5 Compelling Arguments from Thomas Sowell’s ‘Basic Economics’

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Thomas Crown

I recently read through Thomas Sowell’s book ‘Basic Economics‘ and was quite blown away with his insights. So often I find the media are quick to pull the wool over our eyes by appealing to our more sentimental nature (ABC does this ALL the time), so at least for me, ‘Basic Economics’ was a real eye opener.

I wrote this short article outlining some of the key arguments that get used in the book. You might find it useful, if not entertaining at the least.

1. Fixing the price of rent creates homeless people

As with many of the ideas presented in the book, the idea that price fixing creates homeless people at first seems counterintuitive. If after all, we lower the price of housing, wouldn’t it mean that everyone gets a ‘fair go’? The problem with this approach is double. Firstly, when price is decreased, it allows higher income earners to buy up additional real estate. Secondly, it means that there is less money for maintenance. As the building deteriorates, landlords are forced to close due to safety concerns.

2. Illegal capitalism started to take a hold in communist Russia because it was more efficient

Communism is always a bad idea simply because of inefficiency. When you live in a country of ‘black soil’ (чернозём) and 5 million people die for lack of bread, you know you’re in for a bad time. So inefficient was the communism at delivering even the basics, that underground capitalism started to sneak its way into the system – much in the form of bribes to government officials to allow supplies through checkpoints, as this proved to be much faster than going through conventional government avenues.

3. Increasing the price of emergency goods such as bottled water at the time of a natural disaster doesn’t make you a bad person.

During natural disasters such as earthquakes etcetera, frightened people are much more likely to hoard precious resources that could have otherwise gone to other people. Try all you want to tell your customers ‘one bottle per person please’ but in a disaster situation, it’s every man for himself in a scrambled frenzy of chaos.

Secondly, increasing the price of emergency goods means that more water from out of town is likely to arrive sooner, since there’s more profit to be made. Sure enough, you’re selling water at $100 a bottle (and probably behind the counter at that) but it’ll mean that people think twice about buying that shrink wrapped pallet pack of bottles and using it as an expensive chair when the rest of the town is desperate for clean water.

4. Profit isn’t just the arbitrary amount set by the seller because of their greed.

Many a rookie academic has made the assumption that profit is just some arbitrary additional cost that the seller adds onto the product, selling it for more than its actual worth. But this isn’t the case.

If sellers make their prices too high, people go somewhere else. Interestingly enough, all prices for say… a bottle of full cream milk, are around the same. You’ll never see milk sell for more than a few dollars. So to assume that all the milk sellers all have this secret pact or underground society where they set the price of milk for more than its worth is ridiculous. Prices are set by the consumer and how much he or she is willing to pay. ‘But what about monopolies?’ you say. I’m glad you asked.

5. Monopolies, duopolies, and cartels are very difficult to maintain in a completely free economy

One of the greatest fears of communists and progressives is monopolies, duopolies, and cartels. Ironically, under communism the government monopolises virtually everything. As Thomas Sowell so rightly points out, monopolies in a completely free market economy are very difficult to maintain, since there is always going to be someone else somewhere finding a way to sell the same product more cheaply and effectively, or substitute the product for something else which serves the same purpose.

Duopolies and cartels, though they may appear to be working harmoniously together, tend to break down from the inside as one party tries to gain a friendly edge over the other. After this it’s all back to regular competition.

  • entropy

    Thanks for opening with a point that demonstrates we can safely ignore the rest. Really saves on reading time.

    Firstly, you say rent then start talking about equity. Automatic fail.

    Yes, when property prices decrease, rich people can buy more property. But guess who else can buy property. Think about it. I’m going to leave this one with you and see if you can figure it out yourself.

    Furthermore, rich people buy property as an investment. If the price is decreasing, it’s not a very good investment, is it, Professor.

    You Boomers obviously didn’t enrich yourselves from property due to your economic savvy and nous, did you. Just a bit of dumb luck and no regard for the future of your grandchildren.

    • Addelad

      Characteristic breathtaking arrogance coupled with a risible opening. If you “saved on reading time” as claimed, how did you manage to create your ravings?

  • Karen Dwyer

    Much more entertaining than Mr Sowell’s book is Mr Molyneux’s video.

    I saw it by accident after clicking on somebody’s linked video (maybe Matty’s?); i.e. it was the video that loaded after an embedded one finished.

    Hearing him discuss profit with a would-be Communist was hilarious. He (Mr Red Flag, not Mr Molyneux) was so clueless about economics and how businesses operate in the real world that it was extremely enlightening.

    The title is “An Honest Conversation with a Communist”.

    I’m not particularly fond of video, nor of Mr Molyneux. However, I did enjoy how he handled the interview.

    • Micaiah

      @disqus_GKQDkTjsHw:disqus Just out of curiosity, why aren’t you fond of Molyneux? I ask because I’m not a huge fan either. I may even write about it at some point.

      I’ve seen that video as well and I agree, it’s amazing. Fun fact, that conversation formed the basis of my article about Marxism which I submitted yesterday and will hopefully be published soon.

      (If you haven’t watched it you should! https://www.youtube.com/watch?v=1TgdLkGwbTw )

      • Karen Dwyer

        Oh I do wish you’d asked me about someone I like enormously…I’ve spent the last half hour trying to get beyond the “Dr Fell”-ness.

        Something about his accent/intonation grates from the first sentence. He has an unfortunate manner: supercilious? He films himself (or is filmed) with his big bonce taking up most of the screen.

        The above is all just “from memory”. Additionally, when I watched the “Communist” video, right at the start, I had an Elaine-from-Seinfeld moment where I wanted to tell him loudly “You’re bald!!”, which is VERY odd. It’s not like I care whether he or anybody else is hairy, balding, or bald. [Hate that man-bun-plus-beard look for some reason, though.]

        I could go back and watch him again, so as to reveal less depths of my shallowness. Yet I just don’t want to listen to his voice or view his melon up close to the screen.

        If you have a more rational reason for not subscribing to his fan club, I’d certainly be interested to know. 🙂

        • Micaiah

          Yeah, I do have a more rational reason, essentially, he was a no state purist, and then he became a limited state purist so he could barrack for Trump, which he did quite effectively. But then he also thinks that Government should ban spanking. So you see, Government is always bad and inefficient, but when it comes to his own pet issue, it turns out that Government isn’t that bad after all.

          Having thought about it a bit more overnight, that hit piece probably going to happen.

          But with regards to that shallow stuff, you should pay close attention to what it is that causes you to dislike someone, because sometimes, for some people, it isn’t prejudice, but intuition. Learning to tell the difference between the two is an extremely worthwhile pursuit.

          • Karen Dwyer

            I suppose it serves me right for being facetious :-)))))))

            I haven’t got enough data allowance left to check out any video (especially long ones) for a week or so. I can’t remember which arguments/discussions in particular that I based my opinion on, and I couldn’t go back and check.

            However, overall he has struck me previously as SJW material, slightly shifty, and quite supercilious. Lack of consistent viewpoints is common human nature. It is when there is a certain dishonesty/sleaziness that I reject the speaker.

            I really did have an unkind (mental) shout-out – his arrogance is grating.

            My other comments were tongue-in-cheek. Ava Gardner purportedly said “Deep down, I’m very, very shallow”. And the request for a rational reason was a jest re the “women are irrational” wasp sting (which is as puerile as “all men are brutes” rhetoric.)

            “Intuition” relates to the collating and interpreting of myriad signals. It’s largely observation intersecting with experience. It’s generally best to act on one’s “gut feeling” ( except for those with personality disorders, whose interpretatios are off-key) as the signal processing for danger is so much quicker than the self-conversation ” Oh, a branch, but no it’s not. My goodness, it looks like a snake…”

            One can always laugh at oneself for thinking a branch was a snake. But the reverse, not so good. At least in Australia :-)))))))))i

            Not sure I can be bothered listening to multiple Molyneux talks, but it’s interesting what you’ve noticed.

  • Maryanne

    Regarding milk prices you said, “Prices are set by the consumer.”

    That’s total rubbish. In Australia the big supermarkets have set the price of milk.

    It’s obscene that a bottle of milk can retail less than a bottle of water.

    To produce a litre of milk a farmer needs to include the costs of land, interest (?), rates, water, power, transport and last of all the profit to keep the business going.

    The bottled water business – multinational Coca-Cola – just bottles the water coming from the springs. Does anybody know how much they pay to do this?