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Book Review: Basic Economics: A Citizen’s Guide to the Economy

Basic Economics: A Citizen’s Guide to the Economy
Revised and Expanded Edition
Thomas Sowell
Basic Books, 2004

This book is a general introduction to economics written in a non-technical way. It provides excellent coverage of many introductory topics in economics, and you don’t have to be a mathematical sophisticate to understand it. It is very readable by anyone who is interested in this topic.

One of the best things the author does in this book is to distinguish between what politicians want to happen and say they are doing when they implement economic policies, and what incentives are actually created. Often there is a big difference between the two.

One of the most important things to learn from this book is the importance of prices, and what goes wrong when governments interfere with prices. As the author says: “Prices play a crucial role in determining how much of each resource gets used where. Yet this role is seldom understood by the public and it is often disregarded entirely by politicians.” As an example: “The last premiere of the Soviet Union, Mikhail Gorbachev, is said to have asked British Prime Minister Margaret Thatcher: How do you see to it that people get food? The answer was that she didn’t. Prices did that. And the British people were better fed than those in the Soviet Union, even though the British have never grown enough food to feed themselves in more than a century. Prices bring them food from other countries.”

The example of rent control illustrates how what politicians intend to do may not be what actually happens: “In short, a policy intended to make housing affordable for the poor has had the net effect of shifting resources towards housing affordable only by the affluent or rich, since luxury housing is often exempt from rent control.” What lower-priced housing that remains is in short supply (since less is supplied at a lower price), is in high demand (because more is demanded at a lower price), and is in poorer condition than it would be otherwise (since housing is in a shortage, landlords have an easy time finding tenants, and there is little incentive to maintain their housing stock). In fact, rent control often leads to rental housing being taken off the market, or, especially in New York City, entire buildings being abandoned when the (artificially low) rent that comes in isn’t sufficient to provide city-required services to the tenants.

But because there are more tenants than landlords, Dr. Sowell explains, rent control is often a political success. It is easier for the average person to look at the situation superficially, to see that politicians are looking out for them by protecting them from landlords who would otherwise gouge them on rent.

You can learn all this and more just by reading through page 40 of this nearly 400 page book. I highly recommend this book.

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One Comment

  1. Uditha Pathirana June 13, 2014

    Book Review: Basic Economics: A Citizen’s Guide to the Economy

    From where i can buy this book?
    Any agent in Sri Lanka?

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