Has a Lesson for Everyone About Basic Economics
by Darryn "Dutch" Martin
"Economics is the study
of the use of scarce resources which have alternative uses."
That's the premise of Stanford
economist Thomas Sowell's book Basic Economics: A Citizen's
Guide to the Economy, originally published in 2000.
Dr. Sowell, one of the nation's
most prominent black economists, sought for the book to explain
the basic principles that apply to any economy - whether they
be capitalist, socialist or feudal - and encourage readers to
look at economic policies and systems in terms of their incentives,
constraints and consequences instead of simply their intentions
More than four years have passed,
and Dr. Sowell has produced a revised and expanded edition of
Basic Economics. Because economic principles are not confined
a single country, the new edition includes information on even
more countries than before.
Using historical and present-day
examples to explain principles such as supply and demand, the
role of prices, free-market competition, investment and risk,
the role of business and government, absolute and comparative
advantage, present value and international trade, Dr. Sowell
improves upon the original by enabling the reader to see what
happens in their absence. For example, the former Soviet Union
- a region of the world rich in natural resources and enormous
economic potential - shows the disastrous long-term consequences
wrought by a centrally-planned (as opposed to a free-market)
The Soviet Union did not lack
for resources, but was in fact one of the most richly endowed
nations on earth. What it lacked was an economic system that
made efficient use of scarce resources. Because Soviet enterprises
were not under the same financial constraints as capitalist enterprises...
they were not forced to economize - that is, to treat these resources
as both scarce and valuable in alternative uses.
The updated Basic Economics
also highlights the crippling consequences of India's failed
economic policies. Only during the last decade of the 20th century
did India's government finally realize the error of its ways
and embraced free markets by instituting sweeping economic reforms.
This included selling off its state-owned enterprises and removing
price controls and international trade restrictions. The same
is true for many countries in Latin America.
Speaking of international trade,
it's explains why predictions of "a giant sucking sound"
accompanying American jobs moving to Mexico in the wake of the
North American Free Trade Agreement (NAFTA) never occurred. To
the contrary, over 100,000 American jobs were created in the
automobile industry alone over a six-year period. This, Dr. Sowell
notes, should not have surprised anyone with a basic understanding
of economics. International trade, he says, is not a zero-sum
game. Nations trade because both parties expect to benefit.
Distinguishing between incentives
and goals is particularly important when examining the political
incentives of government officials. Most politically-motivated
decisions are usually not only devoid of economic understanding,
but can also lead to consequences far worse than doing something
"less popular" or nothing at all.
Along with additional international
emphasis, the update discusses the economic implications of events
since the original release. For example, California's rolling
blackouts in 2001 should serve as a painful lesson of the dangers
of price controls.
Arguably the most poignant
passage in this book deals with the most important investment
that anyone can ever make:
One of the largest investments
in many people's lives consists of the time and energy expended
over a period of years in raising their children. At one time,
the return on that investment included having the children take
care of the parents in old age, but today the return on this
investment often consists only of the parents' satisfaction in
seeing their children's well-being and progress. From the standpoint
of society as a whole, each generation that makes this investment
in its offspring is repaying the investment that was made by
the previous generation in raising those who are parents today.
Dr. Thomas Sowell's revised
and updated Basic Economics is a must-read for anyone
desiring to be better informed. The book, and Dr. Sowell himself,
are in a class all their own.
Darryn "Dutch" Martin
is a member of the National Advisory Council of the African-American
leadership network Project 21. Comments many be sent to [email protected].
Published by The National Center for Public Policy Research.
Reprints permitted provided source is credited. New Visions Commentaries
reflect the views of their author, and not necessarily those
of Project 21.
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