Basic Economics

🚀 The Book in 3 Sentences

Prices work, and competition works; if someone wants to limit the free market, it is usually a good indicator that they want to make money on it.

This book covers the basics of economics and why they work in a clear way. It gives the reader clear and good examples of how the economy functions.

🎨 Impressions

I felt it gave me a better understanding of the core principles of economics and how they are applied. Not very difficult to understand concepts, which made it easier to read and reflect on.

Gresham´s Law on how "Bad Money Drives Out Good" was interesting.

I think reading a book such as this is important for everyone that is interested in politics and society. If this book is easy to read, then it is no excuse for people not to read it. If you don't understand the principles of economics, you are bound to repeat the mistakes of the past.

☘️ How the Book Changed Me

I think I became more aware of my tendency to bias myself against issues that I know are right but my personal preferences have made me against it. One example is being very lenient about banning cars and removing parking spaces because personally, I am not a fan of cars. This should not be needed according to basic economic theory. However, I am not completely convinced that this is a black-and-white matter, considering externalities and other dumb governmental policies that lead to legacy infrastructure.

✍️ My Top Quotes

One of the ways of doing this is to look at economic policies and economic systems in terms of the incentives they create, rather than simply the goals they pursue. This means that consequences matter more than intentions—and not just the immediate consequences but also the longer-run repercussions of decisions, policies, and institutions.
Economics is the study of the use of scarce resources which have alternative uses.
During the days of the Soviet Union, for example, that country’s industries used more electricity than American industries used, even though Soviet industries produced a smaller amount of output than American industries produced. More steel, cement, and other resources used for producing a given output likewise resulted in less output in the Soviet Union than in countries such as Japan or Germany.
Yeltsin’s aide said that the Houston supermarket experience destroyed the last vestiges of Yeltsin’s belief in the Communist system, setting the stage for his becoming the first leader of post-Communist Russia.
The price that one producer is willing to pay for any given ingredient becomes the price that other producers are forced to pay for that same ingredient.
Resources tend to flow to their most valued uses when there is price competition in the marketplace.
“From 5 to 15 percent of the workers in the majority of enterprises are surplus and are kept ‘just in case.’”
Human beings are going to make mistakes in any kind of economic system. The key question is: What kinds of incentives and constraints will force them to correct their own mistakes?
Every cow in the European Union gets more subsidies per day than most sub-Saharan Africans have to live on.
While less than one-fifth of farming income in the United States comes from government subsidies, more than 40 percent of farming income in Japan comes from such subsidies, as does more than 60 percent in South Korea and Norway.
Therefore, the net effect of price control was that “the city lived in high spirits until all at once provisions gave out” and Antwerp had no choice but to surrender to the Spaniards.
We need education in the obvious more than investigation of the obscure.
The painful fact that poor people end up paying more than affluent people for many goods and services has a very plain—and systemic—explanation. It often costs more to deliver goods and services in low-income neighborhoods.
For example, an inner city shopping center in one midwestern city had to spend 15 percent more on security guards and lighting than a comparable suburban shopping complex.
But it is both intellectually and emotionally easier to blame high prices on those who collect them, rather than on those who cause them. It is also more politically popular to blame outsiders, especially if those outsiders are of a different ethnic background.
Rent control “appears to be the most efficient technique presently known to destroy a city—except for bombing.”
Nothing is easier than thinking of additional requirements that might be useful in some way or other, and nothing is harder than remembering to ask the crucial incremental question: At what cost?
In short, while there are economies of scale, there are also what economists call “diseconomies of scale.”
In the Soviet Union, where there was a fascination with economies of scale and a disregard of diseconomies of scale, both its industrial and agricultural enterprises were the largest in the world. The average Soviet farm, for example, was ten times the size of the average American farm and employed more than ten times as many workers.
The first corporation in America was the Harvard Corporation, formed in the seventeenth century to govern America’s first college.
Monopoly is the enemy of efficiency, whether under capitalism or socialism.
As one study noted, “although 54 percent of the workplace is male, men account for 92 percent of all job-related deaths.”
During the era of the Soviet Union and Cold War competition, the Soviets used to boast of the fact that an average Soviet box car moved more freight per year than an average American box car. But, far from indicating that their economy was more efficient, this showed that Soviet railroads lacked the abundant capital of the American railroad industry, and that Soviet labor had less valuable alternative uses of its time than did American labor
Almost by definition, all these organizations exist to keep the price of labor from being what it would be otherwise in free and open competition in the market.
The promotion of economic equality and the alleviation of poverty are distinct and often conflicting.
The effectiveness of the market does not depend on officials understanding it.
Estimated in the early twenty-first century that a million Chinese a month were rising out of poverty.
It is also true that unemployed Americans spend more time per day looking for work—more than four times as much time as unemployed workers in Germany, Britain or Sweden.
A tourist in New York’s Greenwich Village decided to have his portrait sketched by a sidewalk artist. He received a very fine sketch, for which he was charged $100. “That’s expensive,” he said to the artist, “but I’ll pay it, because it is a great sketch. But, really, it took you only five minutes.” “Twenty years and five minutes,” the artist replied.
Risk-taking is the mother’s milk of capitalism.
Bonds differ from stocks because bonds are legal commitments to pay fixed amounts of money on a fixed date. Stocks are simply shares of the business that issues them, and there is no guarantee that the business will make a profit in the first place, much less pay out dividends instead of re-investing these profits in the business itself.
As one development economist put it, land reform can be “a bad joke played on those who can least afford to laugh.”
For example, the median ages in Nigeria, Afghanistan, and Tanzania are all below twenty, while the median ages in Japan, Italy, and Germany are all over forty. Such huge age gaps mean that the real significance of some international differences in income may be seriously overstated.
As John Maynard Keynes said, “It is better to be roughly right than precisely wrong.”
“Wall Street and Washington expend megawatts of energy trying to decipher the delphic pronouncements of Alan Greenspan.”
The study of human institutions is always a search for the most tolerable imperfections.
You know, doing what is right is easy. The problem is knowing what is right.
Foreign firms which hired Russian workers and even Russian executives made it a point not to hire Russian accountants.
“Politically linked firms are most common in countries famous for high levels of corruption.” Russia has led the way in this practice, in which firms with 80 percent of the country’s market capitalization were linked to public officials.
“politically linked firms are most common in countries famous for high levels of corruption.” Russia has led the way in this practice, in which firms with 80 percent of the country’s market capitalization were linked to public officials. The comparable figure for the United States was less than 10 percent, partly due to American laws restricting this practice.
What property rights mean to property owners is far less important than what they mean to the economy as a whole.
For example, various affluent communities in California, Virginia, and other places have required land to be sold only in lots of one acre or more per house, thereby pricing such land and homes beyond the reach of most people and thus neutralizing the greater aggregate purchasing power of less affluent people.
Among United Nations representatives who have diplomatic immunity from local laws in New York City, diplomats from various Middle East countries let numerous parking tickets go unpaid—246 by Kuwaiti diplomats—while not one diplomat from Denmark, Japan, or Israel had any unpaid parking tickets.
When laws and policies make honesty increasingly costly, then government is, in effect, promoting dishonesty. Such dishonesty can then extend beyond the particular laws and policies in question to a more general habit of disobeying laws, to the detriment of the whole economy and society.
In the United States, some government agencies have been trying to restrict smoking while other government agencies have been subsidizing the growing of tobacco.
In Italy, for example, working men retire at an average age of 61 and those working in what are defined as “arduous” occupations—miners, bus drivers, and others—retire at age 57. The cost of this generosity consumes 15 percent of the country’s Gross Domestic Product, and Italy’s national debt in 2006 was 107 percent of the country’s GDP.
Politicians lack the courage to privatize the huge, loss-making public sector because they are afraid to lose the vote of organized labor. They resist dismantling subsidies for power, fertilizers, and water because they fear the crucial farm vote. They won’t touch food subsidies because of the massive poor vote. They will not remove thousands of inspectors in the state governments, who continuously harass private businesses, because they don’t want to alienate government servants’ vote bank. Meanwhile, these giveaways play havoc with state finances and add to our disgraceful fiscal deficit. Unless the deficit comes under control, the nation will not be more competitive; nor will the growth rate rise further to 8 and 9 percent, which is what is needed to create jobs and improve the chances of the majority of our people to actualize their capabilities in a reasonably short time.
In 2002, the Congress of the United States passed a farm subsidy bill—with bipartisan support—that has been estimated to cost the average American family more than $4,000 over the next decade in inflated food prices.
Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence. John Adams
“That is more than three times the global total in foreign aid, making ‘remittances’ the main source of outside money flowing to the developing world.” Remittances are one-fifth of the Gross Domestic Product of Bosnia, 25 percent of the GDP of Honduras and 35 percent of the GDP of Laos.
Four-fifths of the doughnut shops in California are owned by people of Cambodian ancestry and more than half the doctors in Britain were born outside of Britain.
During the first Five-Year Plan, 40 percent of export earnings came from grain shipments. In 1931 one third of the machinery and equipment imported in the world was purchased by the U.S.S.R. Of all the equipment put into operation in Soviet factories during this period, 80 to 85 percent was purchased from the West.
Protectionism is never about “saving jobs,” but about saving specific jobs of politically useful groups.
For example, whole sectors of the Ugandan economy collapsed after 50,000 Indians and Pakistanis were forced to leave the country in the 1970s.
During the days of the Soviet Union, that country’s only airline, Aeroflot, became notorious for bad service and rudeness to passengers. After the dissolution of the Soviet Union, a new privately financed airline began to have great success, in part because its passengers appreciated being treated like human beings for a change. The management of the new airline declared that its employment policy was that it would not hire anyone who had ever worked for Aeroflot.
Beware the people who moralize about great issues; moralizing is easier than facing hard facts. John Corry
People who deplore greed often show a disdain for wealth. Although a disdain for wealth may be admired, only those who already have a certain amount of wealth can afford to disdain any further pursuit of it. The hungry do not disdain food nor the homeless disdain shelter. Wealth means options and who would want fewer options?
Here, as elsewhere, the prevention of competition is essential to exploitation.
What Say’s Law, in its most basic sense, argued was that the production of output and the generation of real income for those producing that output were not processes independent of each other.
We shall not grow wiser before we learn that much that we have done was very foolish. F. A. Hayek