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Tuesday, September 30, 2008

Reading List: Basic Economics

Sowell, Thomas. Basic Economics. 2nd. ed. New York: Basic Books, [2004] 2007. ISBN 978-0-465-08145-5.
Want to know what's my idea of a financial paradise? A democratic country where the electorate understands the material so lucidly explained in this superb book. Heck, I'd settle for a country where even a majority of the politicians grasped these matters. In fewer than four hundred pages, without a single graph or equation, the author explains the essentials of economics, which he defines as “the study of the use of scarce resources which have alternative uses”. While economics is a large and complex field with many different points of view, he argues that there are basic economic principles upon which virtually all economists agree, across the spectrum from libertarians to Marxists, that these fundamentals apply to all forms of economic and social organisation—feudalism, capitalism, fascism, socialism, communism, whatever—and in all times: millennia of human history provide abundant evidence for the functioning of these basic laws in every society humans have ever created.

But despite these laws being straightforward (if perhaps somewhat counterintuitive until you learn to “think like an economist”), the sad fact is that few citizens and probably even a smaller fraction of politicians comprehend them. In their ignorance, they confuse intentions and goals (however worthy) with incentives and their consequences, and the outcomes of their actions, however predictable, only serve to illustrate the cost when economic principles are ignored. As the author concludes on the last page:

Perhaps the most important distinction is between what sounds good and what works. The former may be sufficient for purposes of politics or moral preening, but not for the economic advancement of people in general or the poor in particular. For those willing to stop and think, basic economics provides some tools for evaluating policies and proposals in terms of their logical implications and empirical consequences.

And this is precisely what the intelligent citizen needs to know in these times of financial peril. I know of no better source to acquire such knowledge than this book.

I should note that due to the regrettably long bookshelf latency at Fourmilab, I read the second edition of this work after the third edition became available. Usually I wouldn't bother to mention such a detail, but while the second edition I read was 438 pages in length, the third is a 640 page ker-whump on the desktop. Now, my experience in reading the works of Thomas Sowell over the decades is that he doesn't waste words and that every paragraph encapsulates wisdom that's worth taking away, even if you need to read it four or five times over a few days to let it sink in. But still, I'm wary of books which grow to such an extent between editions. I read the second edition, and my unconditional endorsement of it as something you absolutely have to read as soon as possible is based upon the text I read. In all probability the third edition is even better—Dr. Sowell understands the importance of reputation in a market economy better than almost anybody, but I can neither evaluate nor endorse something I haven't yet read. That said, I'm confident that regardless of which edition of this book you read, you will close it as a much wiser citizen of a civil society and participant in a free economy than when you opened the volume.

Posted at September 30, 2008 22:12