“Basic Economics” – Thomas Sowell

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Yes, economics. To understand the current disaster we are witnessing in politics and around the world, it is crucial to understand the basics of economics. You will not find research based on emotions in this book, because reality does not care that much about your feelings – unfortunately some may say, but be alerted, it might hurt you just, because you might be not ready for it yet. [I have made a video about that and will write something about healing soon.]

For me, the main cause for my confusion in my attempt to find truth in the system we are currently living in, was mainly an economic misconception, that hindered me and left me stuck in my quest of finding the truth. Questions, such as why is Pharma Lobby apparently growing? What is this with all the homeless people in San Francisco and Seattle? What is going on with the heroin epidemic that tears families and life’s apart? Why is it that people spend most of their free time in bars drinking alcohol, escaping reality? A lot of stuff and I believe questions we all have. Our society just does not seem to produce communities, love and loyalty.
I believe the reason for that lays in the hope that a more centralized government is more beneficial for the people that live under such a system. 

However, when we look at any country that has or had socialism, we must discover that socialism doesn’t work and never has. It is well documented and this book from Thomas Sowell just an example. (Recommendation: watch Milton Friedman). Be aware, that we are trained to reject freedom, because we have been told for many years that freedom leads to capitalism, which is the platform for those greedy capitalists. The mass media machine won’t cover any aims towards freedom, that is not their agenda, because the media works with those that try to put us in the chains of bureaucracy.
I am sure many have a hard time reading this, because capitalism seems to be the one big evil candidate, but don’t get mad. First, try to chill your blood, lean back and breathe a couple of times, but reflect on why you get so mad. Understand your anger.

Socialism never worked out; the trick is that the bad guys using our emotions to gain votes in making promises on how they will fix something for us. Very seldom the actual politicians try to harm us, since they most come with good intentions, but they themselves have not understood the basics of economics, apparently. Their social welfare and school system, the banking system and regulations on labor and health are the cause for two million people incarcerated in the land of the free, homelessness in the cities run by the democrats, thousands dying of heroin, suicide and alcohol abuse everyday.

How could we possibly not have figured it out after all these years? In fact, after we landed on the moon fifty years ago. Gotta really let that sink; how is it that we apparently can’t figure it out, but are making it worse, while the richer getting richer?
Because of centralized governments. That is the platform for real greed, for centralized power; that is were the bad people can put the specific people in the right positions to enforce what they like to see (eg revolving door of the FDA). If there would be no governmental institution, there would be no platform for power to get abused to such extent. It is a very easy concept, when you allow some different thoughts enter your heart: Businesses go bankrupt when they mess up, government doesn’t; it just lets the people suffer. And when they mess up, they rarely apologize or step back, but rather push further with a new “brilliant” idea of legislation piece on top of the old one. None of them have much to do with reality or history, they do not consider cause nor effect, but is a great tool to get the vote. Politicians don’t even have to be that good or considered, since they are not spending their own money, but ours, the taxpayers. And some may ask, where did all the money go?

For many politicians that operate on the left it is all about votes, not losing them, but gaining them through rhetoric that uses fear, and which is massively propagated through a fully organized mass media platform that calls everyone else nazis and fascists, whoever is not on their emotional based agenda. I am not sure how genuinely bad most of the liberal politicians and activists are and if they are not just misguided themselves because of a misunderstanding of economics. In the end, they seem to not  bother to check the facts and keep talking about problems, instead of solutions. After all, social welfare, the school system and infrastructure, those things, that we believe the government should have provided us with, are the most unsuccessful enterprises we find those days.

Additionally, socialism takes away the burden of responsibility of life. Responsibility and care for your brothers and sisters and the responsibility for yourself. How many cases can we find, were people passing by crimes, being mean and suspicious to each other.  We are seduced to give up on the burden of life and leave it with somebody else to figure it out for us instead. “Vaterstaat” (Father-state) as the germans call it. Through that we are blocking ourselves from the potential of real community. It takes away your box of chocolate, while your big brother hands you everyday the same one at the same time. At least I have chocolate, you think?

However force through more regulations did never anybody good. And the rule of law is made to be enforced. Socialism is a way to force equality upon us, which on the other side of the coin, takes away our unique existence and destinies – those dreams we are suppose to live and which we would in a free society. Because we have feelings that aim to direct us: instincts, emotions, universe, guts, higher sources, god- however you prefer to call it. These feelings are not random, but our true quests, our unique pursuit of happiness, guided by ourselves, by our inner gods. Our current society denies all spirituality and leaves us with no dreams or pursuits. It is about paying bills, paying taxes, go to school that indoctrinates us with the knowledge they want us to have, work the want us to do and sleep.

The psychology of this little something we get from a forced “social system” is deep. It comforts us. We don’t have to take responsibility, we don’t have to create anything that might makes us vulnerable and requires some risk here and there which we are not willing to take. In the end we are not our own bosses anymore, neither mentally nor technically. This phenomenon of a complete faithless society hits the impoverished communities most and creates a lethargic and suspicious society for the rest. The Road to Serfdom. There is no freedom in it. Millions of people died under Mao and Stalin, Venezuela just went downhill, because of new socialistic desires, and in Hong Kong, very brave warriors right now marching for freedom, waving the US Flag, singing the US anthem, in their protest against a system that keeps them in chains of mass propaganda and production and socialistic oppression. But not only in China, in the US we hear it roaring out of the ghettos for decades. Nas, N.W.A, Tupac, Lauryn Hill and so many more telling us about the miseducation and speaking of that very dream we all are ought to live and which Biggie carried around the entire world.

Your concerns about a free society and therefore freedom? The greedy capitalists that will destroy everything. But, wait, how did the capitalists, that phenomen of the 20th century, get so strong in the first place? Because of the massive platform we as a democratic society, allowed the government to create, which then equips the bad player with great power, great enough to destruct and divide the entire society, which is where we are now. This has been by far the most successful consequence of our governments endeavour: division and the destruction of all communities. But instead of running out of business, the power of the government got stronger and stronger and comfortably they don’t have to spend their own money, but the taxpayers. Not only that is true, but, as Thomas Sowell illustrates, we find great prosperity, especially for the most impoverished communities, when the leaders of countries started deregulating, allowing the people to live in a free market society. In the US we saw this glimpses of freedom and prosperity twice: after the Civil War until Jim Crow and then again after Jim Crow up until we implemented the social welfare system under Lyndon B Johnson, which was openly racist and which himself said: 

These Negroes, they’re getting pretty uppity these days and that’s a problem for us since they’ve got something now they never had before, the political pull to back up their uppityness. Now we’ve got to do something about this, we’ve got to give them a little something, just enough to quiet them down, not enough to make a difference. For if we don’t move at all, then their allies will line up against us and there’ll be no way of stopping them, we’ll lose the filibuster and there’ll be no way of putting a brake on all sorts of wild legislation. It’ll be Reconstruction all over again.

And so we let socialism in our system, that caused this rapid destruction of our society. Don’t you too look at the buildings and public transportation systems in place sometimes and ask yourself why everything looks like it is fifty years old, if not older? Yes, because we gave our money into corrupt hands, that are not doing much with it for the people. We hand it to a monstrum that we call our government, which we ask to rebuild our communities. It just doesn’t work that way. Communities are build through the people and entrepreneurship, little businesses that member within the communities feed and feed off. A very recent example how a country benefits from Freedom we can witness in India, which liberated its system in 1991 “unleashing a new age entrepreneurship” and India is now a “centre of innovation and global power to reckon with.” Just like that.

I want this for our western society’s too and I am glad to see that we finally have a President that has knowledge of basic economics. He had to, since he is coming from a business background. Donald Trump understands the fundamental principles of value, price and demand. All the hate towards him is mostly fueled through the mass propaganda machine, which he knows and which he has addressed from day one. Everybody that is not on the left are consequently “Nazis” or “white supremacists” – at least that is what the media tells us everyday and has planted in our hearts – throughou any possible and available platform (schools, universities, social media, tv, newspapers). Donald Trump is not that moral, considered, rhetorical speaker that likes to seduce us with nice words, which we have gotten used to for too long. No, we need change. This hate and fear mongering of the media does not get us anywhere, but spreads hate and divides us all. Donald Trump understands that and it is the very reason why he stood up against yet another corrupt politician that has only self interest in mind. How I can be sure? Trump does not try to take away your money. He is big time deregulating. How much cruelty, how much platform is left, when we take the power of it away? If you say, Trump is the worst and biggest player that likes to abuse power, please ask yourself, what is he gaining? He had power and money, before he entered, which you cannot say about the left, but most significantly he was loved by many Americans. Now he is the center of hate. Why would somebody do that? Today, all mass media is constantly putting him down, digging up old stories, using – again – all those emotional topics to destroy him. But he has his followers. Half of the country is on his side, remember? He was fairly elected. No collusion. Those that voted for him are just not the fanatics, but the silent majority that knows what America was founded on. Freedom for all. WE the People, it says. Equal under the law and free to express our unique gifts. I believe very much, that Donald Trump took over the oval office to save this country from the corrupt socialists. He simply loves america and could not stand the lies now accelerated through our phones anymore.

I am sure in freedom there will be bad players again, as there will be always bad players, but those that play bad, will have no platform; instead they will simply run out of business, because the majority of the people cares deeply and good people don’t tend to leave their money with the bad people. That is really the irony. All socialistic regulations go back to a human mind and heart that cares, which is beautiful and which will not stop, if we have freedom. The care and love will rather accelerate. We want to help the poor, the sick, the old and the children, but it just won’t happen, if we numb ourselves in our little bit of comfort.

“Basic economics” talks about rent control, minimum wage, the Federal Reserve System and all these regulations we have allowed to be forced upon us. It discusses the underlying reality of price and demand and finally that giving up your responsibility to a centralized government will not help, but makes it worse, which is why it is not getting better.

Freedom is love, not greed. But you gotta heal yourself and pick up your cross to wake up to it.

While a free market economic system is sometimes called a profit system, it is really a profit-and-loss system – and the losses are equally important for the efficiency of the economy, because they tell me the manufacturers what to stop producing. Without really knowing why consumers like one set of features rather than another, producers automatically produce more of what earns a profit and less of what is losing money. That amounts to producing what the consumers want and stopping the production of what the don’t want. Although the procedures are only looking out for themselves and their companies’ bottom line, nevertheless from the standpoint of the economy as a whole the society is using its scarce resources more efficiently because decisions are guided by prices.

p. 9.

A study of rent control in North America and in Britain, France, Germany, and the Netherlands concluded: “New investments in unsubsidized rented housing is essentially nonexistent in all the European countries surveyed, except for luxury housing.”
In short, a policy intended to make housing affordable for the poor has had the net effect of shifting resources toward housing affordable only by the affluent or the rich, since luxury housing is often exempt from rent control. Among other things, this illustrates the crucial importance of making a distinction between intentions and consequences. Economic policies need to be analyzed in terms of the incentives they create, rather than the hopes that inspired them. 

p. 27.

Careful and complex mathematical calculations can be the difference between having an astronaut who is returning to earth from orbit end up crashing in the Himalaya or landing safely in Florida. We have also seen similar social disasters from misunderstanding the basic principles of economics.

p. 41.

While rising prices are likely to reflect changes in supply and demand, people ignorant of economics may attribute the rises to ‘greed’.

[…] homes near the ocean sell for much higher prices than similar homes located in the smoggy interior. Does this mean that fresh air promotes greed, while smog makes home sellers more reasonable? To say that prices are due to greed is to imply that sellers can set prices by an act of will. If so, no company would ever go bankrupt, since it could simply raise its prices to cover whatever its costs happened to be.

p. 44.

Economics was christened “the dismal science” precisely because its analysis frustrated so many hopes and desires. On the other hand, knowing what is not possible can spare us many disappointments and avoid many disasters. Because human beings can be as wrong in their pessimism as in their optimism, economics has also served to expose the fallacies of many predictions of many doom-and-gloom prophets.

p. 50.

Many apparently humanitarian policies have backfired throughout history because of a failure to understand the role of prices. Attempts to keep food prices down by imposing price controls have led to hunger and even starvation, whether in seventeenth-century Italy, eighteenth century India, France after the French Revolution, Russia after Bolshevik revolution, or in a number of African countries after they obtained independence during the 1960s. Some of these African countries, like some of the countries in Eastern Europe, once had such an abundance of food that they were exporters of food before the era of price control and government planning turned them into countries unable to feed themselves.
The motivation behind price controls on food may have been to make food affordable to the poor, but affordability did not mean any more food. In fact, it led to less food being available when the prices failed to repay the costs and labor required to grow crops or raise animals. Under the changed incentives created by price controls, farmers tended to produce less food and to keep much of what they produced for themselves and their families. Some farmers even gave up farming entirely as unprofitable, and moved to the city, simultaneously reducing the supply of food and adding to the number of urban consumers of food.

p. 51.

It may be fashionable for journalists to refer to “the whim of the marketplace,” as if that were something different from the desires of people, just as it was once fashionable to refer to “production for use, rather than profit”- as if profits could be made by producing things that people cannot use or do not want to use. The real contrast is between choices made by individuals for themselves and choices made for them by others who presume to define what these individuals “really” need.

P. 53.

Free-market prices are not mere arbitrary obstacles to getting what people want. Prices are symptoms of an underlying reality that is not nearly as susceptible to political manipulation as the prices are. Prices are like thermometer readings – and a patient with a fever is not going to be helped by plunging the thermometer into ice water to lower the reading. On the contrary, if we were to take the new readings seriously and imagine that the patient’s fever was over, the dangers would be even greater, now that the underlying reality was being ignored.

p. 59.

One of the great handicaps of government-run economies, whether under medieval mercantilism or modern communism, is that insights which arise among the masses have such powerful leverage as to force those in authority to change the way they do things. Under any form of economic or political system, those at the top tend to become complacent, if not arrogant. Convincing them of anything is not easy, especially when it is some new way of doing things that is very different from what they are used to. The big advantage of a free market is that you don’t have to convince anybody of anything. You simply compete with them in the market place and let that be the test of what works best.

p. 70.

Unlike American executives, however, their Soviet counterparts did not have the same guidance from fluctuating prices or the same incentives from profits and losses. The net result was that many Soviet enterprises kept producing things in quantities beyond what anybody wanted, unless and until the problem became so huge and blatant as to attract the attention of central planners in Moscow, who would then change the orders they sent out to manufacturers. But this could be years later and enormous amounts of resources would be wasted in the meantime.
The wastefulness of a centrally planned economic planned economic system translated into painfully low standard of living for millions of Soviet citizens, living in a country with some of the richest natural resources anywhere in the world.

[…]

Efficiency is more than just an abstract concept of economics and accountants. It directly translates into the well-being of hundreds of millions of human beings.

p. 74, 75.

While capitalism has a visible cost – profit – that does not exist under socialism, socialism has an invisible cost – inefficiency – that gets weeded out by losses and bankruptcy under capitalism. The fact that most goods are more widely affordable in a capitalist economy implies that profit is less costly than inefficiency.

p. 81.

Because the public is unlikely to be familiar with all the economic complications involved, they are likely to be outraged at having to pay electricity rates far higher than they are used to. In turn, this means that politicians are tempted to step in and impose price controls based on the old rates. And, as already noted in other contexts, price controls creates shortages – in [case of California in 2001], blackouts. A larger quantity demanded and smaller quantity supplied has been a very familiar response to price controls, going back in history long before electricity came into use. However, politicians’ success does not depend on their learning the lessons of history or of economics. It depends far more in their going along with what widely believed by the public and the media, which may include conspiracy theories or belief that higher prices are due to “gouging” or “greed”.

[…], after a commission has been set up and its powers established, crusaders and media tend to lose interest over the years and turn their attention to other things. Meanwhile, the firms being regulated continue to take a keen interest in the activities of the commission and to lobby the government for favorable regulations and favorable appointments of individuals to these commissions.

p. 107.

An extreme example of how misleading market share statistics can be was the case of a local movie chain that showed 100 percent of all the first-run movies in Las Vegas. It was prosecuted as a monopoly but, by the time the case reached 9th Circuit Court of Appeals, another movie chain was showing more first-run movies in Las Vegas than the “monopolist” that was being prosecuted. Fortunately, sanity prevailed in this instance. Judge Alex Kozinski of the 9th Circuit Court of Appeal pointed out that the key to monopoly is not market share – even when it is 100 percent – but the ability to keep others out. A company which cannot keep competitors out is not a monopoly, no matter what percentage of the market it may have at a given moment.

p. 116.

One of the most dangerous powers of any government, democratic or despotic, is the power to foreclose knowledge from affecting decisions. Given that most specific knowledge is widely scattered in fragments among vast numbers of human beings, decisions made by any manageably small number of government planners is likely to be based on far less knowledge than is available in the society as a whole. Yet, once the government’s decisions have been turned into law and policies, it no longer matters whether the beliefs on which they were based are true or false. Power trumps truth. The economic history of the Soviet Union is monument to counterproductive policies behind widespread poverty in one of the most richly endowed countries in the face of the earth.

p. 128.

   Anyone who saw East Berlin and West Berlin, during the years when communism prevailed in the eastern part of the city and a market economy in the rest of it, could not help noticing the drastic contrast between the prosperity of West Berlin and the poverty in East Berlin. Indeed, it was hard to avoid being shocked by it, especially since people of the same race, language, culture and history lived in both parts of the same city.
Monopoly is the enemy of efficiency, whether under capitalism or socialism. Even in a mixed economy, with some economic activities being carried out by government and others being carried out by private industry, the government’s activities are typically monopolies, while those in the private marketplace are typically activities carried out by rival enterprises.

p. 132.

    The rising importance of skills and experience relative to physical strength has changed the relative productivities of youth compared to age and of women compared to men. This has been especially so in more recent times, as the power of machines has replaced human strength in industrial societies and as skills have become crucial in high-tech economies. Even with in a relatively short span of time, the age at which most people receive their peak earnings has shifted upwards.
In 1951, most Americans reached their peak earnings between 35 and 44 years of age, and people in those age brackets earned about half again as much as workers in their early twenties. By 1973 people in the 35 to 44-year-old brackets earned more than double the income of the younger workers. Twenty years later, the peak earnings bracket had moved up to 45 to 54 years of age and people in those brackets earned more than three times what workers in their early twenties earned.
Meanwhile, the dwindling importance of physical strength also reduced or illuminated the premium for male workers in an ever-widening range of occupations. This did not require all employers to have enlightened self interest. Those who persisted and paying more for a male workers who were not correspondingly more productive were at a competitive disadvantage compared to rival firms that got the work done at lower costs by illuminating the male premium, equalizing the pay of women and men to match the productivities.
[…] Thus the pay of women began to equal that of men of similar qualifications even before there were laws mandating equal pay.  

p. 150.

Distinguishing discrimination from differences in qualifications and performances is not easy in practice, though the distinction is fundamental in principle. Seldom do statistical data contain sufficiently detailed information on skills, experience, performance, or absenteeism, much less work habits and attitudes, to make possible comparisons between truly comparable individuals from different groups.
Woman, for example have long had lower incomes that men, but most woman give birth to children at some point in their life and many stay out of the labor force until their children reached an age where they can be put into some form of daycare while they are mothers go to work. These interruptions off their careers cost woman workplace experience and seniority, Which intern inhibitsThe rise of their incomes over the years relative to that off man who have been working continuously in the meantime. However, as far back as 1971, women who have been working continuously from high school through their thirties earned slightly more than men of the same description, even though women as a group earns substantially less than men as a group.

p. 152.

However in a market where wages are set artificially above the level that would exist through supply and demand, the resulting surplus of applicants can mean that discrimination costs the employer nothing. Whether these artificially higher wages are set by a labor union or by a minimum wage law not change the principle. […]
The cost of discrimination to the discriminators is crucial for understanding such behavior. Employers who are spending other people’s money – government agencies for nonprofit organizations, for example – are much less affected by the cost of discrimination. In countries around the world, discrimination by government has been greater than discrimination by business operating in private, competitive markets.

p. 154

The average American has nine jobs between the ages of 18 and 34. In Europe, where job security laws and practices are much stronger than in the United States, jobs have in fact been harder to come by. During the decade of the 1990s, the United States created jobs at triple the rate of industrial nations in Europe. In the private sector, Europe actually lost jobs and only its increased government employment lead to any net gain at all. This should not be surprising. Job security laws make it more expensive to hire workers. Like anything else that is made more expensive, labor is less in demand at a higher price than at a lower price. The one exception is government employment where employers are spending other people’s money – the taxpayers money.

p. 161.

These different situations create opposite insensitives – to get as much work done with as few people in resources as possible in private industry and with as many people and resources available in government. This is one reason why it often costs much less for private companies to perform the same tasks as a government agency performs. The public pays the costs off the governments inefficiencies, whether as consumers or as taxpayers.

p. 163.

However, when all is said and done, most empirical studies indicate that minimum wage laws reduce employment in general, and especially the employment of the younger less skilled and minority workers. […]
That preponderance of evidence indicates that labor is not exempt from the basic economic principles that artificially higher prices cause surpluses. In the case of surplus human beings, that can be a special tragedy when they are already from low-income, unskilled or minority background and urgently need to get on the job ladder if they are ever to move up the ladder by acquiring skills and experience.

p. 165, 166.

   Another group disproportionately affected by minimum wage laws are members of unpopular racial or ethnic groups. Indeed, minimum wage laws were once advocated explicitly because of the likelihood that they would reduce or eliminate the competition of particular minorities, whether they were Japanese in Canada during the 1920s or blacks in the United States and South Africa at about the same time.

p. 168.

   Misconceptions have practical consequences, sometimes needlessly holding down the standard of living of poor people. Antipathy toward “unearned incomes” has led to attempts to control or suppress profits in various countries at various periods of history, with the result of discouraging the investment of capital that those countries have desperately needed, in order to raise the standard of living of their people. In some cases, the more prosperous classes in these poor countries have invested their capital abroad, in richer industrial nations that do not tax or restrict capital so much – leading to international transfers of wealth from where it is most scarce to where it is most abundant, as a result of the domestic politics of envy and resentment, compounded by economic confusion.

p. 179.

   Unmerited misfortunes and windfall gains leave many people uneasy, especially when these underserved happenstances have large effects on someone’s whole way of life. The desire to help the less fortunate may be especially strong, but whether a particular policy will in fact have that effect is not an easy question to answer – except for those who simply want to “do something” to express their sympathy or solidarity, without regard to the actual consequences.

p. 184.

Despite India’s reputation as a rigid, caste-ridden society, it has likewise had its rags-to-riches stories, especially as more free markets emerged toward the end of the twentieth century, Dhiruhai Ambani, for example was born in poverty and was able to go as far as high school only because he was admitted as a “free student” – and he was too poor to continue on to college. His first job was pumping gas at a filling station, his second job was as a shipping clerk. But from there on he rose, step by step, eventually establishing his own business, making synthetic yarn. From there he branched out to petrochemicals and eventually created India’s largest company and the world’s largest multifeed refinery. […] fundamental point is the great advantage for any society that can tap the talents of people from all across the social spectrum to develop its economy and thereby raise the living standards of its population as a whole. That is what Carnegie, Ford, Sears, and Penney did in America and what people from modest or even poverty backgrounds have begun to do in India after it moved in the direction of freer markets at the end of the twentieth century.

p. 186, 187.

 

 

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