Sowell’s Basic Economics – Part 1

We recently re-joined Audible.com, and the first “new” book I purchased was Basic Economics, by Thomas Sowell.  I had read many of Sowell’s articles posted on Capitalism Magazine (www.capmag.com) and found them to be very clearly written and always in agreement with free market principles.  Sowell has published a couple dozen books, mostly on economics – which actually was a concern for me in selecting to read (alright, listen to) his work.  I often worry that a prolific author may either be poorly edited, or repetitive.  I had also worried that a book entitled “Basic Economics” may have little to add to my reasonable knowledge of the subject.

The book is ponderous – in print it is 640 pages; as an audio book it ran over 18 hours.  I had mistakenly thought it was shorter because of how Audible had structured the downloads, but I was pleasantly surprised when the book did not end after the first 12 hours – and for a book on economics, being listened to in a car, that’s saying alot!  Sowell accomplishes a quite thorough review of major elements of economics at an introductory level, while making the material accessible and just barely entertaining.  In every instance where I was beginning to grow impatient with the length of the discussion on a topic, he either brought the topic to an end, or threw in some intriguing real-world case study.   I have only a couple minor complaints about the structure of the book.  There are the odd “Overview” chapters, occuring at the end of each major section, and which appear to contain more than mere summaries, might be misleading, and seem awfully long.  There are a few instances of straight out repetition of the text, which seem to be accidental – the kind of thing any editor who read the entire book would find and correct.

Sowell’s overall theme of the book is that the principles of economics are really quite simple, but become confusing in the popular mind when mixed with emotion, psychology, and politics.   He clearly defines economics as “the efficient allocation of sparse resources which have alternative uses” – and if you haven’t memorized this after he repeats it at least 50 times throughout the text, then you haven’t read the book.  He does an excellent job of boiling each element of economics down to fundamental principles – supply and demand as the fundamental of the value to be exchanged for an item, the difference between value and price as determined by the money supply, the nature of profit and loss and their effects on business, the fact that labor is just another commodity to be traded.  His coverage of banking and the financial system is a bit light, but accurate, and probably as deep as he can go without causing confusion in his target reader.

The most interesting sections for my advancement in understanding were in his treatment of risks and insurance, and his discussion of international trade.  He clearly describes the difference between an insurance policy – run by a profitable business – and the so-called government insurance programs, which he rightly identifies as merely a form of forced redistribution of wealth from the younger to the older generations.   In an insurance company, the study of risk is paramount, and premiums can be computed scientifically, based on the statistics of claims of various sorts for the various classes of clients.  In the government programs, where the insurance is an “entitlement”, risk is irrelevant, premiums are independent of class (other than being assigned as a percentage of income), and the funds collected as “premiums” are intentionally confused with general tax collection funds and spent as the current government sees fit.

In the international trade section, Sowell provides outstanding descriptions of how the fallacy of the “zero-sum game”, wherein any wealth transfered between countries is seen as a loss for debtor and a gain for the creditor, can be easily refuted, by noting that wealth is constantly being created through investments.  The conclusion is that with very rare exception any trade occuring between countries, regardless of the balance of exports and imports (in goods or funds) is greatly beneficial to both countries involved.

Equally as strong as his general themes are his selections of examples.  In explaining the economics of big business, he provides a lengthy description of the history, and change in market positions, of such companies as Sears and Roebuck, Montgomery Ward, JC Penny, McDonalds, White Castle, A&P, and Walmart.  These are fascinating histories in and of themselves, and a separate book just discussing these and similar histories would make extraordinarily interesting reading.

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