The 3 Most Important Lessons in ‘Basic Economics’

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Editor’s note: This article is Part II of an ongoing FrontPage series exploring the ideas of author Thomas Sowell. For Part I, see Compassion Vs. Guilt.

Economist Thomas Sowell drew from his years of teaching the subject at some of the nation’s most prestigious ivy league schools and gave himself a challenge: to create a book on economics for the lay reader without using technical language or visual aids. His book was a success, and is now in its fourth edition. Basic Economics: A Citizen’s Guide to the Economy is a straightforward and readable guide to economics’ core concepts.

It’s difficult to count the number of economic myths Sowell debunks. More challenging is to determine which are the most important. Political ideologies can be a bit like dominos – just disrupting a single idea can be the beginning of a chain reaction that will eventually result in a changed mind. These three insights are perhaps some of the most important talking points to keep in mind when stumbling into political discussions with those less informed on basic economic principles.

3. We do not have enough resources to meet everyone’s desires.

The very definition of Economics already begins to challenge any utopian scheme. Sowell cites the British economist Lionel Robbins:

Economics is the study of the use of scarce resources which have alternative uses.

Using resources to do one thing requires us to take resources away from somewhere else. And “resources” does not always refer to money or raw materials either. Time, manpower, talent, and knowledge are all resources too that individuals, businesses, governments, and families have to figure out how to use in the most effective way. And these resources can be used in any number of combinations, some much more effective than others.

With this point Sowell demonstrates that economics really isn’t about money or becoming rich:

It is about the material well-being of society as a whole. It shows the cause and effect relationships involving prices, industry and commerce, work and pay, or the international balance of trade—all from the standpoint of how this affects the allocation of scarce resources in a way that raises or lowers the material standard of living of the population as a whole.

In other words, Sowell and other economists are going to study what the real results are when certain policies are put into place, instead of focusing on the high-minded hopes and expectations of those who dreamed the into existence. It’s this approach that he brings to analyzing such misunderstood concepts as prices and profits.

2. Businesses cannot survive if they arbitrarily set high prices because their owners are “greedy.”

One of the most persistent memes to embed itself within the popular consciousness is the idea that those participating in capitalism are “greedy.” It’s all too easy to look at rising gas prices and rising oil company profits only to assume that it’s because of “greedy” oil executives just adjusting the price in their favor.

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  • Russ P.

    This guy should be tutoring Obama in remedial elementary economics.

    • StephenD

      Hell, it should be mandatory for all of Congress to pass his course!

  • jbtrevor

    Like: gotta get this book

    •!/daveswindle DavidSwindle

      You will love it. I certainly did.

  • steve the ale guy

    Mr. Sowell is with out a doubt the best economic thinker out there. He uses rational thought and has a disdain for race baiting and class warfare. In one book he will make more valid points than Obama or Krugman will in their entire slanted careers. Cannot imagine why the MSM ignores him.

    • Maxie

      " Cannot imagine why the MSM ignores him."
      Because he's " :…the best economic thinker out there. He uses rational thought and has a didain for race baiting and class warfare."

  • Ben

    Sowell`s book`s success surprise me ,the communist economy`s former resident. The lack of the understanding of businessman`s psychology and mechanisms of free market actions -all that is called capitalism of the western citizens is wonderful.
    The capitalism`s association with "greed" looks for me as the collectivistic,religious hate of lone greedy "capitalist".I understand Ayn Rend`s description of American society full of capitalism`s hate .I`m happy that Sowell`s book will lower the level of capitalism-hate.

  • paddydonovan

    Love to see Stewart or Olberman try and tangle with this guy. They would'nt have the guts, except maybe Stewart ( who would go into " comic mode " when he's being slaughtered )

  • waltjr

    Thomas Sowell is one of the most underrated intelligent and yet common sense person the Conservative movement has.

    Great article David, very well researched and written.

  • Rifleman

    Sowell reminds me of my dad, and I'll miss both dearly when they are gone

  • Raymond in DC

    I encountered on one technology blog a reference to "evil" corporations among which he named the oil/gas companies, insurance companies, power companies, major banks and mortgage companies, and a few more I don't recall – you know, all those providing the goods and services his modern lifestyle requires. Perhaps it all comes down to envy – resentment that they are more successful than he is, yet he can't do without them.

  • Fred Dawes

    The Rats understand all of this but need us all in the third world for race and political reason.

  • Phyl

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