by John Hawkins | April 4, 2005 12:01 am
Thomas Sowell’s Applied Economics: Thinking Beyond Stage One explains what happens when economic principles are actually applied in the real world.
Enjoy the quotes!
“In short, killing the goose that lays the golden egg is a viable political strategy, so long as the goose does not die before the next election and no one traces the politicians’ fingerprints on the murder weapon.” — P.8
“Subsidized train fares in India, for example, are paid for by raising freight charges. No doubt this wins more votes among passengers than the votes lost among shippers, simply because there are likely to be far more passengers. However, the economic result of these artificially high freight charges, according to the distinguished British magazine The Economist. is that “power plants in the south of India find it cheaper to import coal from Australia than to buy it from Bihar.” Meanwhile, Bihar is one of the poorest states in India and could very much use additional jobs in its coal industry.” — P.9
“Another major difference between private and governmental institutions is that, no matter how big and successful a private business is, it can always be forced out of business when it is no longer satisfying its customers — whether because of its own inadequacies or because competing firms or alternative technologies can satisfy the customers better. Government agencies, however, can continue on despite demonstrable failures, and the power of government can prevent rivals from arising.” — P.13
“Slavery is one of the oldest and most universal of all human institutions. Slavery has existed among peoples around the world, as far back as recorded history goes, and archaeological explorations suggest that it existed before human beings learned how to write. No one knows when slavery began. It is the idea of freedom for the great masses of ordinary people that is relatively new, as history is measured — and this idea is by no means universally accepted around the world, even today.” — P.31
“An international consulting firm determined that the average labor productivity in the modern sectors of India is 15 percent of that in the United States. In other words, if you hired an average Indian worker and paid him one-fifth of what you paid an average American worker, it would cost you more to get a given amount of work done in India than in the United States. Paying 20 percent of what an American worker earns to someone who produces only 15 percent of what an American worker produces increases your labor costs, even though you are hiring “cheap labor” and are virtually certain to be accused of exploitation.” — P.41
“After the Atlanta suburb of Kennesaw passed an ordinance requiring heads of households to keep a firearm in their homes, residential burglaries dropped 89 percent.” — P.48
“Sellers in general maintain the quality of their products and services for fear of losing customers otherwise. But, when price controls create a situation where the amount demanded is greater than the amount supplied — a shortage — fear of losing customers is no longer as strong an incentive. For example, landlords typically reduce painting and repairs when there is rent control, because there is no need to fear vacancies when there are more tenants looking for apartments than there are apartments available.” — P.70-71
“Some uninsured people have low incomes but others with incomes sufficient to purchase health insurance simply choose to use their money for other things, especially if they are young and feel less at risk of medical problems. Forty percent of uninsured Americans are under the age of 25 and more than 60 percent are under the age of 35. Fewer than 10% of people over 55 are uninsured, despite the widespread political use of an image of old people who may have to choose between food and medical care. That may be the image of the uninsured, but it is hardly the reality.” — P.79
“If a thousand children die from a new drug allowed into the market with less testing and ten thousand would die while more testing was going on, the public outcry over the deaths of those thousand children would bring the wrath of the whole political system down on the heads of those officials who permitted the drug to be approved with “inadequate” testing. But then if a hundred times as many people die while prolonged testing goes on, there will be few, if any stories about those people in the media.” — P.91
“Most of what are called attempts to “bring down the cost of medical care” are not that at all. They are attempts to bring down the prices charged by physicians, hospitals, and pharmaceutical companies. Many of those who are most active in trying to bring down these prices are most resistant to bringing down the real costs of medical care by such things as making it harder for lawyers to win frivolous lawsuits against doctors and hospitals or making the Food and Drug Administration’s approval process for new medicines less time-consuming, or reducing the layers or bureaucracy administering various schemes of third-party payments. These things all drain resources that otherwise could be used to treat or cure diseases, or to prevent them.” — P.93
“Four things have almost invariably followed the imposition of controls to keep prices below the level they would reach under supply and demand in a free market: (1) increased use of the product or service whose price is controlled, (2) Reduced supply of the same product or service, (3) quality deterioration, (4) black markets.” — P.93
“Politics offers attractive solutions but economics can offer only trade-offs. For example, when laws are proposed to restrict the height of apartment buildings in a community, politics presents the issue in terms of whether we prefer tall buildings or buildings of a more modest height in our town. Economics asks what you are prepared to trade off in order to keep the height of buildings below some specified level. In places where land costs may equal or even exceed the cost of the apartment buildings themselves, the difference between allowing ten-story buildings to be built and allowing a maximum of five stories may be that rents will be twice as high in the shorter buildings. The question then is not simply whether you prefer shorter buildings but how much do you prefer shorter buildings and what price are you prepared to pay to mandate height restrictions in your community. A doubling of rents and three additional highway fatalities per yet? A tripling of rents and six additional highway fatalities per year? Economics cannot answer such questions. It can only make you aware of a need to ask them.” — P.127
“To the extent that organized labor succeeds in raising pay levels above where they would be under supply and demand in a free market, they provide incentives for employers to hire fewer workers because labor is now more costly, both absolutely and relative to the cost of capital that may substituted for it.” — P.171
“Because major league baseball operated as a cartel exempted from anti-trust laws, it too had low costs of discrimination and was able to keep black players out — so long as all teams did so. But this situation changed in 1947, when the Brooklyn Dodgers hired Jackie Robinson as the first black major league ballplayer. Because there was competition within the cartel among its various teams, once the color barrier was broken by just one team hiring just one black player, the cost to keeping out other black players rose sharply. The net result was that, in a matter of a relatively few years, large numbers of black players flooded into the major leagues. For a period of seven consecutive years, no white man won the National League’s Most Valuable Player award. Had other teams not followed the lead of the Dodgers in hiring black players, all these MVP stars would have become Dodgers, giving Brooklyn a virtual monopoly of National League Pennants and perhaps of world championships.” — P.173
“As of 1989, black, white, and Hispanic Americans of the same age (29) and with the same IQ (100) all averaged between $25,000 and $26,000 in income when they worked year round.” — P.181
“American women’s incomes have never been as high as the incomes of American men but, as early as 1971, women in their thirties who had never married and who worked continuously since high school earned slightly higher incomes than men of the same description.” — P.180
“If we were in fact approaching those ultimate limits, whether in food supply, natural resources, or other necessities of life, their rising prices would not only inform us, but force us to change course, without public exhortations or politically-imposed limitations.” — P. 216
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