Basic Economics: A Citizen's Guide to the Economy

To be fair, the only part of this book I find truly disagreeable is the title. "Basic Economics" implies a presentation of universal principles that would generally be agreed upon by most who study the subject. This book does no such thing, but I'm not sure any book on the topic of economics could. While economics as a subject attempts to use an empirical approach to study human interactions regarding available resources in varying levels of scarcity, at it's heart it is social science. As such it is prone to be dominated by theories, models, and hypothesis which themselves are not universal and often up for much debate.

It is quite obvious from just the first few pages that this book is being presented with an extremely premeditated and somewhat biased perspective. The subtitle, "A common sense guide to the economy" seems a little more appropriate as it implies some degree of non-objective perspective. However, the economic principles being presented as "common-sense" or even fact are often very debatable and in some instances, from this laypersons perspective, flat out wrong.

Simply by discussing the basic principles of a free-market system, albeit from a biased perspective, in a well thought out and clear manner, this book proves to be worthy of its purchase price. Anybody who seeks to learn more about a subject with an open mind should be prepared to hear discussions of said subject from all perspectives, not just those which seem more favorable.

Overall, the book is well written and flows well. It obviously favors laissez-faire free market systems with little governmental intervention or regulation. Considering our current economic collapse and the factors that primarily contributed to it, I think we can all agree that such a perspective on economic principles should not be presented as being factual.

I picked up this book hoping to extend the economics education i got in college. What I got instead was an ideologically charged diatribe of the government and a love-fest of the free market.



Everything is backed up with anecdotal evidence and sweeping statements made with much hand waving. It sells itself on the fact that it has no "equations, graphs [or] jargon," but I find that to be a weakness. While it doesn't need be filled with graphs and such, some proofs would be nice. Instead he simply asserts things and moves on.



It does make some good points, but it is incredibly preachy and in most cases over simplified. If this is your only source of economics knowledge, you will become a free marketer, but other economics theories do make the case for government interventions in certain conditions. At $30 US this book is overvalued despite what he says, which is why I picked it up with the help of government intervention (the public library).

You are, of course, familiar with the German word schadenfreude – the malicious joy one gets on hearing of the misfortune suffered by others. I can’t deny that there were times while listening to this book this week – a week in which the US decided to pour $700 billion into the black hole that is the ‘credit crunch’ – that this word popped unbidden to the front of my mind. Listening to the rants of a radical free market economist in the week that the world is forced to pay for the excesses of market capitalism does induce some schadenfreude – except that the joy at the harm is limited by the realisation that the harm caused by these bastards is going to be felt by me as much as by them.

I don’t think anyone could make the mistake of believing that this is a nuanced discussion of economics. Basically, this is a man on a mission who is in possession of ‘the truth’ and that truth is an absolute belief that anything, ANYTHING that gets in the way of the free operation of market forces is always and invariably bad, counter-productive and the cause of all of the harm in the world.

This book is presented as a citizen’s guide to the economy. Its major theme is that politicians have reasons to lie to you – but once you have a grounding in basic economic theory you will not be so easy to dupe.

We are told early in this book that Economics is a science and that economic methods are used in the same ways by Marxists as they are by free market radicals like the author. That this, in fact, is what this book is going to be about – the stuff all economists agree about. On that basis the strongest criticism of this book I can make is how little someone reading it comes away knowing anything about basic economics. You may get indoctrinated, but how much you are likely to learn is open for debate.

For example, one might think that after reading a book setting out to explain basic economics one would come away knowing how the share market works – I mean, beyond a bland assertion that shares are different from bonds in that the holder of a share in a company is a part owner of that company. If you want to know about the relationship between shares, futures, derivatives and foreign currency exchange rates or what short selling is or why it might be that banks not lending money to each other might require tax payers’ dollars to be poured down the toilet to seek to prop them up – this book is not for you.

If you want to know why decades of the US running up huge deficits and owing the rest of the world trillions of dollars is really not a problem – this is a great book. And I hope the rest of the world agrees with Sowell’s commonsense approach.

This book presents as absolute economic ‘facts’ a number of assertions that are, at best, the strongly held opinions of the author, at worst simply false. For example, one of Sowell’s favourite examples is the harm done to everyone by governments imposing rent controls. He asserts that these invariably lead to a shortage of housing and therefore to higher rents. His solution is to allow the market to fix these problems. If there is a shortage of housing then rents will rise. When rents rise more investors will rush (not walk) into the market to build new housing for those not able to afford housing, thereby rents will drop and everyone will be happy.

One of the examples Sowell gives is the housing crisis that afflicted Melbourne, Australia for 9 years following the end of World War Two in which not a single new building was built in Melbourne. This Sowell attributes solely to rent control laws in Melbourne making it unprofitable to build new buildings in Melbourne. At least, one assumes there must have been a crisis in Melbourne at the time as Melbourne is the capital city of Victoria and between 1945 and 1954 Victoria’s population increased by 250,000 people (or by one quarter). How did Melbourne cope with this crisis at a time of mass influx to the city not witnessed since the gold rush? Well, it all depends on what you call Melbourne. I’m assuming Sowell is talking about the City of Melbourne – what North American’s might call Down Town Melbourne.

It is actually true that virtually no new buildings were put up in Melbourne at this time – it is much harder to say why than Sowell glibly assumes, though. In Melbourne, The City’s History and Development Miles Lewis points out that there were a complex of reasons for so little building development occurring at this time in the golden mile – but none of these reasons are related to rent controls. In fact, I’ve yet to find any evidence Melbourne had rent controls at this time. Rather the huge growth in housing needed in suburban Melbourne to meet the influx of so many migrants from Europe after the war and the post-war rationing of building materials accounted for most of the reason no building works occurred in the central city.

The ‘shocking fact’ that is presented by Sowell as conclusive proof that free markets always provide better solutions than ‘socialist’ alternatives such as rent controls evaporates with just a little knowledge of the actual situation. Funny how that works. One does then wonder why he used the history of building development in Melbourne as his example in the first place. Surely it couldn’t be the problem this would cause most of his audience to check is supposed facts? No, surely not.

If Sowell’s economics is a science then it seems to be one that has more in common with Creation Science than Biology. That is, it seems to be wishful thinking designed to reinforce predetermined conclusions – rather than, say, the systemic testing of a hypothesis to expand human knowledge.

The favourite punching bag here is the Soviet Union and its misadventure with a socialist planned economy. What is remarkable in his description is that the Soviet Union lasted the 70 odd years it did. It seems its economy had nothing going for it. All it had were disincentives to production and absolutely no incentives.

Some theorists have spoken about the Soviet Union collapsing because it could not compete with the West not just economically, but in part due to having to complete in an arms race that forced it to redirect a huge proportion of its national productive economy towards this dead weight. Like I said, this book does not provide a nuanced discussion at all and so the sole reason for the collapse of the Soviet Union presented here is its lack of a free market.

Ironically, prior to reading this book I probably would have had more sympathy with the view that the Soviet Union could not compete because it lacked incentives to produce. I have less sympathy with that view now that I have finished this book. It is received wisdom that the major failing of the Soviet system was the lack of incentives to production offered, but the fact this is received wisdom does not make it true.

What struck me in this book was that the planned economy of the Soviet Union was always compared with the free market system of the West as if the free market was made up of mum and dad shop owners or little factory owners all of whom had an intimate and immediate knowledge of their local community. We are repeatedly told that a planned economy can’t work because the poor bureaucrat doing the planning can’t possibly know all of the issues that face everyone in every area of the economy. This is contrasted with the glories of capitalism, the decentralisation of knowledge, in which the local gas station knows when road works are going to reduce his ability to sell petrol (an actual example from this book) and so purchases less petrol until those road works are completed.

Except how does that explain Walmart? What sort of decentralised planning does Walmart allow? In answer to this he gives a remarkably bizarre example – Kentucky Fried Chicken – in which (apparently) local franchise holders in the 1950s kept the quality of their cooked chicken up to scratch because they were living in mortal fear of Colonel Sanders turning up at their restaurant and throwing out their less than finger-lickin’ good chicken and then cooking it all again himself. (This is another actual example given in the book). It beggars belief that these could be presented as arguments for the superiority of the free market – but the issue is much worse than this. Surely KFC and Walmart have the same problems in directing their grand empires as the Soviet Bureaucrats had in coordinating theirs. Naturally, there is no discussion of how private ownership over a certain size remains different from socialist ownership and how the disincentives for a Soviet worker are avoided by Walmart – just surreal examples of Colonel Sanders whipping everyone into shape that sound to me to be the sorts of stories one might have heard about the heroes of socialist labour.

I was greatly disappointed in this book – there are so many things I need to learn about economics and none of them were presented here in this overly ideological text. The bottom line? Don’t waste your time.

"Economic policies need to be analysed in terms of the incentives they create, rather than the hopes that inspire them." page 45

My first observation about most reviewers is that they condemn an author based mostly on his/her political views (Sowell is conservative) and if the reviewers are somewhat intelligent they will hint at a problem or two, offer a few rants about what their "SYMPATHETIC SOCIALIST" leader would do, which turns out to always place more debt, lose more jobs, create less competition and leave everyone worse off... brilliant. Every one is entitled to their opinion but opinions aren't always reality. We have 1000's of years of human history without free markets that are filled with poverty and back breaking work just to exist. People are always at fault, not the idea of capitalism, the system works and has lifted more people out of poverty than any other system. If you are unwilling to admit that then you are intellectually dishonest and should not be taken seriously. If you have an axe to grind, look to the source, DISHONEST PEOPLE!

We have faced a myriad of economic problems in the world, mostly caused by the warped ideology of an interventionist government, stemming from decision makers wrapped in the blanket of Keynesian thought or some form there of. If you are an intellectually honest person, you will find this book beyond helpful in understanding (though introductory) the market place and how the role of prices makes the market a much more moral system (no force used) than a bunch of bureaucrats picking winners and losers. It will allow you to decipher the rhetoric coming to us 24 hours a day from the media and Washington as to whether there is a serious problem or just angst created to get the people to give up more money (by force), liberty and peace of mind.

If you are like me you've seen many things that make you scratch your head in confusion, we don't always understand everything we see in the marketplace, or in banking, insurance, government action and international trade. There is however really good answers to the confusion throughout this book. Many people smarter than us make really poor decisions because they are ruled by their need of a job, ruled by their heart instead of their head and sometimes because they are plain unable to see the unintended consequences of their decisions. We of course absorb the brunt of this in the form of increased taxes, loss of monetary value and freedom to pursue the American dream in the way our forefathers did. This book is not meant to turn over every stone, look to Wealth of Nations (A. Smith) , Human Action (LV Mises), Man Economy and the State (Rothbard), Capitalism, Socialism and Democracy (Schumpter) and Capitalism (Reisman) Road to Serfdom (Hayek) if you want to get deeper into economic thinking. **My bias is libertarian econ.

Mr. Sowell has done a great service for the reader, taking a subject many might stay away from and make it relatively clear. At first I was annoyed by some repetition but then I realized it's easier to hold on to key thoughts when they are repeated a few times, and then after each major section he writes an overview to sum up his thinking on various points and add some new material to the subject at hand. Keep in mind there are several editions of His Basic Economics, in this edition the footnotes are left out which was bothersome when I was looking to read follow up information on certain areas of interest. I did not deduct from the overall value of the book though. A great work for those who want to increase knowledge.

This is the book that got me interested in economics, a/k/a the study of how to get the most out of life. A decade after I first read this in college, I decided to return to the newest edition, having read hundreds of economics-related books in the interim. The book that inspired such enthusiasm for the subject still holds up today. Unlike my high school AP econ textbook, whose ultimate goal was to "teach to the test," Basic Economics can get loose and have fun, with no charts or graphs required. I've given my hardcover fourth edition to friends and family, most of whom end up reading from cover to cover, to their own surprise.

The overarching theme of Basic Economics is "the study of scarce resources with alternative uses." Our decisions are always constrained by the need to ration resources, knowledge, and time against competing demands. When we analyze the surrounding status quo and consider potential reforms to it, we first need to disentangle our intentions from predictable second-order effects. Interventions by governments and other institutions to redistribute scarce resources always impose costs onto third parties, which often drastically outweigh the benefits. The chapter on the negative second-order effects of rent control has been unforgettable to everyone I've given this book to, as it brings home how our collective ignorance of inescapable economic trade-offs can wreck havoc on our communities.

I consider Thomas Sowell's distillation of these invisible tradeoffs as a transformation of my thinking, comparative to an MBA education. He also opened the door to the fascinating public choice scholarship that was the bedrock of my undergraduate thesis, Democracy's Externalities and American Race Policy. Every chapter has incredible eviscerations of the fallacious arguments underlying  the well-intentioned socialists and misguided mercantilists whose beliefs entail tragic second-order effects.

Despite my effusive praise, with hindsight I can say that everyone who reads this ought to read countervailing books to get a balanced understanding. Thomas Sowell's math and jargon-free textbook is implicitly quite ideological, a libertarian conservative's distillation of the Chicago School of Economics, a center-right academy which defaults to an implicit support of existing social hierarchies as being ordained by the law of laissez faire. Rather than being unfalsifiable doomsters about government attempts at betterment, mainstream econ textbooks are far more upfront about the existence of universally acknowledged market failures, as well as the upsides of many of the government interventions to mitigate such failures. Sowell the octogenarian became quite rhetorically reactionary and embittered during the Obama years, even cozying up to such quackery as Dinesh D'Souza and The Heritage Foundation out of spite for the majority's rejection of his philosophy. Fortunately, Sowell's intellectual decline in his dotage left this edition largely untouched and something I can reread and recommend to others for the rest of my life. - June 2020

Exactly what the title describes. The basics of economics for the general audience. Starting out with the observation that we may think we don't own beachfront property because of its price. The reality is -- we don't own beachfront property because there's a lot more people who'd like to own it than there is property to be owned. Price is just the way to sort things out.

Full of concepts and concrete examples. For instance, in the Soviet Union, they usually used about two and a half more metal to produce the same amount of consumer goods as the United States; state planning meant there was no motive to economize. Similarly, rotten fruit would be packed in with good fruit, because a Soviet farmer had no motive to prevent spoilage. The rise of the mail-order catalog, and how the man who persuaded Sears to open department stores to supplement the catalog was originally working for Montgomery Ward, where he got fired for expressing the same notion. How the founders of Sears, Montgomery Ward, and J. C. Penney all started working for a living at an age that would be illegally young nowadays. And much, much, much more.

This book is exactly what it purports to be: a basic guide to the economy. Though originally published in 2000, it has a timeless quality because Sowell isn't focusing on current events. He is describing the way economies and markets work in laymen's terms and it spans beyond the advent of technological shifts like Google and Amazon. In fact, reading it, it feels more like he might have predicted this shifts than have any theories undermined by them.
While this might be the first time I have formally finished this book, I've read sections of it and been in turn influenced by it most of my adult life. I am confident I will be returning to it. Certainly I've picked up more from it than whatever course I took for my economics class in high school.

First of all, let me say that economics has always sounded to me like a subject that would be about as interesting as watching the proverbial paint dry. But I made an impulse buy on Audible about 5 years ago when this book was on sale for a couple of bucks (a good economic choice, right?), and it's been sitting in my audio library ever since, glaring at me every time I've gone in search of a new title. So I finally caved and decided to give it a chance, telling myself I didn't have to finish it if it ended up boring me to tears.

Well, it did nearly bring me to tears a couple times—but not because I was bored in the least but because it made me feel like I'd been robbed by a) the meddlings of economically clueless bureaucrats with good intentions and b) my (otherwise wonderful) education, which never got around to explaining most of this stuff to me.

One danger of reading a book like this is to suddenly fancy oneself an expert on economics. And I confess that this is the first and only book I've read on the topic, so feel free to take this review with a grain—or maybe a dash—of salt. Nevertheless, it's hard for me to imagine a case against free markets that could stand up against both the empirical evidence and the role of basic human psychology that Sowell presents here.

Nearly everything he says about both the data and the personal motivations resonates with my own experiences. For example, I lived in Poland briefly in 1991, when most of the regulations that dictated the communist-era economy were still (practically if not legally) in effect. Despite the snow falling outside when we arrived, our hotel would not turn the heat on until the government had recorded 3 consecutive days of below-freezing temperatures. And clerks in stores regarded customers not as a source of livelihood worth treating well but as a nuisance to be avoided. Customer service was nearly non-existent. And for fairly obvious reasons. All the high-sounded claims about "fairness" and all the good intentions about "guaranteed wages" can't change the fact that people won't do something that they have no incentive to do. Would you want to serve more customers if your job was secure and the amount on every paycheck was fixed by government fiat? Why do additional or higher quality work without any extra incentive attached to it?

In fact, a great deal of my experience reading this book was simply that of connecting dots that were already fairly obvious upon the briefest reflection. What Sowell does so brilliantly is to break down the various factors that affect what we call "the economy" and to demonstrate, again and again, that everything that we call "the market" is ultimately made of people who will, almost without exception, make monetary choices based on what's personally beneficial. This very basic understanding of human motivation explains what underlies the whole vast and complex system.

This also explains why even the best-intentioned economic policies nearly always have unintended negative consequences. No politician can possibly predict the millions of little repercussions that a single regulation may have on other parts of the economy, but he could, at very least, have some clue if he thought for ten seconds about how individual motivations work.

I suppose it should be obvious, but it's easy to forget that "The Market" is not a huge, mysterious impersonal force; it's just you and me and all the other individuals we meet any day of the week, making decisions about how best to spend and invest our money. And the free market does a far better and far more efficient job, according to Sowell, of taking care of its people than any government regulated system can.

Take milk as just one example: if milk production is low and demand is high, prices for milk will rise. And it won't take long for high milk prices to lead some politician to propose price caps on dairy products. It sounds like such a nice thing to do for the little guy, right? But the almost laughably predictable result will be that dairy farmers will discover that price caps mean there's less money to be made in selling dairy, and they will no longer have the financial motivation to continue producing milk. This leads them to offload their dairy cattle in order to re-invest in some more profitable commodities like beef or produce. This, in turn, creates an even shorter supply of a product that was already in high demand, ultimately worsening the supply-and-demand conditions that drove up the milk prices in the first place.

Sowell makes a fairly incontrovertable case that the better alternative to these government-imposed price caps is to simply let "the market" (made up of real live people, remember?) adjust to the higher milk costs. Dairy farmers, seeing more money to be made in the current high prices, will voluntarily invest in more dairy cows, and as their production increases, the high demand will be better met, meaning the prices will gradually drop—often to prices below what the governmentally enforced price caps would have been. This ultimately makes the milk more affordable for consumers. It's the latter free-market policy, and not the former regulatory policy that benefits both the producers and "the little guy" far more in the end.

Throughout the book, Sowell shows that the same basic principle applies to nearly every commodity, whether it be oil or housing or medicine. Controlling prices by fiat in an attempt to make high-priced commodities more "affordable" and therefore more readily available to low-income earners nearly always backfires, producing nearly the exact reverse of what was intended. And the reason it backfires shouldn't be hard to grasp: price controls remove the basic incentive among producers/builders/growers to continue producing, building, or growing something no longer brings in a profit or the prospect of growth. They will, instead, take their business investments elsewhere, thus leaving a greater shortage of that which was intended to become more accessible.

Sowell also demonstrates that these individual motivations can explain why free markets tend to create wealth and higher standards of living while top-down regulations—from rent controls to minimum wage laws to anti-trust regulations to international tariffs to all-out communism—have led to economic downturns, decay, and even total collapse in nearly every instance that they've been attempted.

This book covers so much (the role of jargon in public policy, the way words like "trade deficit" can actually mean something positive, questions over national debt, the role that "greed" play in the marketplace, the complexities of international trade, the implications of for-profit vs non-profit enterprises, and so on.) The book does, however, have its limitations. It's more of a descriptive book than a prescriptive one, explaining how economics works rather than laying out a path for how to proceed. And I suppose that's his point. The primary "ought" to take away from the book is this: Let the market take care of the market without trying to interfere—because however altruistic your intentions may be, interference nearly always makes things worse.

I certainly don't have the knowledge to say whether he may be wrong on any given point, but I would say that even those who oppose his views on free-market capitalism should weigh his arguments carefully against real world results and real human beings. To me, Sowell's economic views seem more like simple common sense than an ideology he's imposing on economic data. At the same time, Christians also need to be careful to avoid too much of a "laissez faire" approach. We are called to care for the poor and oppressed, not just to let the market (or the government) take care of the poor. We are called to look out for the interests of others, which may not always lead us to make the most economically efficient choices. We are called to love God and neighbor, even with our bank accounts.

But, if Sowell is right, then one way of loving our neighbors and caring for the poor and oppressed may very well mean doing less—at least at the economic policy level—rather than more.