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From NewsLink, Vol. 5, No. 3, Spring 2000
More than two years ago, the National Council on Economic Education, with the help of the noted pollster Lou Harris, released the findings of a survey that underscored the deep-seated problem of economic illiteracy in the United States. The council reported that half of all American adults and two-thirds of high school students received a failing grade when it came to understanding basic economic concepts such as scarcity, money and inflation. Never has the outlook for the dismal science looked so bleak. Now comes an opportunity for genuine learning. Thomas Sowell, the noted economist and sociologist, has written a stellar new introduction to the dismal science. Basic Economics should be required reading in every high school. Many thoughtful primers have withstood the test of time. Henry Hazlitt's Economics in One Lesson and Leonard Silk's Economics in Plain English are just two. But Sowell's work stands apart.
Devoid of the technical jargon that afflicts most economic writers, Basic Economics is an impassioned guidebook that lays bare the disreputable but accepted little fallacies that stand in the way of true learning. One can imagine Professor Sowell earnestly writing on a blackboard over and over again the classic definition of economics as the “study of the use of scarce resources which have alternative uses.”
It is not surprising then, given these levels of illiteracy, that the American public is often lead astray by politicians, the media and even academe when it comes to economics. Economic issues are framed in patently non-economic terms – obscuring the real issues facing consumers and taxpayers. Special pleading for programs and policies such as “fair trade,” “affordable housing,” and “living wages” dominate the headlines. Consumers and politicians are quick to blame “greedy” energy companies and deregulation for rolling blackouts in California, conveniently ignoring the most fundamental issue of supply and demand.
But Sowell is no mere disciplinarian but a great expositor of ideas. The fallacy of composition – what is true for a part is not true for the whole – is just one example he uses. In a sports stadium, any fan can see better by standing up, but if everyone stands up not everyone will see better. Applied to the American steel industry, the bitter lesson is learned easily.
When the American steel industry won special import restrictions, it succeeded in propping up the price of steel. But American manufacturers of refrigerators and automobiles – paying more for American steel – were forced to raise prices. This unintended consequence placed the manufacturers at a disadvantage with foreign manufacturers of refrigerators and automobiles. Thereafter, some manufacturers found it easier to shift their jobs abroad. In the final analysis, American industry as a whole was worse off because of the import restrictions. The costs of preserving the jobs in steel come at the expense of losing jobs in the manufacturing of refrigerators.
While some may say that Sowell, a political conservative, is too much of a free market polemicist, he is mindful of the long history of economic reasoning that moves beyond labels. Economics, long the sturdiest of the social sciences, is more than mere opinion. Sowell reminds us that when it comes to the acceptance of basic prepositions, a socialist economist such as Oskar Lange does not differ in any fundamental way from Milton Friedman, the pre-eminent free market economist of our time.
For years economic journalists have promoted a view of entitlement that overlooks anything as inconvenient as scarcity. To wit, they have ignored the price system.
But the language of economics now serves other ends. For years economic journalists have promoted a view of entitlement that overlooks anything as inconvenient as scarcity. To wit, they have ignored the brilliance of the price system.
“Attempts to make prices, including the prices of people's labor and talents, be something other than signals to guide resources to their most valued uses, makes those prices less effective for their basic purpose, on which the prosperity of the whole society depends,” writes Sowell.
The role of government.
It is true, as Sowell observes, that a market economy cannot exist in a vacuum. Strong but limited government is necessary to enforce rules and contracts and allow individuals to engage freely in economic exchange. Moreover, no political freedom is secure without a system of property rights. Economically, property rights are needed because they create incentives for producers and consumers. For example, while most Americans do not own farmland, thanks to property rights, they have more and better food available at lower prices than in countries without property rights. And, as Sowell notes, property rights tend to create a system of self-monitoring. Producers are not about to let resources deplete without regard.
Even a libertarian such as Sowell acknowledges that government, in the case of environmental protection, can make better decisions than the marketplace. Still a market economy that generates “externalities” does not allow government to ignore the questions of costs and benefits of its actions.
Basic Economics does have several slight shortcomings. In the age of Greenspan, any would-be economic enthusiast would most definitely need an introduction to the nuances of central banking. But Sowell doesn't delve much into monetary policy. Neither does he delve much into tax policy nor describe the hidden costs of taxation upon the supply and demand for capital and labor.
Professional economists as of late have been asking themselves whether they should do well or do good. Basic Economics is proof of what Sowell has been doing his whole career: writing broadly with verve and intellect and doing it well.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2002. All rights reserved.
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