Archive for the ‘Books’ Category

For Uncommon Knowledge, Peter Robinson and economist Thomas Sowell discuss the nexus between culture and economic outcomes. The discussion is based on Sowell’s latest book “Intellectuals and Race”.

Multiculturalism is an insistence that the particular cultures found among less fortunate groups are not to be blamed for disparities in income, education, or crime rates but are on net positive.

This quotation reminds me of another sentence by Thomas Sowell that I posted about a year ago (link):

Although intellectuals pay a lot of attention to inequality among different groups, seldom has this attention been directed toward how the less economically successful might improve themselves by availing themselves of the culture of others around them.

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Anyone interested in learning more about the economics of Marxism might refer to a book published by Thomas Sowell back in 1985, called ‘Marxism: Philosophy and Economics‘.

In her review, Diana Hsieh discusses the main aspects of the book. As she points out, Marx’s crucial concept of “surplus value” was insinuated rather than explicitly established, either logically or empirically. Surplus value is simply defined as an “increment or excess over the original value” invested in production. And Marx quickly assumed labor to be the (only) factor responsible for this increment in value or of output. As Sowell notes:

It was an assumption deeply embedded in classical economics… [an assumption] devastated by the new conceptions and analyses introduced by neo-classical economics.

As a theoretical system, Marxian economics begins the story of production in the middle–with firms, capital, and management already in existence somehow, and needing only the addition of labor to get production started. From that point on, output is a function of labor input, given all the other factors somehow already assembled, coordinated, and directed toward a particular economic purpose.

[However,] once output is seen as a function of numerous inputs, and the inputs are supplied by more than one class of people, the notion that surplus value arises from [the] labor [of the proletariat] becomes plainly arbitrary and unsupported.

With his definition of surplus value, however, Marx completely neglects the roles of knowledge and risk in an economy: Since there are also failing firms which also hired workers, we see that there is no guarantee of receiving surplus value after hiring workers.

Sowell proceeds and explains how Marxism has been put into practice:

When economic incentives were drastically reduced or abolished in the heady egalitarian period following the Bolshevik revolution, the Soviet economy ground to a halt. Widespread hunger and a halt to vital services forced Lenin to resort to his “New Economic Policy” that restored the hated capitalist practices.

The later nationalizing of all industry under Stalin and his successors did not restore egalitarianism. Quite the contrary. There were highly unequal rewards to management, including whole systems of special privilege stores to which ordinary Soviet workers [had] no access.

This recognition of the fundamental failure of Marxian economics has later been described as

…mere betrayals of Marxist ideals, missing the more fundamental point that a crucial false assumption must be corrected in practice if people are to survive.

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Currently I am reading Hayek’s Road to Serfdom. As a preview and taken from the Reader’s Digest version, here is a fine quotation:

We shall never prevent the abuse of power if we are not prepared to limit power in a way which occasionally may prevent its use for desirable purposes.

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When reading Jeremy Clarkson’s latest book Round the Bend, the last thing you might expect is to learn something about economics. But you do. Because instead of reviewing the Audi A4, Clarkson talks about how capitalism benefits the consumers.

Because McDonald’s and Burger King offer tasty snacks in every town in the world, anyone selling inferior burgers made from stale bread and dead horses will go out of business extremely quickly.

That’s the core of capitalism. ‘Better’ will always win the day. And it doesn’t matter what form ‘better’ takes. Better can mean cheaper, more convenient, nicer, prettier, more tasty, more healthy. […] Because the bosses of the giant corporations know this, they strive constantly to make what they sell better, and that’s brilliant for you and me.

When was the last time you had a faulty cigarette? When was the last time your plane crashed? When did you last take a strawberry back to the supermarket because it was all covered in slime? It’s not governments or best-before dates or health and safety that is doing this; it’s capitalism.

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The other day I came across this great quotation from Thomas Sowell’s “Basic Economics“:

Too often a false contrast is made between the impersonal marketplace and the compassionate policies of various government programs. But both systems face the same scarcity of resources and both systems make choices within the constraints of that scarcity. The difference is that one system involves each individual making choices for himself or herself, while the other system involves a smaller number of people making choices for millions of others.

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Having spent several years studying economics at a university, most graduates still find it hard to discuss properly current economic policies. This is due to the fact that the subject of economics today focuses mostly on abstract theories and estimation techniques. It mainly consists of mathematical formulas which describe models of limited practical use.

This is not to say that economic research does not deliver new insights into how an economy works. But rather that the study of economics often misses the bigger picture and lacks a profound analysis of various real-world economic policies.

Thomas Sowell has published a brilliant book that addresses this shortcoming:

Basic Economics by Thomas Sowell

In this book, Sowell discusses dozens of policy interventions and economic mechanisms. He does so without formulas, math, tables, or figures. Instead the reader finds plain English text, historical examples and common sense reasoning.

The fundamental theme that runs throughout the book is the definition of economics itself:

Economics is the study of the use of scarce resources which have alternative uses.

Topic after topic, Sowell explains what this simple definition implies and how it contradicts many political statements:

However useful economics may be for understanding many issues, it is not as emotionally satisfying as more personal and melodramatic depictions of these issues often found in the media and in politics. Dry empirical questions are seldom as exciting as political crusades or ringing moral pronouncements. But empirical questions are questions that must be asked, if we are truly interested in the well-being of others, rather than in excitement or a sense of moral superiority for ourselves. Perhaps the most important distinction is between what sounds good and what works. The former may be sufficient for purposes of politics or moral preening, but not for the economic advancement of people in general or the poor in particular. For those who are willing to stop and think, basic economics provides some tools for evaluating policies and proposals in terms of their logical implications and empirical consequences.

While waiting for the delivery of your copy you may want to watch how Sowell himself discusses his book with Peter Robinson:

The problem is not that the profession has not reached a level of understanding. I think if the average citizen understood economics as well as it was understood by economists two hundred years ago, most of the nonsense that is done in Washington would be impossible politically.

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Some years ago, Dr. Warren Farrell published a much-debated book called “Why Men Earn More“. At that time he also gave a bunch of interviews that have gained importance now that even the European Union believes it must act.

If men earn a dollar for each 76 cents that women earn for the same work, why would anybody hire a man to do anything?


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