- The book explains the basic principles of economics in a clear and accessible way, using examples from history and current events.
- The book covers topics such as prices, government interventions, economic systems, international trade, and economic growth.
- The book adopts a free-market perspective that favors minimal government interference and challenges some common myths about economics.
Basic Economics (2000) provides a broad yet comprehensive introduction to economic principles, without requiring a background in the subject. Avoiding complicated jargon, it explains core economic concepts in plain English, with the help of real-life examples.
Table of Contents
- Introduction: A no-nonsense introduction to key economic concepts.
- Economics studies the use of scarce resources that have alternative uses
- Investing is all about making sacrifices today to create a more abundant tomorrow
- Financial institutions harness the well-being of individuals to the fortunes of economies
- Insurance companies transfer and reduce risk
- About the author
- Table of Contents
Anyone not familiar with the work of Thomas Sowell would be well advised to check out the blurbs on the back of the dust jacket of Basic Economics, where praise flows from conservative bastions like The Wall Street Journal, The Washington Times and the American Enterprise Institute. Take this as a warning that, even though Sowell’s book does offer an excellent plain-English explanation of fundamental economics, its real mission is to explain how many societal catastrophes are caused by government policies he deems faulty. In so doing, he takes aim at minimum wage standards, rent control and, through his spirited defense of international trade, the anti-globalization crowd. But no matter which side of the ideological fence you occupy, we suggest reading this book for its insightful distillation of some of our most passionate political debates down to their economic essentials.
- Free markets work better than other economic systems because they allow prices – not government bureaucrats – to allocate resources.
- Prices are like messengers that convey news to consumers and producers.
- Real prices reflect the ratio between the supply of a good and the demand for a good.
- Fluctuating prices provide incentives to manufacturers to produce or not to produce.
- Free markets harness people’s tendency to work harder for themselves than they would for others.
- Companies in free markets are forced to adopt new and better ideas.
- Companies that fail to adapt to the market go under, and the resources that they were using shift to more efficient producers.
- This dynamic process creates efficiency and prosperity, but also painful dislocations for some members of society.
- Politicians and the media often portray economics as a zero-sum game: the only way for one group to get richer is for another group to get poorer.
- This is a fallacy. In reality, sound economic policies will increase everyone’s prosperity.
Introduction: A no-nonsense introduction to key economic concepts.
Few of us are experts in more than one subject area – there just isn’t enough time. That means there are many complex fields in which we don’t typically operate. Botanists, for obvious reasons, don’t throw themselves into the debates of Byzantinists – and vice versa.
In other words, we’re mostly content to let specialists go at it and report back to us when we need to know something about their field. It’s an efficient division of labor that works pretty well. In most cases, we don’t really need to know all that much about botany or Byzantium.
Economic policy, though, is different. It affects just about every facet of our lives while also responding directly to our own behavior – as citizens, investors, and voters. Here, then, is an area of life we can’t simply leave to the experts. If we want to make rational decisions, we need to inform ourselves. The only other choice is to be uninformed – or, worse, misinformed.
That’s what this summary to Thomas Sowell’s Basic Economics is here for – to help readers be informed. As Thomas Sowell sees it, fundamental economic principles aren’t hard to understand if they’re explained clearly. So that’s just what we’ll do.
Let’s get started.
Economics studies the use of scarce resources that have alternative uses
The basic principles of economics are universal. They operate in feudal, socialist, and capitalist societies, and they apply to all peoples, cultures, and governments.
These principles are unchanging. Policies that caused the price of grain to rise in ancient Rome will have the same impact if you implement them in today’s India or European Union.
Before we get into (some of) these principles, we need to begin by defining our terms. First off: what is an economy, anyway? One answer goes something like this: an economy is a system for producing and distributing the goods and services we require in everyday life.
That’s a good start – but there’s something missing. Per this definition, the Garden of Eden, which, among other things, was a system for distributing goods and services, was an economy. But few economists would classify it that way because those goods and services were abundantly available: there was as much of everything as anyone desired. Without scarcity, there’s no need to economize – and thus no economics. Put differently, economics studies the choices societies make about the use of scarce resources that have alternative uses.
Let’s break that down. Scarcity means that there isn’t enough of everything to satisfy everyone’s needs completely. What people want adds up to more than there is. In short, some needs will go unmet. The impossibility of satisfying all wants and desires is a constant in human history. At this level, feudal, socialist, and capitalist societies are just different institutional ways of thinking about the trade-offs that must be made due to scarcity.
That brings us to production. Economics doesn’t just deal with existing goods and services – it’s also more fundamentally about producing new output from scarce resources, or inputs.
As we’ve said, scarce resources have alternative uses. Water can be used to produce ice or steam, but it can also be used to cool power plants or dye jeans. If you have petroleum, you can produce gasoline and heating oil – or you can make plastics or asphalt or Vaseline. You can turn iron ore into paper clips, automobile parts, or the frameworks for skyscrapers.
Every economy, then, has to decide how much of each resource to use for which purpose. These decisions – rather than the existence of natural resources – ultimately determine a country’s standard of living. There are, after all, resource-rich countries with relatively low standards of living, and resource-poor countries with high standards of living. The value of natural resources per capita in Uruguay, for example, is several times higher than in Japan, but real income per capita in Japan is more than double that of Uruguay.
The difference-maker here is efficiency in production – that is, the rate at which inputs are turned into output. Efficient economies maximize output by minimizing waste and getting the most out of scarce resources; inefficient economies don’t. If you want to visualize this process, it helps to think about real things – the iron ore, wood, and petroleum that go into the production process rather than the cars, furniture, and gasoline that come out at the other end. Although economics is often conflated with money, currencies and cash are secondary. Money is an artificial device to get real things done. It’s the volume of goods and services, as well as the efficiency of their production, that determine how rich or poor a country is.
Investing is all about making sacrifices today to create a more abundant tomorrow
Picture the following scene. A tourist in Greenwich Village, New York, has his portrait sketched by a sidewalk artist. The artist charges him $100. That’s a lot, the tourist says, but he agrees to pay the asking price because it’s a great sketch. Not bad for five minutes’ work, he jokes as he hands over the money. The artist corrects him: twenty years and five minutes’ work.
In other words, the artist’s ability accumulated over two decades before she was in a position to charge a tourist $100 for a single quick sketch. Her skill, then, is the fruit of an investment.
Which brings us to our first principle. We can define it right away, too. Investment is the sacrifice of real things today so that we can have more real things in the future.
The most obvious sacrifice our artist has made is time: as she says, she honed her craft over twenty years. This, though, implies a second sacrifice – the chance to do something else. If you decide to become an artist, you can’t (usually) also study medicine or engineering. This trade-off is an opportunity cost: the loss of other alternatives when one alternative is chosen.
If we zoom out and look at society as a whole, we can see that investment means sacrificing the production of some goods and services so that capital and labor can be freed up for other purposes. For example, countries that are industrializing often forgo producing consumer goods so that more resources can be available to produce factories and machinery. The rationale is that producing these kinds of goods will mean that overall production is greater in the future.
The future, however, can’t be known, so these kinds of decisions are always risky. If people are to invest, such risks must be compensated. The cost of training artists and keeping them alive while their ability develops, for instance, must be repaid to ensure that such investments continue. This isn’t about morality – it’s a purely economic matter. If the return on such investments isn’t large enough to make them worthwhile, fewer people will invest in training, feeding, and housing artists. Crudely put, if a Greenwich Village sketch artist makes much less than $100 per five-minute sketch, no one’s going to bother borrowing money to go to art school. Of course, this principle applies much more widely. Once the price of oil sinks below a certain level, it becomes increasingly difficult to find investors who are willing to cover the cost of looking for new oil fields or drilling new wells.
How many investments ultimately pay off is determined by how many consumers value the benefits of other people’s investments. If people specialize in fields for which there is little demand, their investment has been a waste of scarce resources. In a free-market economy, they may expect low pay and/or limited employment opportunities. These conditions are a signal that they – and others coming after them – should stop making such investments.
Note, though, that the principle of investment also applies to seemingly non-economic activities. Take just one example: tidying up after yourself in your home. You invest time in putting things away after you’ve used them because it reduces the amount of time you’ll need to find them the next day. Here, too, today’s sacrifice is tomorrow’s gain.
Financial institutions harness the well-being of individuals to the fortunes of economies
Now that we’ve explored investment in general, we can look at how investments are financed.
Some investments are made by individuals. If you buy corporate stock, you’re supplying money to a corporation today in exchange for a share of the value you expect it to generate tomorrow. In less abstract terms: you give a carmaker cash to expand production, enter new markets, and become more profitable so that you can share in those profits.
Most investments, though, are made by financial institutions such as pension funds and banks. That’s because the people who buy stocks, deposit money in savings banks, and pay into pension funds typically possess fairly modest sums of money. Institutions pool these stocks, deposits, and pensions together, thus creating huge investment vehicles.
In practice, this means that millions of people who can’t possibly know each other personally can use one another’s money. Now two things are possible. Firstly, individuals can hitch their investments to those of institutions. The latter aren’t only able to finance large-scale projects such as shipyards, hydroelectric dams, and high-speed railroads – they are also better at assessing the risks and rewards of doing so. Secondly, it allows individuals to redistribute their personal consumption over time. Let’s break that down.
We can start by making some observations about borrowing and saving. When people borrow money, they’re drawing on their future income to cover current purchases. For this convenience they pay interest on loans. When people save money, by contrast, they’re postponing purchases. For this inconvenience they receive interest. Now, if borrowers are debtors, then savers are creditors. The money they put into banks is lent out by those banks, which act as intermediaries between savers and borrowers.
Most people are debtors and creditors at different points in their lives. In the United States, for example, people under thirty don’t have much in the way of savings. That’s hardly surprising: they tend to have modest incomes and they’re often paying down college debt. People in their mid-fifties, on the other hand, save a lot. That also stands to reason: their incomes are higher and they’re preparing for retirement and old age.
These observations aren’t just relevant to the personal finances of individuals, though – they also have huge implications for the economy as a whole. If we zoom out once more, we can see that these transactions between individuals and institutions are how scarce resources that have alternative uses are allocated within societies.
The construction of shipyards, hydroelectric dams, and high-speed railroads requires capital, labor, and natural resources to be diverted away from consumer goods toward undertakings that only generate output years or even decades down the line. From the standpoint of society, present goods and services must be sacrificed for the sake of future goods and services. The question is, why do people forgo goods and services and postpone purchases?
Well, they don’t – unless those future goods and services are more valuable than the goods and services being sacrificed. If that condition is met, financial institutions receive a rate of return on their investments that is high enough for them to offer individuals a rate of return on their savings that is in turn high enough to induce them to postpone their spending.
Insurance companies transfer and reduce risk
Let’s wrap things up by looking at a concept we’ve mentioned in passing without stopping to unpack its meaning: risk. A good way into this topic is to think about how risk is mitigated.
It’s time, in other words, to talk about insurance.
Let’s start with the transfer of risk – simply put, paying someone to assume your risks. This is the bread and butter of insurance companies. In return for the premium paid by policy-holders, the insurer assumes the risk of compensating for everyday and extraordinary misfortunes ranging from car crashes and house fires to earthquakes, floods, and hurricanes.
Insurers reduce risk, meanwhile, by segmenting the population into different risk categories and charging them accordingly. That’s why safe drivers pay lower car insurance premiums than their reckless counterparts. Similarly, office workers pay lower occupational injury insurance premiums than professional snowboarders or construction workers.
The most common kind of insurance – life insurance – compensates for a misfortune that can’t be averted: death. If everyone were guaranteed to die at the age of 80, there’d be no need for life insurance because there wouldn’t be any risks. Everyone’s financial affairs could be arranged in advance to take into account their predictable death. In that case, it would only make sense to pay premiums to an insurer if the amount paid in over the years was identical to the compensation paid out to surviving beneficiaries. That wouldn’t really be insurance, though – it’d be closer to a bond. In effect, policy-holders would issue insurance companies an IOU redeemable on a fixed date. If you bought life insurance at the age of 20, you’d buy a 60-year bond; if you bought it at 30, you’d buy a 50-year bond, and so on.
Of course, in the real world, no one knows in advance at what age they’ll die. This uncertainty means that death is associated with substantial financial risks for the families of breadwinners and the business partners of the deceased (to name just two examples). So it makes sense to pay life insurance premiums and transfer those risks to an insurance company.
So there’s the basic principle behind insurance. What about the financial side of things?
Well, it’s important to note that insurers don’t let the money their policy-holders pay them gather dust in a vault. As a general rule of thumb, insurance companies can expect to pay out around 60 percent of premiums in current claims. Whatever’s left of the remaining 40 percent after business costs have been covered gets invested. These investments are usually pretty conservative – government securities, for instance, rather than property speculation. Even so, returns on such investments can account for around a quarter of an insurer’s total income.
That can make the difference between profit and loss. For example, imagine you pay $9,000 in premiums over a period of ten years. In the tenth year, you suffer $10,000 in property damages, which the insurance company quickly pays out. That could be a loss. But if the $9,000 you paid in premiums has been invested and has grown to $12,000 by the time you file your claim, the company has come out $2,000 ahead.
What is Economics?
When the African countries of Ghana and Ivory Coast achieved independence in the 1960s, the presidents of neighboring nations made a bet about which nation would be more prosperous in the years to come. At the time, it seemed like a sucker’s bet: Ghana was already richer than Ivory Coast and also had many more natural resources. But the president of Ivory Coast was confident his nation would prosper because it had embraced free markets while Ghana was committed to a government-run economy. By 1982, there was no doubt about who had won the wager: the poorest 20% of Ivory Coast’s population had a higher real income than most of the people in Ghana.
“Bombing does more immediate damage to a city, but many cities have rapidly rebuilt in the post-war world. Rent control does more long-lasting damage because people do not understand the basic economics of it.”
In country after country, free markets have delivered greater economic growth and prosperity than any other sort of system. How do free markets deliver this consistent performance? In government-controlled economies, politicians or bureaucrats decide the use of resources and determine who gets the goods that are ultimately produced. Free markets use a more reliable method to answer these questions: prices.
Prices are like messengers that convey news. The news that they deliver concerns the availability or scarcity of resources. Sometimes, as in the case of beachfront homes, the news is bad. Because there are not nearly enough beachfront homes in the world to house everyone who’d like to live in them, the prices of the homes are high. But the prices don’t make beach houses scarce; the prices simply reflect the ratio of people who would like to live in beachfront homes to the number of beachfront homes. This ratio would not change if the government tomorrow placed a price cap on the houses, or even if it passed a law saying that beachfront houses will now be free to all Americans.
“Fights over which individuals and groups get how big a slice of the pie create the kinds of emotion and controversy on which the media and politicians thrive.”
Prices sometimes deliver good news. Suppose for example, that a vast new supply of iron ore was discovered. Only a tiny minority of the population would even be aware that such a discovery had occurred. But the rest of us would soon see the effects of the discovery as the prices on steel products fell. Even though we know nothing about iron reserves or the steel-making process, the end result of the new discovery would quickly be conveyed to us through changes in prices. These adjustments are automatic – they don’t require consumers to know anything about the resources themselves.
Prices in Action
It’s a generally accepted axiom that people buy more of any good at a low price and less at a high price. Conversely, manufacturers produce more of a good when they can sell it at a high price than they will when prices are at rock bottom. Through the intersection of these two rules, the free market determines the real prices of any good.
“Many apparently humanitarian policies have backfired throughout history because of a failure to understand the role of prices.”
By providing incentives, freely fluctuating prices harness people’s tendency to do more for themselves than they are willing to do for others. If prices suddenly rise on a commodity, producers will be drawn to that market. For example, if a tomato crop fails in a given region, farmers from other areas will rush to supply that market to take advantage of the unusually high prices caused by the regional tomato shortage. In this way, the tomato importers make an extra profit and the tomato supply is restored.
“Monopoly is the enemy of efficiency, whether under capitalism or socialism.”
In many cases, governments attempt to direct prices by imposing controls, such as setting a floor or a ceiling on prices in response to crises. Experience has shown, however, that price ceilings lead to shortages and price floors lead to surpluses. For example, some cities and countries implemented rent controls to address housing crises. But in New York and San Francisco, and in all of Sweden, England and France, the market distortions created by price controls resulted in increased demand for apartments, sharply increased prices for apartments not covered by the laws and a rapid deterioration in apartment upkeep and maintenance.
The Rise and Fall of Business
In an era when Sears and Montgomery Ward were the unchallenged giants of U.S. retailing, James Cash Penney had some new ideas about how to run a chain store. Years later, a J.C. Penney clerk named Sam Walton set off with his own ideas about the retail industry and created the Wal-Mart chain, which now has sales larger than Sears and J.C. Penney combined. Because Walton was living in a free economy, he didn’t have to convince politicians, bureaucrats or managers at Sears and J.C. Penney that he had a better way of doing business. All he had to do was deliver merchandise to consumers at a lower price. Once he accomplished that task, the other stores were forced to adopt his new ideas to protect their own profits. Companies that can’t or won’t adapt to new conditions go under, and the resources they were using shift to more efficient producers.
“Our social visions and our rhetoric are about ’the rich’ and ’the poor,’ as if we were talking about people who are born, live and die in poverty or luxury, while the reality is that most Americans do not stay in the same income quintile for as long as a decade.”
Since prices are determined by the market, not by individual producers, the easiest – and often the only – way to increase profits is to decrease production costs. As Henry Ford proved, one sure-fire way to cut production costs is to make more of whatever it is that you’re producing. This is what economists mean when they talk about economies of scale.
“It does not matter that a law or policy proclaims its goal to be ’affordable housing,’ ’fair trade,’ or ’a living wage.’” What matters is what incentives are created by the specifics of these laws and how people react to such incentives.”
Unfortunately, Ford, like all manufacturers, also encountered diseconomies of scale. Simply put, there comes a point at which the cost of producing more cars stops falling and starts climbing. There are many reasons for this phenomenon, but the simplest explanation is that companies just get too big to operate efficiently. The chief executive of AT&T put it best back when his company was the world’s largest corporation: “AT&T is so big today that when you give it a kick in the behind, it takes two years before the head says, ’Ouch!’”
Work and Pay
Wages and salaries determine how much money consumers have to purchase goods. A consumer’s level of earnings defines his or her place in society. Because wages determine an individual’s standard of living and societal status, they are always at the center of heated political debate. Unfortunately, much of this debate is misleading. Statistics divide society into categories of top income earners and bottom income earners. Because of the prevalence of these figures, many see monetary earnings as a zero-sum game: if some people are getting more, it must mean that others are getting less. Politicians and the media make their living arguing about who is getting the largest slice of the pie.
“Periods of crisis often generate emotions which seek outlets by blaming personal and intentional causes, rather than systemic causes, which provide no such emotional release for the public or moral melodrama for the media and politicians.”
This thinking ignores the truth that the pie is always getting bigger. Earnings are dynamic because they reflect changes in society and in the economy. New technologies and methods of organization create new demand – and higher wages – for some workers, while making other jobs obsolete. Efforts to halt this process and “save jobs” or to “eliminate discrepancies in pay” result in lower standards of living overall by interrupting the adaptation of new advances.
The National Economy
Whenever someone starts throwing around statistics that are supposed to “prove” something about the national economy, watch out. The national economy is so large and complex that it is difficult for economists to agree on even basic measurements, such as the Gross National Product and Gross Domestic Product, which total the goods and services produced each year. This complexity makes setting government policy difficult. Many policies, for example, are based on the cost of living or inflation, which is the tendency of prices to rise as additional money comes into circulation. But when the government calculates inflation rates, it can’t add up the prices of everything. Instead, economists create a basket of commonly used goods. Problems arise, however, because prices determine which goods consumers commonly use.
“Treating the cause of higher prices and higher interest rates in low-income neighborhoods as being personal greed and trying to remedy it by imposing price controls and interest-rate ceilings only ensures that even less will be supplied to low-income neighborhoods.”
Many of us can remember when televisions, air conditioners and portable computers were so expensive that only the very rich could afford them. At the time, these items were not included in the basket of goods used to measure inflation. As years passed, however, prices on these items fell. They are now found in many homes. National inflation statistics missed this huge drop in prices, and in retrospect, inflation estimates for the period likely were too high.
“The Hippocratic Oath taken by doctors begins: ’First, do no harm.’ Understanding the distinction between systemic causation and intentional causation is one way to do less harm with economic policies.”
Government policies also fall prey to the fallacy of composition, which means thinking that because something is true for one group, it is true for the entire economy. Politicians love to come to the rescue of particular industries, classes or racial and ethnic groups. Consider the steel industry. For the past 20 or so years, stories about the loss of jobs in the U.S. steel industry have been a newspaper staple. Politicians have tried to protect these jobs by restricting steel imports. But these policies are the result of fallacy. In reality, import restrictions increase the price of steel, which increases the price of other American-made goods, which means fewer sales of U.S. goods and fewer jobs for everyone in the long run.
International trade is not a zero-sum game. It allows goods and services to be produced cheaper and better than they would be if every country had a closed economy. It benefits consumers while decreasing profits and employment among those who produce costly or obsolete products. Protecting less efficient producers makes no sense internationally or domestically, because the jobs saved come at the expense of other workers and consumers, who will pay more for worse products. When an obsolete industry goes belly up, the resources that it was using shift to newer, more efficient uses and overall productivity increases.
“We have seen some of those great human costs – people going hungry in Russia, despite some of the richest farmland on the continent of Europe; people sleeping on cold sidewalks on winter nights in Manhattan, despite far more boarded-up housing units than it would take to shelter them all.”
International trade benefits both wealthy and poor nations because of the concept of comparative advantage. Even if one country can produce all goods and services cheaper than another country (what economists call absolute advantage), it still benefits from trade. Why? Because even the most efficient country will produce one thing better than another. For example, the U.S. might be better than Canada at producing both cars and corn. But if the U.S. is better at producing cars than corn (comparative advantage), it will operate most efficiently by producing as many cars as possible and outsourcing corn production to Canada. In the end, the world has more cars and more corn, so both countries come out ahead.
The rapid flows of wealth through the international economy, often decried by critics as a cause of third-world poverty, actually force governments to behave more responsibly. For centuries, governments have transferred wealth from the people to themselves through the simple process of issuing new money to pay for whatever the governments want. With the free and nearly instantaneous movement of funds through the international economy, money and resources will flee from any country that is being mismanaged. Many governments don’t like these new restrictions on their trade freedom, so they denounce international trade.
Even though economic fundamentals seem obvious, they are often forgotten in heated political debates over issues like rent control and minimum wages. Politicians promise such things as “affordable housing,” “fair trade” and “a living wage” without considering the incentives that their policies create. Basic economics provides tools for evaluating policies’ logical implications based on empirical evidence. If you are prepared to sacrifice prosperity for stability, so be it. All economics can do is make you aware of the consequences.
Economics can be an accessible discipline that does not require complex mathematical formulas, but rather common sense understanding of incentives and consequences.
For everyday economic decisions, remember that prices aren’t arbitrary numbers but instead signals conveying all sorts of information about scarcity and value, which then guide resources toward their most valued uses. Understanding this, you may begin to develop informed opinions on economic policy matters, be it local regulations, insurance policies, or smart investments. Then, with this knowledge at your disposal, you should feel empowered to make better decisions as a consumer and understand your unique role in the economy.
Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution, Stanford University. He has taught economics at colleges and universities across the country and has published articles and books on economics in the United States and overseas.
Money, Investments, Economics, Education. Business, , Politics, Finance, History, Philosophy, Science
Table of Contents
Chapter 1: What Is Economics?
PART I: PRICES AND MARKETS
Chapter 2: The Role of Prices
Chapter 3: Price Controls
Chapter 4: An Overview of Prices
PART II: INDUSTRY AND COMMERCE
Chapter 5: The Rise and Fall of Businesses
Chapter 6: The Role of Profits–and Losses
Chapter 7: The Economics of Big Business
Chapter 8: Regulation and Anti-Trust Laws
Chapter 9: Market and Non-Market Economies
PART III: WORK AND PAY
Chapter 10: Productivity and Pay
Chapter 11: Minimum Wage Laws
Chapter 12: Special Problems in Labor Markets
PART IV: TIME AND RISK
Chapter 13: Investment
Chapter 14: Stocks, Bonds and Insurance
Chapter 15: Special Problems of Time and Risk
PART V: THE NATIONAL ECONOMY
Chapter 16: National Output
Chapter 17: Money and the Banking System
Chapter 18: Government Functions
Chapter 19: Government Finance
Chapter 20: Special Problems in the National
PART VI: THE INTERNATIONAL ECONOMY
Chapter 21: International Trade
Chapter 22: International Transfers of Wealth
Chapter 23: International Disparities in Wealth
PART VII: SPECIAL ECONOMIC ISSUES
Chapter 24: Myths About Markets
Chapter 25: “Non-Economic” Values
Chapter 26: The History of Economics
Chapter 27: Parting Thoughts
Basic Economics is a book that explains the fundamental principles of economics in a clear and accessible way, without using any jargon or equations. The author, Thomas Sowell, is a renowned economist and social commentator who has written dozens of books on various topics. In this book, he covers the following main themes:
- The role of prices in allocating scarce resources and coordinating human actions in a market economy.
- The effects of government interventions, such as price controls, subsidies, tariffs, regulations, and taxes, on the incentives and outcomes of economic activities.
- The differences between various economic systems, such as capitalism, socialism, feudalism, and mercantilism, and how they affect the production and distribution of wealth and income.
- The causes and consequences of international trade and finance, such as comparative advantage, balance of payments, exchange rates, and trade deficits.
- The sources and implications of economic growth and development, such as human capital, natural resources, technology, institutions, and culture.
Basic Economics is a book that provides a valuable introduction to the subject of economics for anyone who wants to understand how the economy works. The author uses many examples from history and current events to illustrate his points and to show the relevance and applicability of economic reasoning. He also challenges some common misconceptions and myths about economics that are often propagated by politicians, media, and activists. He writes in a lucid and engaging style that makes the book easy to read and comprehend.
The book is not without its limitations, however. The author adopts a largely free-market perspective that favors minimal government intervention and regulation. He tends to downplay or ignore some of the market failures and externalities that may justify some forms of government action. He also does not address some of the more complex and controversial issues in economics, such as inequality, poverty, environmental sustainability, and behavioral economics. Moreover, some of his examples and data may be outdated or inaccurate, as the book was first published in 2000 and has been revised several times since then.
Overall, Basic Economics is a book that offers a useful overview of the basic concepts and principles of economics. It is suitable for anyone who wants to learn more about the subject or to refresh their knowledge. It is not a comprehensive or definitive treatise on economics, but rather a common sense guide that can help readers to think more critically and analytically about economic issues.