Review of Basic Economics part 1

basic economics

Basic Economics written by Thomas Sowell

From Basic Economics, the “allocation of scarce resources that have alternate uses”. This text is longer and packed with more information than I’m used to reading in a book. Therefore, in part one of this review I will talk about some of what I learned from the first eleven chapters of the book. The rest will be in part two of the review. Starting with the definition of economics, “the study of the use of scarce resources which have alternate uses” we can focus on resources.

Live Modestly

There are no infinite resources. The first point I took away for my personal application of the book is to live modestly, or within your means. A great quote from chapter one, “even millionaires can have a hard time making ends meet if the try to live like billionaires.” No matter how much money I make or wealth I have, if I live like I own more I will eventually loose it all. Additionally, I learned about the true meaning of a price.

The price is right

When two people set a price on an object then trade, both are now better off after the transaction. The first person paid a price for the object and the second person go what they wanted in exchange for the item sold. These items take resources to create and exchange for the money that is used. The price that is agreed upon is what benefits both parties. If the price is too low then the seller would not be able to continue to sell because it would not cover the cost of resources. Conversely, if the price is too high the buyer would not be able to purchase the item. This is the key, if the price is set just right the buyer will only obtain what they need and the seller will be able to reproduce the item by consuming more resources and re-invest the leftovers into producing more of something. This increases the oversize size of the pie (economy). Lastly, what about items that are essential to live, such as housing?

Affordable housing

The last point I’ll highlight is the subject of affordable housing, rent control. Thomas Sowell talks about rent control throughout the book. “The idea that rent control protects poor tenants from rich landlords may be politically effective, but often it bears little resemblance to the reality.” If you price control housing, you reverse the incentive for companies to build quality homes and apartments. The price is the same, so there is no reason to build more than the bare minimum. So why not have the government mandate the quality and production of housing?

If the government mandates the price, quality and building of housing, then you have Russia. With government controlled housing, there often is a shortage of resources. This leads to a shortage of housing or a decline in the quality of housing. It is also worth noting that in most affordable housing scenarios, there is a cap above rent control. Luxury housing is where the super rich can get homes built for lots of money. The rich will always be building additional homes somewhere. Those rich could be business owners or politicians. Rent control only hurts the middle class and poor.

There is more to talk about from Basic Economics. I do recommend this book and I hope you will check out part 2 of the review. There is a ton of content and my points: live modestly, the price is right, and affordable housing do not even scratch the surface. I hope you will check it out.

You can find the book from his website here: https://www.tsowell.com/basicecon_5.html