Chapter 19
In chapter 19 of his book “Basic Economics,” Sowell presents an overview of the misconceptions that people have on the national economy. He identifies two common misconceptions, zero-sum thinking, and misconceptions about what makes up the national economy. The introductory paragraph also notes that the role of the government in the national economy is also full of misconceptions.
The role of Government
In this section, Sowell compares economic and political decision and what they both pose to the overall direction of the national economy. Sowell argues that while the average citizen can make their decision understood through either the voting process or marketplace choices, it is important to understand which type of decisions are appropriate for a particular situation. From this section, the main argument proffered is that while the public can make both economic and political decisions to achieve their needs, outside forces such as politicians, economic disparity and converting theory into reality, can affect the outcomes of these decisions.
Zero-Sum Thinking
In this section, Sowell argues that national economic decisions are usually hampered by the thought that all economic gains are made by oppressing those with less power. He supports this argument by presenting policies geared at protecting the weak, and notions held by less developed countries trying to starve of foreign investors. This section shows that paranoia about being oppressed by others has stopped people and even countries from reaching their potential.
The fallacy of Composition
This section presents “the one size fits all” notion that sometimes affects decision makes. Sowell argues that people usually forget that the national economy is complex; hence, changes in one section usually has no effect on another. He supports this by looking at situations that lead people to make generalized conclusions about the economy and the mistakes of making such conclusions. In this section, the main point is that to make a conclusive decision, it is important to look at the whole economy in general rather than fixating on a particular aspect of the economy.
Market Failure
In the final section, Sowell argues that market failure may, at times result from government failure. He backs up this claim by looking at various instances of market failure, including failure in the banking sector, the great depression, and incentives and constraints. In this section, the main point is that the government has a lot of influence on the national economy, and sometimes, market failure can be attributed to government failures.
Chapter 22
In this chapter, Sowell presents an overview of international trade, with special attention given to free trade and protectionism. He presents arguments for and against both free trade and protectionism. He argues that while economists are mainly in favor of free trade, the public, however, does not hold it in such high regards. The public might opt for protectionism when dealing with international trade, however, this choice is usually as a result of ignorance about the facts surrounding international trade. Due to globalization, people in a given country may feel that their jobs are being given to others. Due to this insecurity, they usually oppose free trade and request protection from their government. The main point of this section is that the public oppose international trade as they equate it to simply free trade between different countries. They fail to understand that international trade has many facets and that there are many rules and regulations protecting the rights and privileges of all parties involved.
International trade
This section looks at the impact international trade has on the American economy. Pierce explores these impacts beginning with infrastructural growth during the 1800s to the great depression of 1930s and the various policies instituted in the country in recent times. According to Sowell, some of the advantages of international trade include lower prices due to competition, transfer of funds between countries, extra trade fuelling national growth and development of tariffs that benefit the country both internally and when dealing with other countries.
International Investment
In this section, Sowell introduces the concept of international investments and its impacts on the economies on nations around the world. He argues that while international investments offer a lot of benefits to individual countries, they are received differently, and political factors play a very important role in how these investments are sought, received, and utilized. He argues that international investments may be handled negatively due to fear of destabilizing an economy, fear of reducing illegal operations carried out by those in power, and fear of giving the public more powers while curtailing that of the government.
Chapter 23
In this Chapter, Sowell seeks to dispel several misconceptions that people have about markets. He argues that although people assume that a market is an impersonal construct, it is, however, personal as it describes the people who transact with each other based on mutual agreements. He argues that these myths exist because economist does not bother educating the public and dispelling these misconceptions.
Prices
This section looks at the myth people have about prices. These myths arise due to confusion about the meaning of prices and the impact of demand and supply on prices. One of the most important myths is that prices are responsible for most of the social ills facing society and that controlling prices will resolve these problems. Apart from this, other myths on prices include the belief that identical goods should be sold at the same price, misconceptions of what constitutes as reasonable pricing, and the belief that big companies conspire to lower their prices so that they can drive small companies out of business.
Brand
Another myth is that companies create brand names to deceive consumers that their products are different from their competitors. He argues that brand names, however, are meant to reduce market uncertainties and ensure that consumers can have a choice given very little information and that quality is always a source of competition among producers.
Profits
Sowell proceeds to portray the various myths and misunderstandings people have about profits. In this section, Sowell argues that the issue of free markets has raised many arguments born out of ignorance and mistrust. The belief that those who argue for a free market are only interested in making profits is wrong as profits and loses go hand in hand, whatever the business model. People also have wrong beliefs about the non-profit organization as they do not know what economic aspect applies to them.
Trickle Down theory
Sowell argues that people in the society have been introduced to a theory that has no background, was proposed by no one and actually holds no merits, at least in economic terms. This theory holds that governments introduce policies to enrich some, hoping that these will spread throughout society. He argues that policies such as lower tax rates are not meant to satisfy this theory, but to increase the amount of wealth available for economic transactions.
Chapter 24
This chapter argues that some sections of the society have coined ridiculous values as being above and beyond economic. Sowell argues that the first error made by these individuals is the belief that economic is a value. The effort to describe economics in term of human values is just a way for people to hide their personal values, or to justify something that they feel will not receive much welcome.
Market and Values
The government and market are not physical constructs but rather a collection of people with a specific purpose. Sowell argues that when looking at moral values, we can only look at how markets affect the types of values propagated among the people. He also looks at the accusation that markets promote greed. He argues that the market is not affected by what one wants but rather, what others want to pay a particular person. Sowell then looks at the issue of exploitation where he notes that the market does not exploit people but rather, various situations within the systems surrounding markets lead to exploitation. He argues that barrier to entry, increased entry to enjoy a lucrative investment and lack of transferrable skills, can all lead to disproportionate returns to people within a given market. He finally looks at fairness, which he argues that is impossible as people have different drives, skills, and priorities.
Unmet needs
He finally concludes that people within the society usually look towards economics to solve an elusive “unmet need.” He argues that in order to meet a specific need, money has to be redirected towards attaining this need. The problem arises on who has the power to make this decision and what this rerouting will mean for the previous thought out plan.
Chapter 26
In this chapter, Sowell summarizes the previous chapters that highlighted various misconceptions in economics. He argues that most misconceptions can be identified from the media, politicians, and ordinary people. The information he provides should enable one to identify various misconceptions that arise and use analytical thinking to correct or at least question the relevance of various ideologies on economics. Sowell explains that there are three main factors on which economic misconceptions are dependent on. The first is reducing the economy into a zero-sum description. Here, the belief that the economy favors some while oppresses others has been identified as the main cause of many misconceptions. The second is neglecting the impact of competition in free markets. Misconceptions about free markets fail to consider that competition is responsible for regulating the marketplace. Finally, failure to see beyond certain policies has also been associated with the spread of economic misconceptions.
He continues to explain that looking at the outcome rather than the incentives of economic policies have also caused various misconceptions to arise. He looks at how economic policies have caused and solved several economic problems in different societies. He argues that looking at the incentives offered by these policies rather than the outcomes creates a very different perception of economics. He argues that these misconceptions can be avoided through knowledge of economic principles.
Conclusion
Misconceptions usually arise due to a lack of proper information or access to the wrong information. Sowell presents various economic terms and the misconceptions that surround them. He presents his arguments combined with several examples such that they can be easily understood. He notes the misconceptions, the likely manner in which they were created, how they are wrong, and how to dispel them. This section is presented in an easy to understand manner that can benefit anyone with access to this book.