Basic Economics

I finished listening to Thomas Sowell's Basic Economics today, and considering my last article was very short, I've decide to write a quick review on the book.

Also, for those TJ Maniacs, don't worry he'll be back this week after having some computer problems last week.

Sowell has taught Economics, "the study of scarce resources with different uses," at Cornell, Amherst and Cal-LA, currently he is a scholar in residence at the Hoover Institution at Stanford.

I don't have my copy of the book here at school, so I can't do a thorough review, but here are some of the main points explored in the book:

• Prices are essential and price controls always cause shortages. Using hotel rooms as an example: after a hurricane hits many people leave their homes and try to find a hotel somewhere. If the hotel kept the normal low price a family of four or five may choose to rent two rooms, causing the supply of rooms to drop. However, if the price is raised sufficiently, the family will probably choose to use just one room, this allows some other family to use the other room.
• Centrally planned economies cannot succeed. Simply: a farmer knows a helluva lot more about what to plant on his farm than a bureaucrat 1,000 miles away ever can. More complicated: most resources have different uses, with prices they will be put to the use that is most needed, because the low supply will cause the price to rise, if the economy is centrally planned these resources are likely to be misused and there may well be shortages of food, while something like ethanol is in full supply.
• Speculators help, a lot. A commodity speculator effectively takes all risk off the farmer, by signing a contract agreeing to pay that farmer a set price for the commodity, regardless of the eventual real price. Because of this, the farmer takes no risk if the price soars, and the speculator, through a diversified portfolio of commodities, can also reduce his risk
• In international trade there are no 'winners,' or 'losers,' and a lot more jobs are gained then lost. For example, because it is 'free' trade, there can be, by definition, no loser (both parties agree on terms, so both win). Because of this even if some jobs are lost many more jobs are created by the excess of profits.
  

Sowell goes over these points (in much better detail) and many others in the book. It is written very well, and is never hard to understand, thankfully, considering the nature of the book. It is also written with many references and real-world and business examples, that add to the enjoyment of the book while verifying its contents.