Saturday, July 03, 2010

Basic Economics, Thomas Sowell

I stand in awe of Sowell as an author. This is a 551 page economics book that is close to as concise as possible given the breadth of the subject, extremely readable, and I think "life-changing" in it's conveyance of what seem like, and really are, very simple facts of life that we actually understand when we see them, but are far too easy for humans to forget. I hope and believe that Sowell as found a way to imprint them indelibly in my tiny brain.

A mass of a few more quotes than I would usually do ....

"Different kinds of economies are essentially different ways of making decisions about the allocation of scarce resources."

"It is not money, but the volume of goods and services which determines whether a country is poverty stricken or prosperous".

"Economics is not simply a topic on which to express opinions or vent emotions. It is a systematic study of what happens when you do specific things in specific ways."

"But life does not ask what we want. It presents us with options. Economics is one of the ways of trying to make the most of those options."

"Knowledge is one of the most scarce of all resources and a pricing system economizes on it's use by forcing those with the most knowledge of their own particular situation to make bids for goods and resources based on that knowledge, rather than on their ability to influence other people in planning commissions, legislatures or royal palaces."

"What is at the heart of the fallacy of composition is that it ignores interactions among individuals, which can prevent what is true for one of them from being true for them all."

"The interaction that is ignored by those [advocating supposed "job saving policies"] is that everything the government spends is taken from somebody else. The 10,000 jobs saved in the widget industry may be at the cost of 15,000 jobs lost elsewhere in the economy by the governments taxing away the resources needed to keep those other jobs. The fallacy is not in believing that jobs can be saved in given industries or given sectors of the economy. The fallacy is in believing that these are net savings of jobs for the economy as a whole."

"Speculation is often misunderstood as being the same as gambling, when in fact it is the opposite of gambling. What gambling involves, whether it is in games of chance or in actions like playing Russian roulette, is creating a risk that would otherwise not exist, in order to profit or exhibit ones skill or lack of fear. What economic speculation involves is coping with an inherent risk in a way as to minimize it and leave it to be borne by whoever is best equipped to bear it."

"While capitalism has a visible cost--profit--that does not exist under socialism, socialism has an invisible cost--inefficiency--that gets weeded out by losses and bankruptcy under capitalism. The fact that most goods are more widely affordable in a capitalist economy implies that profit is less costly than inefficiency. Put differently, profit is a price paid for efficiency."
I could go on, and on, and on ... it is a long but pithy book. The bottom line is that Sowell describes the principles of economics that exist, like gravity, no matter what we "want". What we "want" is in many ways irrelevant, and when we try to use faulty levers as a nation to gain it, we nearly always create perverse incentives that create different results. We may want the economic machine to produce more ice cream and less broccoli, or vice versa, but by our institutionalized slap-dash hammering at the controls, we are likely to get less of both, and a lot of something completely different -- likely neither fun or healthy.

Often, as in the first quote above, the point is "x is going to be done in any case", it is just a matter of "who / how". Decisions WILL be made on how to allocate the scarce resources -- either by someone that is hungry buying a product, by someone investing their money in hopes of return, by an executive looking to turn a profit, or by a lifetime employed government bureaucrat waiting for the clock to turn to 5.  The decision gets made, at best, we get to decide how.

Same thing with scarcity -- he makes the point that a government decree that everyone had a "right" to a beach front palace would do absolutely nothing for the availability of such. "And which of you by being anxious can add one cubit unto the measure of his life?" What statists fail to realize is that this is often every bit as true for nations as it is for people.

Allocation of scarce resources and incentives -- it pretty much all comes down to that, but  it takes a mind like Sowell's to make that easy and understandable in a mere 551 pages. Don't settle for my poor words ... read it!

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