Economics 101

I am attempting to read Thomas Sowell's excellent new updated book Basic Economics 4th Ed: A Common Sense Guide to the Economy. I say attempting because the book is 689 pages long and filled with detailed information including a new chapter on the history of economics. I took economics in college but it's been awhile and Sowell's book really brings the layperson up to date on what economics is and how principals of economics apply around the world.

Sowell uses British economist Lionel Robbins classic definition of economics:

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

It sounds simple enough but the next 600 or so pages of Sowell's book are required just to understand this simple enough definition. Sowell notes:

...economics studies the consequences of decisions that are made about the use of land, labor, capital and other resources that go into producing the volume of output which determines a country's standard of living. Those decisions and their consequences can be more important than the resources themselves, for there are poor countries with rich natural resources and countries like Japan and Switzerland with relatively few natural resources but high standards of living.

Why is this? How do politics play a part? These are the questions I have and as I travel through the book one page at a time, I am learning the answers. Perhaps you have other economic questions such as the role of prices and why they are important, or you want to know more about the economics of international trade, or you just want to know about the different theories of economic thought in a fun and easy to read format. It's all in this book and more than I care (or you would want to read) to write about in a blog post.

Cross-posted at the PJ Tatler.

Is college a "sucker's game?"

Vox Day has an interesting post on whether or not college is a "sucker's game:"

Going 100k into debt in order to obtain a job that pays $22 as a photographer's assistant is not an intelligent action. The correct answer to the question about attending college is "it depends". What college, what degree, and what job prospects? ....

Basically, if you have to borrow money or if you are at all prone to not finishing what you start, you shouldn't even think about going to college. And if you do go, get a degree in something meaningful, not outdated liberal arts degrees in English, Art History, or Business. You'll learn more about business running a fast food franchise for a summer than you will in six years of college. Throw in a little reading of Peter Drucker,Sun Tzu, Malcolm Gladwell, Dilbert, and whoever the business author du jour happens to be and you'll know more management-speak too.

The end of reason?

I am re-reading The Road to Serfdom as it's been awhile and I tend to forget material that is not right in front of me. One of my favorite chapters in the book is one entitled, "The End of Truth" where Hayek discusses propaganda and it's role in a totalitarian society. He argues that intellectual freedom is important because it leads to intellectual progress:

...So long as dissent in not suppressed, there will always be some who will query the ideas ruling their contemporaries and put new ideas to the test of argument and propaganda.

This interaction of individuals, possessing different knowledge and different views, is what constitutes the life of thought. The growth of reason is a social process based on the existence of such differences. It is of its essence that its results cannot be predicted, that we cannot know which views will assist this growth and which will not--in short, that this growth cannot be governed by any views which we now possess without at the same time limiting it. To "plan" or "organize" the growth of mind, or for that matter, progress in general, is a contradiction in terms. The idea that the human mind ought "consciously" to control its own development confuses individual reason, which alone can "consciously control" anything, with the interpersonal process to which its growth is due. By attempting to control it, we are merely setting bounds to its development and must sooner or later produce a stagnation of thought and a decline of reason.

The tragedy of collectivist thought is that, while it starts out to make reason supreme, it ends by destroying reason because it misconceives the process on which the growth of reason depends.

When I think of the suppression of free thought in areas like global warming or children who are suspended for their political beliefs, I wonder how future generations will ever learn how to figure out truth from fiction, or learn critical thought and reason. If science, truth and reason lead to progress and our society suppresses it, will we stagnate both economically and in terms of our progress as a society? I am going to assume that the answer is "yes."

Will Obama donors, academics and Union leaders lead to job growth?

I somehow doubt it. I wonder how jobs will grow when many of the people going to Obama's White House jobs summit today are either academics, Union executives or Obama donors or a combination? Few of these people know how to run a small business where jobs are created, or their politics are such that they may hinder growth by sucking up to bad policies to keep on Obama's good side. The only CEO on the list thus far that looked promising to me was Fred Smith (though the list is not exhaustive and there may be more):

Of the several award-winning economists slated to attend, some are academics who donated hefty amounts to candidate Obama, like Joe Stiglitz of Columbia University, an early supporter who doled out more than $4,000 for his presidential run.

Of the 29 known attendees, only one CEO -- Eric Schmidt of Google -- donated to Obama. Schmidt gave $25,000 in personal contributions to the president's inaugural celebration last January. Employees from Google Inc. doled out a whopping $803,436 for Obama's presidential campaign -- the fifth highest of any organization to donate to his record-shattering campaign bounty.

One other CEO slated to attend, Frederick Smith of Federal Express, gave money during the 2008 presidential campaign -- but not to Obama. Smith contributed $2,300 to Republican presidential nominee John McCain and served on the Republican's "kitchen cabinet" of campaign advisers.

I am glad to see that only one CEO donated to Obama. But it seems to me if you want to promote job growth, it would help to have small business owners or those who represent them more fully present, and to take their ideas into consideration. The regime uncertainly of this administration is certainly stifling job growth. Businesses are scared to hire because they don't know what to expect next. Maybe lessening the tax burden and regulations on small business would be a step in the right direction for job growth. I imagine this job summit is more for show, however, so I won't hold my breath waiting for any sensible policies to emerge. I hope I am wrong...

What would Milton Friedman say?

Stephen Moore, senior economics writer at the WSJ, speculates about Friedman's response to the current economic crisis in his new book, How Barack Obama is Bankrupting the U.S. Economy:

At times like this, I become more nostalgic for the indispensable missing voice in this debate: Milton Friedman's. No one could slice and dice the sophistry of the left's government-market interventions better than Friedman. Imagine what he would have to say about the arrogance of the U.S. government of owning and operating the car companies or managing the $2 trillion health-care industry. "Why not?" I can almost hear him ask. "After all, they've done such a wonderful job of delivering the mail..."

"I've been thinking a lot lately about one of my last conversations with Friedman, when he warned that "even though socialism is a discredited economic model and capitalism is raising standards to new heights, the left intellectuals continue to push for bigger government everywhere I look." He predicted that people would be seduced by collectivist ideas again. He was right.

As Friedman said in his book, Capitalism and Freedom, "freedom is a rare and delicate plant."

Yes, it is.

Is Obama the new FDR?

I sure hope not after reading a new book that just came out this week entitled The Politically Incorrect Guide to the Great Depression and the New Deal. The author, economist Robert Murphy, notes that government intervention prolonged the Depression and explains through the use of historical facts and information why this is so. Adding to this, he states that much what is written in textbooks on the Depression is false (no surprise there) and politically correct, making it seem like government saved the day. With Obama trumpeting himself as the new FDR heading a government "lending a helping hand," Murphy says this is no cause for celebration. Instead, we might have similar problems (or even worse) then we did in the Depression: double digit unemployment, arbitrary policies toward businessmen resulting in net investment of less than zero, and big government policies that stifle liberty.

Anyway, if you are interested in the topic, read the book, it's easy to get through and digest, even for those who are laymen in economics.

"The spending bill he just passed is just progressing the Democratic agenda rather than addressing the economic issues in the country."

Just when I was starting to think the youth of this country were pretty much brainwashed by the media, I read this article (via Drudge) on the Dobson high school advanced placement students who listened to Obama speak at their school and realized that there is hope:

The students in the class were hopeful things will work out but questioned whether Obama's plan would actually work to dig the country out of its economic woes. They also expected a longer speech.

Senior Syna Daudfar took some notes during the speech and was among the most vocally opposed to Obama's words.

At one point, when he talked about the costs of his stimulus plan, senior Maaike Albach and Daudfar looked at each other and said, "uh-oh."

"Overall I think it's a good idea, but he's not addressing the issues of the economic crisis," said Daudfar, a John McCain supporter who added he leans more toward being a moderate conservative. "The spending bill he just passed is just progressing the Democratic agenda rather than addressing the economic issues in the country."

Daudfar thinks Obama's plan is backward and deals with the "less important stuff" first. "Bailing out businesses" and "providing better regulatory systems for giving out money to businesses" should have been first, he said.

"If businesses can't afford to hire people, then people won't be able to work and pay off their mortgages," he said. "It's kind of like putting money into a funnel."

Albach, who is also a Republican, said Obama's plan sounds good but questioned how Obama can want to rely on "people's responsibility" when that is "what got us in this economic crisis in the first place."

"This puts us more into debt," said Albach, 18. "It's a horrible situation we're in."

Senior Brandon Miller wore a shirt with the words, "Hitler gave great speeches, too" above a picture of Obama.

The advanced placement students may be smarter than average but it does show that many young people in this country can see through Obama's rhetoric.

And I thought check-cashing places charged high fees...

Glenn and I subscribe to Forbes which I was reading this morning and caught an article on Tim Geithner. The article was good, but the more interesting tidbit I found was one about how debt-collection agencies are one of the winners of the stimulus package (in a highlighted box within the same article). Get a load of this:

Debt-collection agencies. They thrive on others' misfortunes, of course. They'll really love the $1 billion headed for states to help them collect child support. Nearly every state outsources deadbeat-dad services to companies like Supportkids, an Austin, Tex. firm that was recently sued by the state of Virginia for alledgedly interfering with the enforcement of child support obligations by taking 34% of the debt it collects as a fee. (The company says the suit is "the result of a lack of comunication with the state" and hopes it will be resolved before going to trial.)

Yeah, right, lack of communication. Anyway, why should the stimulus package use tax payers' money to subsidize a group of sharks like Supportkids charging outrageous fees for shaking down "deadbeat dads"? And what about deadbeat-moms of which there are many?

I propose that all the men out there who are not collecting child support from these women sign up with this company. Apparently, Supportskids is quite successful as they state:

Supportkids is the leader in non-traditional child support enforcement, providing an alternative to government agencies. With over 16 years in business, our total collections exceed $400 million. We collect over to $3.9 million every month for families all across the nation, many of whom went years without child support payments.

My guess is that dads don't try and collect from women who don't pay. But if they do, I hope they're smart enough not to pay a 34% commission.