Tuesday, June 20, 2017

Notes on Basic Economics by Thomas Sowell

Garden of Eden is not an economy b/c there was unlimited resources

Need economy due to scarcity and that we have desires that are unmet!

Allocation of scarce resources that have alternative uses ie Triage

One resource can be used different ways

Natural resources do not necessarily equal riches

Scarce resources and unmet needs are relative to their prices often. If we have a lack of teachers that is based on today's price. If we gave teachers a million dollars a year we would have no lack. 

Some things are just scarce because it is economically scarce such as oil in Canada that is now profitable given high oil costs and better technology. 

Taking from one use diminishes its use somewhere else. 

Prices tell us if we actually want something and they adjust accordingly. If an outside source, such as government, messes with this equilibrium, supply & demand will be skewed, including less production of the thing people wanted more due to diminishing profits

Stores in rough neighborhoods have higher costs due to increased need of security, shoplifting, and risk

Payday loans have a high interest rate because they are not intended to be long term loans. These business have high risk (not to mention start up costs, employee costs, etc) and are located in rough neighborhoods, precisely because banks do not want to go there. For some, the 70% interest rate for 1 week is worth it to have running water or electricity and without these places, they would have no way to get cash. It may be worth it for them.

Risk needs to be considered. It is important to remember most business go out of business and that there are seasons of losses...

Other costs such as transportation, are the reason small local chain stores faded out of business, as multiple trips for 100 apples is more expensive than 1 trip for 100 apples ie A&P Grocers

Even though it may take a street artist to make something in 5 minutes, it took him 20 years (investment) to get to the skill level. The 20 year investment needs a ROI or we will have no artists

Big corps do not make "excessive profits" more like 10%. Profits cause business to strive to do better and become more efficient. The socialist system, did not have this incentive, so they did not succeed as well. The socialist incentives are sometimes life & death!

Economies of scale are important. Australia cannot afford to make cars b/c it cannot sell enough domestically nor compete with the existing infrastructure of big car companies (ie R&D costs, etc.)

Just because wages are cheaper in other countries doesn't mean they can make items at a cheaper costs because a poor countries capital cost may be too high and their workers less efficient. Rich countries' workers make more, but are more efficient with less capital costs = more output for less.

Political incentives (short term or for re-election) or different from the market's incentives.

Tariff's are bad because they do not take into account the all affected groups. These are focused on saving jobs or helping specific domestic specialist groups over the general public/consumers

Populations that are more open tend to have "better human capital"

Malthus population control theory is wrong b/c increasing populations have brought the ability, and subsequently, more wealth

Not all cultures are equal economically. Some have needed to save food for the winter and some did not b/c sunshine was plentiful. This led to some cultures putting a premium on saving.

Something is not a natural resource (ie oil) unless there is technology to use it

Some resources are only "scarce" b/c current technology is prohibitively expensive

Keynesian Economics - Governmental role  is important and can fine tune the economy thus help (inflation during depression to help curb unemployment)

Friedman and the Chicago school of economics disagree with the Keynesians and believe in the market


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