5. All this notwithstanding, the monitoring of compliance ought to be as lightweight as possible, which of course it often isn’t.
    13. The author makes the important distinction between price and cost. ‘The cost of living’ is really ‘the price of living’. Things cost what they do to make, but their price – what they are worth, once made – may be less than their cost. Their manufacturers may be forced to sell at a loss, to avoid even worse losses.
    14. Sowell has – as is to be expected – some negative remarks about subsidised child-care. He thinks that it is wrong for the generality of tax-payers to subsidise those parents “who want to have children and yet continue to pursue a career”. This is right from a purely economic point of view – but wrong from a sociological point of view. It might be “nature’s way” that the burden of childcare should fall to women and careers to men, but there’s no reason for society to acquiesce to this (though the “solution” is that some other women – rather than the children’s natural mothers – do the childcare).
  3. Industry and Commerce
    1. The important point that Companies have to stay competitive to exist – and can rise and fall – is well made, and is critical in the context of the post-Pandemic high-street. In the end – however painful for employees at the time – it is essential to ensure that consumers – that is, everybody – continue to get the best deal, and hence the best possible standard of living, while the commercial landscape changes.
    2. All this economic Darwinism – however good for society as a whole – is very painful for those sections that are subject to radical change (especially decline). A safety-net is necessary in those circumstances, but it should be a stop-gap rather than a lifestyle choice.
    3. It’s a good point that profit, and the fear of losses, rather than being a drain or a useless excess cost, in fact acts as the motivator for zeal and innovation. I dare say this applies only to non-monopolies, and to businesses that can be allowed to fail.
    4. There are numerous excellent points made about “passing on of costs” (this is not automatic, but depends on market forces) and “eliminating the middleman” (middlemen perform important functions more efficiently than the alternatives; and there are necessarily more middlemen in the less developed economies: pp. 131-3).
    5. The “just in time” methodology of keeping inventory to a minimum is important and topical, in the context of both Brexit and Covid. Note that the reason for reducing inventory is that it uses up scarce resources for no return to investors or society as a whole, provided the inventory is indeed delivered “just in time”. This is an important contingency. Car manufacturing is – it is said – badly impacted by lack of efficiency in delivery of parts from the EU post-Brexit. Also, the NHS didn’t have PPE stockpiled “just in case”. I see “just in time” delivery happening all the time with the local car maintenance firm – they cannot afford to hold – or store – all possible spare parts, nor afford the time to collect them when needed; so, a delivery firm supplies them as and when required. No doubt there are all sorts of complexities and efficiencies going on in the background.
    6. A warning shot is fired in the direction of monopolies – like Microsoft world-wide for the Windows operating system – at the beginning of Chapter 7. Whatever may be true of the uncompetitiveness inherent in monopolies, there’s the advantage – in certain contexts – of inter-operability and uniformity of standards.
    7. To be continued …
  4. Work and Pay
  5. Time and Risk
  6. The National Economy
  7. The International Economy
  8. Special Economic Issues

Amazon Book Description
  1. In this fifth edition of Basic Economics, Thomas Sowell revises and updates his popular book on common sense economics, bringing the world into clearer focus through a basic understanding of the fundamental economic principles and how they explain our lives.
  2. Drawing on lively examples from around the world and from centuries of history, Sowell explains basic economic principles for the general public in plain English.
  3. Basic Economics, which has now been translated into six languages and has additional material online, remains true to its core principle: that the fundamental facts and principles of economics do not require jargon, graphs, or equations, and can be learned in a relaxed and even enjoyable way.

Inside Cover Blurb
  1. In addition to an updating and revision of the chapters from previous editions, the fifth edition of Basic Economics includes a new chapter – the longest chapter in the book – on the reasons for large differences of income and wealth between nations. It also examines some popular explanations of these differences that will not stand up under scrutiny. This chapter on international economic differences and the chapter on the history of economics itself are unlikely to be found in most books on introductory economics. Both chapters give the beginning student a larger context for understanding the role of economics.
  2. At the heart of Basic Economics is what has always been there in previous editions — a presentation of economics in plain, straightforward language, without the jargon, graphs, or equations that dominate too much of most other economic writings. This book is aimed at people with no previous study of the subject, namely the general public and beginning students in economics. Basic Economics illustrates economic principles with vivid examples from countries around the world, to make those principles memorable in a way that technical jargon or mathematical presentations may not. Readers’ responses to successive editions of Basic Economics have vindicated this approach. So have the translations of Basic Economics into seven foreign languages overseas. Whether you are reading it in plain English or in any of its translations, the idea behind this book is to make economics as readable and enjoyable as it is eye-opening.
  3. Thomas Sowell has taught economics at UCLA, Cornell, and Amherst, among other academic institutions. His writings have appeared in both scholarly journals and in publications aimed at the general public, such as Forbes and Fortune magazines and newspapers across the country, including the Wall Street Journal and Investor’s Business Daily. Dr. Sowell is a scholar in residence at the Hoover Institution, Stanford University.v

Back Cover Plaudits
  1. “Clear and concise... Among economists of the past thirty years, Thomas Sowell stands very proud indeed.”
    → Wall Street Journal
  2. “Basic Economics is not only valuable for a general lay-person audience; it would also benefit lawyers, politicians, and yes, economists as well.”
    → Washington Times
  3. “Basic Economics is a healthy main course disguised as a rich dessert...Thomas Sowell’s smooth writing, irresistible logic, deep knowledge, and flawless economics make each page an explanatory treat to experts and novices alike.”
    → Thomas Hazlett, Professor of Law & Economics and Director, Information Economy Project, George Mason University
  4. “Badly needed... Anyone who has been subjected to biased and dreary economics textbooks should read Basic Economics as a bracing corrective.”
    → Claremont Review of Books
  5. Basic Economics reveals in every chapter why Thomas Sowell is one of America’s greatest thinkers. It is must-reading for anyone who wants the truth about how the laws of economics govern so many of the events in our daily lives.”
    → Arthur C. Brooks, President, American Enterprise Institute and author of The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America’s Future
  6. “Basic Economics demonstrates Thomas Sowell’s ability to make economics understandable to a person who hasn’t set foot in an economics class. It’s a book rich with explanations and examples of everyday economics issues.”
    → Walter E. Williams, John M. Olin Distinguished Professor Economics, George Mason University
  7. “The unyielding truths of economics befuddle social engineers of all stripes. Thomas Sowell, in exemplary fashion, strips the mystery from those truths, making them intuitive — even obvious.”
    → David Boaz, Executive Vice President, Cato Institute and author of Libertarianism: A Primer

Preface
  1. The most obvious difference between this book, and other introductory economics books is that Basic Economics has no graphs or equations. It is also written in plain English, rather than in economic jargon, so that it can be readily understood by people with no previous knowledge of economics. This includes both the general public and beginning students in economics. A less obvious, but important, feature of Basic Economics is that it uses real-life examples from countries around the world to make economic principles vivid and memorable, in a way that graphs and equations might not. Through its various editions, the fundamental idea behind Basic Economics has remained the same: Learning economics should be as uncomplicated as it is eye-opening.
  2. Readers’ continuing interest in these new editions at home, and a growing number of translations into foreign languages1 overseas, suggest that there is a widespread desire for this kind of introduction to economics, when it is presented in a readable way.
  3. Just as people do, this book has put on weight with the passing years, as new chapters have been added and existing chapters updated and expanded to stay abreast of changing developments in economies around the world.
  4. Readers who have been puzzled by the large disparities in economic development, and standards of living, among the nations of the world will find a new chapter — Chapter 23, the longest chapter in the book — devoted to exploring geographic, demographic, cultural and other reasons why such striking disparities have existed for so long. It also examines factors which are said to have been major causes of international economic disparities and finds that the facts do not always support such claims.
  5. Most of us are necessarily ignorant of many complex fields, from botany to brain surgery. As a result, we simply do not attempt to operate in, or comment on, those fields. However, every voter and every politician that they vote for affects economic policies. We cannot opt out of economic issues and decisions. Our only options are to be informed, uninformed, or misinformed, when making our choices on issues and candidates. Basic Economics is intended to make it easier to be informed. The fundamental principles of economics are not hard to understand, but they are easy to forget, especially amid the heady rhetoric of politics and the media.
  6. In keeping with the nature of Basic Economics as an introduction to economics, not only have jargon, graphs and equations been left out, so have the usual endnotes. However, those who wish to check up on some of the surprising facts they will learn here can find the sources listed on my website (Thomas Sowell: Home Page) or on a website established by the publisher2. For instructors who are using Basic Economics as a textbook in their courses, or for parents who are home schooling their children, more than a hundred questions are available in the back of the book, with pages listed after each question, showing where the answer to that question can be found in the text.
    → Thomas Sowell, Hoover Institution, Stanford University

Contents
    Preface – vii
    Acknowledgments – ix
    1. What Is Economics? – 1
  1. PART I: PRICES AND MARKETS – 9
    1. The Role of Prices – 11
    2. Price Controls – 37
    3. An Overview of Prices – 64
  2. PART II: INDUSTRY AND COMMERCE – 87
    1. The Rise and Fall of Businesses – 89
    2. The Role of Profits — and Losses – 109
    3. The Economics of Big Business – 139
    4. Regulation and Anti-Trust Laws – 154
    5. Market and Non-Market Economies – 177
  3. PART III: WORK AND PAY – 191
    1. Productivity and Pay – 193
    2. Minimum Wage Laws – 220
    3. Special Problems in Labor Markets – 234
  4. PART IV: TIME AND RISK – 267
    1. Investment – 269
    2. Stocks, Bonds and Insurance – 302
    3. Special Problems of Time and Risk – 328
  5. PART V: THE NATIONAL ECONOMY – 343
    1. National Output – 343
    2. Money and the Banking System – 363
    3. Government Functions – 392
    4. Government Finance – 423
    5. Special Problems in the National Economy – 454
  6. PART VI: THE INTERNATIONAL ECONOMY – 473
    1. International Trade – 475
    2. International Transfers of Wealth – 501
    3. International Disparities in Wealth – 527
  7. PART VII: SPECIAL ECONOMIC ISSUES – 567
    1. Myths About Markets – 569
    2. “Non-Economic” Values – 584
    3. The History of Economics – 597
    4. Parting Thoughts – 626
    Questions – 635
    Index – 655



In-Page Footnotes ("Sowell (Thomas) - Basic Economics: A Common Sense Guide to the Economy")

Footnote 1: Footnote 2:
BOOK COMMENT:
  • Basic Books; 5th edition (2 Dec. 2014)
  • Birthday present from family



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