I hope everyone had a great weekend. I spent some time this weekend reading (actually, it seems all I do these days is read). I have been working my way through Thomas Sowell’s Basic Economics: A Common Sense Guide to the Economy for awhile now. Thomas Sowell is one of my favorite thinkers. As I have been reading through the book, I have been highlighting some of his thoughts. I wanted to share with you a few quotes from Chapter 4, which is an overview of Part 1: Prices and Markets:
The painful fact that poor people end up paying more than affluent people for many goods and services has a very plainand systemicexplanation. It often costs more to deliver goods and services in low-income neighborhoods. Higher insurance costs and higher costs for various security precautions, due to higher rates of crime and vandalism, are just some of the systemic reasons that get ignored by those seeking an explanation in terms of personal intentions.
I never thought about it like this before but it makes sense.
Lending $100 each to fifty low-income borrowers at pawn shops or local finance companies takes more time and costs more money to process the transactions than lending $5,000 at a bank to one middle-class customer, even though the same total sum of money is involved in both cases.
This is also illustrated in mutual fund loads that charge a lower sales charge percentage for those who invest more money. It costs a mutual fund company more to service one thousand $1,000 accounts that it does to service one $1,000,000 account.
If everything were made affordable by government decree, there would still not be any more to go around than when things were prohibitively expensive. There would simply have to be some alternative rationing method. Whether that method was through ration coupons, political influence, black markets, or just fighting over things when they go on sale, the rationing would still have to be done, since artificially making things affordable does not create any more total output. On the contrary, price “ceilings” tend to cause less output to be produced.
I have often wondered what would happen if the government could somehow capture all assets in the United States and give an equal share to every adult in the nation. How long would it take for things to go back to where there were those who were rich and those who were poor?
I’ll try to share more highlights as I work my way through the rest of the book. For those of you desiring a good introduction to economics, Basic Economicsthough longis an excellent place to start. Although Sowell definitely leans towards the conservative view, he is a libertarian.