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Basic Economics -- Thomas Sowell
Written by Mike Noel   
Tuesday, 16 September 2008

Basic Economics

Somehow in all my college education I missed any classes on economics. Feeling like I might be missing some important information I decided to pick up a basic economics book from the library and read through it.  It was my good luck to find this particular book because it provides a broad overview of the entire field of economics but at a level that an ordinary person can understand.  I learned a lot from the book.  There was more than just some facts and statistics.  Instead the author spent a lot of time explaining how to think about economics.

Sowell doesn't pull punches.  He very clearly states his thoughts and the reasoning behind them.  I'm sure these are controversial ideas.  For example, Sowell argues that economics clearly shows, without reservation, that price controls are bad for the economy.  In the context of rent controlled housing he offers a very logical explanation of why this leads to less housing.  Then he backs this up with emperical evidence taken from several different cities in several different countries. 

This same theme is repeated over and over again in many different domains.  Price controls are bad for the economy as a whole. They might have a local positive affect (local being defined either based on region or on population segment) but at a higher cost somewhere else in the system.  The end result is higher prices and lower quality for the consumer.

This notion is not very politically popular yet the logic of economics supports it and the emperical data is overwhelming in demonstrating this prinicple.  Yet policies continue to be created that encompass price controls and other economic bad ideas.  The reason? Because people are hopeful that it will work and they don't have the understanding to realize that it won't.

There was one issue that I wish had been addressed in the book.  Sowell is very much convinced in the supremacy of market pricing so he argues in favor of removing all price restrictions and letting the mass of individual consumers collectively negotiate the price by buying and selling.  What about our current gas prices issue?  I'm in favor of market pricing but it seems to me that in our current situation, the gas companies are not allowing for free market pricing. 

A problem with this industry is that the barrier to entry is so incredibly high it is not feasible for someone else to come in and compete.  Maybe Sowell would suggest that the market is responding by the development of alternative energy sources.    I guess that is true.  I guess I'm looking at the picture with too narrow of a scope.

I don't know all of the answers but I now feel a bit more qualified to think about and discuss economic issues.  This was a good book.  Quite educational.