Summary of Basic Economics by Thomas Sowell

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Summary of Basic Economics by Thomas Sowell

Chapter 19- An Overview

This chapter introduces the elements, actors and activities that affect the economy at the national level. Sowell discusses the two main misconceptions when addressing national economy issues: the fallacy of perceiving all economic activities as if they were a game that all parties lost and the fallacy of composition. He also brought out the misunderstanding that the government was structured in a different way that led to impractical demands being placed on it followed by claims of inefficiency and failure of the government after these demands were not accomplished. Sowell analyzed the role of the government in the national economy. In performing this task, he separated the roles that were to be handled by the economic system and those that would be taken care of by the political system. Sowell’s discussion moved towards zero-sum thinking that economic deals were zero-sum and that the rich were sustained by the taxes from the poor.

The next part of Sowell’s discussion focused on the fallacy of composition. In the elaboration of composition, Sowell referred to the fallacy that assumed that what was a fact for part of something was true for the whole of it. The fallacy of composition formed part of Sowell’s greater discussion on the fallacies that applied in public policy circles. This fallacy was frequent in the budgeting process where allocation of funds and taxes was done in a way that sought to strip the rich off their wealth and give it to the poor with the hope that it would bring about economic equality. However, as Sowell pointed out, the fallacy yielded poor results. In all societies where this fallacy was assumed to hold true, the gap between the rich and the poor continued to widen. This proved that society did not benefit substantially when economic policies were skewed to favor the poor.

Market and government failure formed the last section of chapter 19 in Sowell’s book, Basic Economics: A Common Sense Guide to the Economy. Thomas Sowell illustrated the failure of the federal government in intervening when the market failed over the many years. The issue of government intervention came under sharp criticism with the institution being accused of assuming that they were in control and informed all the time. Organizations such as the government who operated outside the official trappings of free markets, with broad reach and influence in markets, headed by the top intellectuals from the prominent institutions globally, and served with all pertinent and accessible information, using the most complex and advanced statistical techniques always failed to plan economies. Using examples from the Federal Reserve projections that were completely off the mark, Sowell illustrated the risk of depending on the government to control and intervene in the market. In conclusion, Sowell discussed the factors affecting the economic activities, numerous state assumptions and failures of the market and the government.

Chapter 22 – The International Economy

Protectionism and other trade controls form the bulk of discussion in this chapter. Sowell analyzed the role that trade played in determining political support among citizens in the United States. Protectionism and free trade as approaches to international trade were compared against each other with the intention of determining which one was more efficient and suitable for America to adopt. Sowell illustrated the preference of most people as leaning towards protectionism despite their little knowledge of its costs and consequences on the federal government. The fear that in the absence of protectionist policies, most Americans would lose their jobs and overseas markets to more aggressive, and industrious rivals, has led to increased calls for tighter regulations concerning trade with the United States. Policies such as the Hawley-Smoot bill intended to smother competition by raising the American tariffs and thus discourage the loss of jobs and open avenues for the unemployed to find new jobs within the United States.

In Chapter 22, Sowell concentrates on the international economy as the main subject. In particular, Sowell concentrated on the role of trade and international investment on the economy. He introduced the issue of poor investment choices by the federal government locally and abroad. The investment initiatives in Iraq and other overseas markets that failed to yield expected results came under fire as they were touted to be the landmark state strategies to alleviate internal economic issues. The analysis went on to compare the efforts of the federal government against those of governments in Third world countries and concluded that the United States was doing poorly in terms of developing and adopting progressive policies. This comparison was done on countries that were fast rising out of poverty such as Brazil, Nigeria and Argentina. Poor economic policies were cited as the main issue that affected United States’ international trade and investment approaches. While this was clear, the federal government ignored these economic observations made by watchdogs, activists and other scholars. The assumption of the sudden rise of an overpopulated country such as China from poverty is bound to result in the demise of the federal government in the end. Sowell brought out the change in attitude and approaches among the poor once they were liberated from poverty as being detrimental to the government. He argued that once the population realized the ignorance on the part of the government, the focus would shift towards self-improvement at the expense of the state. In his offer, Sowell proposed that the people of the United States should increase their effort in determining how the international trade was to be conducted. The book argued from the point of view that government efforts to ascertain an equal playing field for minority people essentially destroyed their opportunities for realizing economic liberation.

Chapter 23 – Myths About markets

In discussing the various myths that human beings had about markets, Thomas Sowell clarified the first myth that everybody assumed that a market was tangible. In his introduction, he dispelled this assumption and instead proposed that the idea of a market was constituted by the same people who took part in the buying and selling process as well as other actors who made economic transactions such as organizations, governments and private groups. The myth surrounding the elements that made up a market continues to confuse many people and as such disorienting their academic arguments and formulation of economic policies. It is for this distorted perception of the market as a tangible thing that most federal policies have failed to solve some of the international economic problems plaguing the United States. Sowell came up with a different perspective that suggested that the market took on the approach and mannerism of the people who constituted it. In retrospect, he was arguing that the market could not be considered completely impersonal and that it reflected the efforts and initiatives of the people in it. From the wrong interpretation of what a market was, several parties have taken up the opportunity to restrict the activities at the international trade environment.

Sowell then progressed to demystify the myth surrounding the female wage gap. While common arguments blamed gender discrimination and exploitation of females in the labor force as the main reason behind the wide wage gap, Sowell proposed that most of the proposition were mere myths and backed his stand with basic economics. The calculations used in determining the wage gap were flawed making the median wage for women to appear substantially lower than it was. Instead, Sowell blames the gap on the personal decisions made by women to focus on raising their families at the expense of their careers. Therefore, they sacrificed their academic progress and their careers out of their own volition. Men also engaged in riskier jobs that paid higher wages when compared to women. These personal reasons were not valid excuses even though biologically; they were unable to sustain high and constant output when compared to their male counterparts. Therefore, according to Sowell, the factors affecting the female wage gap were not economic in nature. Sowell also focused on clarifying the myths surrounding national labor unions. While most workers assumed that the unions were created to serve their purposes, Sowell argued that the unions were mere tools used to regulate workers’ behavior. Unions have increasingly dishonored the rights of workers and coerced them into agreeing into whatever ultimatums they conjure in their meetings. However, a group of workers that was immune to the destructive activities of union groups was public servants who were represented by government unions. This group of people could not be replaced in the same way that workers in private organizations could be sacked when they called for industrial action.

Chapter 24 – Non-Economic Values

This chapter focused on the influence of non-economic factors on the economy of a country. These non-economic factors were categorized as ‘values’ within the chapter. Consideration is placed on non-economic values most of which were abstract and non-measurable but still played a crucial role in determining the attitudes, approaches and choices of people in economic matters. Greed was singled out as a highly motivating non-economic value that was present in most transactions made among people, states or organizations. Every party desires to purchase a product at the cheapest price and sell their produce at the highest. Non-economic values are innate to human beings and constantly operate to influence the economic choices. Attempting to separate human beings from their emotions is quite difficult as Thomas Sowell proved that, during their choices, human beings would always choose the best items and not ones that are scientifically superior. Comparing these non-economic values to economic values such as cost, withdrawal of the state from the market and efficiency, Sowell argued that human beings as part of the market also base their economic ultimatums on different emotions that are always economically impractical. The issue of introducing human qualities into the economy has resulted in irrational choices that have had economic consequences. The current president of the United States, Barrack Obama won the elections because he appealed to their emotions in the citizens when he proposed a healthy America with various amazing benefits. However, during the implementation of the Obamcare Health Bill, there were aggressive reactions from politicians and citizens that the Bill would stifle the economy and overtax the rich. This is a classic example of how non-economic values had an impact on the United States’ economy. Non-economic values can, however, be understood as the egocentric impositions by an individual, group or organization without proper consideration to other values.

Chapter 26 – Parting Thoughts

In this last section, the lessons learnt and conclusions made from the earlier sections of analysis and investigation are laid down. The writing style and approach taken by Sowell in his book is also illustrated. One common style used in the publication is the frequent repetition. Several chapters within the book were written as mere summaries of previous observations and examinations. While slightly boring, this was an excellent learning aid as the repeated sections stressed the key points that Sowell was passing on to the audience. Sowell targeted the public when writing the book. This is evident using simple language, little technical and contextual terms as well as the avoidance to use detailed graphics such as graphs. All the elements of national and international economy were addressed in a clear and concise manner. From trade to investment, Sowell brought out the tenets of the economy in the simplest way possible. However, several flaws existed within the publications structure and content. The minimal use of theories from other corroborating scholars such as Hayek provides little room for deeper investigation into economic matters mentioned in the book. The author also fails to place the theories within the context of national and international economy.