Welcome to my personal blog. I mostly write on entrepreneurship, economics, libertarianism, movies, and my travels.

Search This Blog

Showing posts with label Libertarian Books. Show all posts
Showing posts with label Libertarian Books. Show all posts

Apr 1, 2024

Equality or Enough for Everyone? A Review of Eamonn Butler’s “An Introduction to Economic Inequality”


[This review was originally published in www.nepallivetoday.com on March 14, 2024]

Our public discourse is dominated by the agenda of economic inequality. The myriad of social and economic challenges plaguing our society are attributed to economic inequality, ostensibly stemming from capitalism and free markets. From poverty to pollution, from disparities in educational outcomes to youth unemployment, prevalent economic inequality is touted as the root cause. If only we had economic equality, we wouldn’t have half these problems, we are told. In Nepal, a country which as per its constitution is a socialism-oriented country, attaining equality in all facets of life is entrenched as our primary societal aim. Moreover, the sacrosanctity and desirability of equality are taken for granted. Equality is not just seen as a desirable state in itself, but also as a means to achieve other desirable goals such as development and happiness.

In such a scenario, it feels borderline immoral to criticize equality or even question the pursuit of it. And that’s precisely what Eamonn Butler has attempted to do in his book “An Introduction to Economic Inequality”. In this short introductory text, Butler lays out the multifaceted nature of economic inequality and manages to question and counter all the major assumptions and arguments made in the current bandwagon for the pursuit of economic equality. He meticulously dissects the major arguments made in favor of economic equality, providing a thorough critique, and offering insightful counterpoints. Butler’s book is an important reminder that if we allow the popularity of an idea to overshadow its merit, we not only have a poor understanding of it but also risk disastrous consequences from our misguided efforts. As the readers reach the end of the book, they will undoubtedly gain a deeper, more nuanced understanding of economic inequality and our endeavours to overcome it.

Butler begins the book by questioning the narrative itself – the veracity of the claims made about the prevalence and severity of economic inequality in the world. The shocking statistics on economic inequality we so frequently hear in the popular media are misleading, to say the least. Butler points out that these claims are based on pre-tax incomes which are taxed much higher than the poor segment of the population and do not include the state-sponsored benefits that are mainly utilized by the poor. What people get to consume ultimately is much more equal, he argues.

A more compelling argument he makes is the fact that people’s economic status changes over their lifetime. People in general get wealthier as they progress through life and accumulate more savings and investments. He argues that inequality statistics usually present a panoramic snapshot and do not represent the full picture. Therefore, it would be unfair to economically compare the people at different stages of life. Furthermore, economic indicators often fail to encompass the multitude of factors that contribute to overall quality of life, nor do they adequately capture the crucial influence of individuals’ preferences on their income levels. It is not uncommon to find people who opt for economically less rewarding jobs in favor of more leisure time or more flexibility. Neither is it rare to find people who sacrifice these other rewards in life in pursuit of higher earnings. Some people prioritize immediate higher earnings, forgoing future opportunities for higher income (e.g. those who forgo college) whereas others would rather sacrifice present earnings to ensure higher future earnings (e.g. individuals who go to college or acquire training). To put it succinctly, people make different choices based on their preferences, which has a bearing on their income level. The equality advocates seldom acknowledge this factor.

Butler then goes on to question the accuracy of income measurements including the Lorenz Curve and Gini Coefficient, noting their high sensitivity to outliers in the data. He also points out that ratios such as the Gini Coefficient and Palma Ratio do not provide a clear understanding of the precise nature of the inequalities within a country. He therefore reminds the readers that economists generally quote Gini Coefficients based on post-tax disposable income and warns them to be wary of activists quoting the pre-tax Gini Coefficients. Additionally, the wealth calculations, especially in the developed economies with welfare states, are distorted because they do not account for the value of state benefits and services, and these constitute a significant component of personal wealth.

Moreover, Butler delves into the question of inter-country inequality, highlighting that capital accumulation is a time-consuming and arduous process. He points out that today’s developed countries took more than two centuries of capital accumulation to reach their current status. Therefore, rather than trying to equalize countries, it is better to help the developing countries accelerate their capital-building process, he suggests. Along the way, Butler also responds to the French economist Thomas Piketty’s claim that economic inequality tends to increase over time, especially when the rate of return on capital exceeds the rate of economic growth, leading to a concentration of wealth among the already wealthy.

This idea, which was central to his widely popular book “Capital in the Twenty-First Century”, garnered significant attention upon its publication in 2013. Piketty argued in his book that it is only because of wars which dissipate the accumulated wealth that the capitalists have not been able to capture the world’s entire wealth. Butler counters this argument by emphasizing that managing and ensuring returns to capital is not an automatic process and the outcome of such an undertaking is far from certain.

The capital has to be carefully created, managed, and invested for it to grow, and the owner of the capital could fail at any stage of the process, potentially leading to its depletion. Similarly, there is also no guarantee that the heirs of an individual who has accumulated certain capital will succeed in maintaining or growing it. Butler refers to the findings of a study by Robert Arnott, the investor and writer, and his team, revealing that only half of inherited family wealth is sustained beyond a decade. In Nepal, too, while there are stories of generational wealth persisting and keeping certain families exceedingly rich, it is also quite common to find examples of family wealth being squandered by the heirs.

These are just a few of the claims that Butler debunks in his book. Besides these, Butler also refutes the assertions that inequality is linked to various other social problems such as lower life expectancy, poor education, mental illness, obesity, and political instability. Additionally, he challenges the notion that wealth accumulation is a zero-sum game, that open economies and free markets necessarily lead to higher economic inequality, that poverty has increased in the past three decades and so on.

Two of his major arguments, however, merit further discussion here. First, should economic inequality be our concern as long as everyone is getting richer or as long as everyone has enough? Butler poses a question that is at the core of his book’s message – what if we could instantly double the wealth of the world’s poor, even if it meant doubling the wealth of the rich people as well? Wouldn’t that be a preferable scenario? Yet from the perspective of current economic equality advocates, a scenario where both of these groups of people are poorer but more equal would be more desirable. Then this begs the question – is our crusade against economic inequality primarily driven by an envy of the rich rather than a concern for the poor? Moving on to the second major argument of the book, most of the solutions proposed by equality advocates are government-oriented i.e., more regulation, expansion of the government’s role in the economy, expansion of the tax regime, expansion of the welfare state, more government control of the economy, etc. However, as Butler points out in many cases, it is the government that is the problem.

Government action is behind many of the inequalities that exist. Examples include regulations that favor the larger businesses, regulations that create hurdles for entry of the new actors in a market, regulations that prevent the increase in the supply of products and services which could lower the cost for the poor, high inflation, corruption, and burdensome regulations that prevent the poor from engaging in entrepreneurial activities. Butler provides the example of housing regulations in the UK that have restricted the supply of new houses, driving up rents and making the lives of people, especially the poor, more difficult. In Nepal’s case, we see the government promoting or aiding corporate monopolies in various sectors of the economy. In such a scenario, asking for government solutions to address inequality is essentially asking to concentrate the power in the hands of a select few politicians and bureaucrats who are likely to be influenced or controlled by the largest corporations. Therefore, Butler argues that as a society we should aspire for economic mobility rather than economic equality. We should be more focused on ensuring that everyone has enough – not that everyone has an equal amount.

In “An Introduction to Economic Inequality”, author Eamonn Butler has attempted to create a short but very comprehensive rebuttal to the major claims made by the economic equality advocates. The book’s strength lies in the author’s ability to address all the major claims in favor of economic equality despite it being a short book. Additionally, the inclusion of some real-life examples has bolstered the arguments presented in the book. However, while Butler adeptly outlines the complexities of economic inequality, some readers may find his analysis lacking depth. The book covers a broad range of topics within a relatively short span, sacrificing depth for breadth. As a result, certain aspects of the issue may feel underexplored, leaving readers craving more detailed analysis and discussion.

Furthermore, some of Butler’s arguments appear superficial and weak. For example, he struggles to present a convincing case against initiatives aimed at ensuring equality of opportunity. His reliance on the anecdote of a few immigrants succeeding against the odds only proves the exception rather than the rule. The overall book lacks comprehensive solutions. While proposed free-market solutions and limited government interventions could be major components of a solution, they may not be sufficient. Critical readers, especially those who have been inundated with the inequality narrative, are unlikely to be persuaded without further elaboration and examples demonstrating how the free market would effectively address the problem.

Nevertheless, Eammon Butler’s “An Introduction to Economic Inequality” serves as a valuable primer for anyone seeking to understand the complexities of this pervasive societal issue. Butler’s accessible writing style and the integration of real-world examples make the book an engaging and informative read. For anyone curious to hear the alternative viewpoints on the prevailing economic equality narrative, this is the perfect starting point.

-Surath Giri

May 31, 2015

Read Road to Serfdom in Nepali for free


“Dashatwa ko Bato” is the Nepali translation  of the book “Road to Serfdom” written by Nobel Laureate economist F. A. Hayek. The book was published towards the end of Second World War cautioning about the increasing role of the state and domination of central planning of different aspects of people's lives even in the  then democracies like United Kingdom and United States of America. Hayek had cautioned that the expansion of role of state during war times was likely to continue after the war too and would eventually end up creating slaves out of general public. The book generated a huge debate in the political discourse of the Western countries at that time.

I had published the Nepali version of the book's cartoons in my blog. The post is still among the most popular posts in my blog. And now, Samriddhi, The Prosperity Foundation, the publisher of the Nepali version of the book has decided to make the book free to read and download. I think this is a great opportunity to read one of the most prominent books championing liberty. So enjoy!!


May 4, 2013

Top 10 quotes from The Moon Is A Harsh Mistress


I am not much into reading science fiction but I just finished reading Robert A. Heinlein's The Moon Is A Harsh Mistress. Considered one of the greatest modern science fiction and a libertarian classic, the book is  about a lunar colony's revolt against oppressive rule from Earth.The book is said to have popularized the phrase "There ain't no such thing as a free lunch" (TANSTAAFL) and inspired countless readers to become libertarians.

Below are the quotes from the book that I liked most. (In no particular order)

1. “There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.” 

2. "Must be a yearning deep in human heart to stop other people from doing as they please. Rules, laws — always for other fellow. A murky part of us, something we had before we came down out of trees, and failed to shuck when we stood up. Because not one of those people said: "Please pass this so that I won't be able to do something I know I should stop." Nyet, tovarishchee, was always something they hated to see neighbors doing. Stop them "for their own good" — not because speaker claimed to be harmed by it.”

3. “Nothing uses up alcohol faster than political argument.”

4. “I will accept any rules that you feel necessary to your freedom. I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free because I know that I alone am morally responsible for everything I do.” 

5. "Revolution is an art that I pursue rather than a goal I expect to achieve. Nor is this a source of dismay; a lost cause can be as spiritually satisfying as a victory."

6. "More than six people cannot agree on anything, three is better — and one is perfect for a job that one can do. This is why parliamentary bodies all through history, when they accomplished anything, owed it to a few strong men who dominated the rest."

7.  "In terms of morals, there is no such thing as 'state.' Just men. Individuals. Each responsible for his own acts."

8. "The chronic sickness of representative government, the disgruntled minority which feels — correctly! — that it has been disenfranchised."

9. "Seems to be a deep instinct in human beings for making everything compulsory that isn't forbidden."

10. "Limiting the freedom of news 'just a little bit' is in the same category with the classic example 'a little bit pregnant."

And this one too (lol),

11.  “Don't explain computers to laymen. Simpler to explain sex to a virgin.”

What are yours? Share in the comments below.

Jul 20, 2012

दासत्वको बाटो कस्तो हुन्छ (कार्टुन चित्रमा )



 













 माथिका कार्टुनहरु नोबेल पुरस्कार बिजेता एफ ए हाएक को पुस्तक रोड टु सर्फडमको नेपाली अनुवाद 'दासत्वको बाटो' बाट साभार गरिएका हुन । उक्त पुस्तक बजारमा सर्वत्र उपलब्ध छ । ईच्छा लागेमा  पढ्नुहोला । माथिका कार्टुनमा केहि प्रतिकृया भए तल व्यक्त गर्नु होला ।

Nov 21, 2010

Rakesh Wadhwa’s “The Deal Maker”: A review


I just finished reading Rakesh Wadhwa’s debut novel (written with Leon Louw) ‘The Deal Maker’. Well known for his free market and capitalism oriented articles in leading newspapers of Nepal, India, Sri Lanka and the US, Mr. Wadhwa has finally come up with a book that tries to sum up his political-economic views. Hence the book is more of an economic treatise than a work of fiction. Inspired by Ayn Rand’s monumental classic Atlas Shrugged, The Deal Maker follows the rise of Sudesh Kumar from an ordinary Indian boy to the prime minister of India. Sudesh too influenced by Atlas Shrugged, applies free market principles to lift India out of poverty into the world’s hub of trade and prosperity. The title “the Deal Maker” well suits the novel as it reflects the protagonist Sudesh Kumar’s deft abilities to make smart deals that benefits his people as well as his country.

Sudesh Kumar, the son of an honest policeman from a village near Delhi, aspires of becoming the prime minister and changing India after growing up. However, his life falls into disarray after his father dies in a government hospital due to hospital staff’s negligence. Sudesh, through a series of events ends up working for a multi-national company headed by Ray Upton, who is a passionate supporter of objectivism and free markets. Working for Ray Upton, Sudesh not only learns about business and investments but also a mentor who teaches him the philosophy of libertarianism that guides Sudesh’s every action thereafter. Returning to India after working in Upton Corporation for years, he embarks on the road to becoming a prime minister. Becoming the prime minister is next to impossible for an ordinary guy when added to his lack of knowledge of politics are traits like honesty, straightforward way of dealing with people and the belief in free markets which is almost heretical in Third world societies. However, Sudesh ability to influence people with his arguments and cutting smart deals help him along his journey.

Surrounding the main protagonist’s story are other various sub plots with related stories and twists which is generally asked for by a fictional work. Venashri, the daughter of India IT mogul, Inder, childhood buddy of Sudesh who later becomes a top cricketer of India, Police superintendent Nanek singh, Madhumati, the secret agent who is hell bent on eliminating criminals, Shakti, the sister of Inder who’s in love with Sudesh lead their own lives but at the same time contribute in many ways to the journey of Sudesh.

The prominent importance of this novel I find as a libertarian is its ability to express the ideas of free markets and libertarianism is a way that’s understandable even by the laymen or casual novel lovers who aren’t much familiar with political-economic discourses. I believe fiction is a wonderful and effective medium to reach out to the people with your ideas as the phenomenal success of Ayn Rand’s works in creating objectivists out of readers and the success of Robert Heinlein’s “The Moon is a Harsh Mistress” in creating libertarians shows us. We can expect “The Deal Maker” to influence people in similar direction making them aware of the real problems that the third world societies face today and the importance of free markets in creating prosperity.

Despite its success in disseminating ideas, The Deal Maker however doesn’t succeed too well as a novel. The series of events are somewhat too fictional and unrealistic even for a fictional novel about rags-to riches and the dialogues characters use while interacting with each other are too lame. Although it’s necessary for the novel to create a different world to discuss the ideas, when the world is too fictional the readers are less likely to relate the ideas in the real world. It would be sad if a reader tosses the book away after reading it thinking everything discussed exists just in a world created by Mr. Wadhwa’s mind. Besides, it would also have been better to have the name of Linux inventor right. The author could have worked harder to eliminate such minor technicalities and make the novel even better.

In spite of these, Mr. Wadhwa has done a great job of creating this novel which if nothing else, will surely help thousands of readers get different perspectives of the society they live in and the policies their governments are following. I am sure it will educate many people about free markets and their importance in creating prosperity. And hopefully make some more libertarians. Even if nothing as such were to happen, I am  still very happy that Mr. Wadhwa wrote this book, for now I have a definite book to gift or recommend when a novice book lover asks me “What is the best book about free markets or libertarianism for absolute beginners?”

Mar 29, 2010

The Choice: A Fable of Free Trade and Protection; A review


Economics as a subject makes an impression of being a tedious and dull subject to many which maybe, to some extent true. However, after reading a at least a dozen books about free market economics, what i can say for sure is that economics if expressed in simple terms and in a way so that readers can related them to their day to day lives is not only an interesting subject to learn but also an addictive realm of knowledge. After reading Russell Robert's articles and books however, one can confidently say, economics when written about by Mr. Roberts, is mesmerizing in the least.

The Choice: A Fable of Free Trade and Protection by Russell Roberts, is a book that deals with various aspects of free trade, international trade and protectionism. Written in the form of a novel and a very simple language, the book helps the readers grasp the complex concepts and issues of free trade and its benefits along with the harms of protectionist policies easily. The novel has brilliantly used a fictional story to make a strong case in favor of free trade and debunk the related myths. Plentiful of examples, help to reinforce the fact that free trade not protectionism is the way to prosperity. Protectionism not only helps to enrich a few people at the expense of many but also acts towards creating a stagnant and innovation-less, growth-less economy and thereby impoverishing people.

David Ricardo comes to life to discuss international trade theory and policy with Ed Johnson, a fictional American television manufacturer seeking trade protection from television manufacturers. Their dialogue is a sophisticated, rigorous discussion of virtually every major issue in trade theory and policy. Roberts paints the picture of American economy under free trade and under protectionism clearly.

Besides the brilliant use of fiction to make the book fun to read, what will impress you about the book is the way, Roberts has tried to answer to every objection imaginable raised against free trade. After completing the book, there will be very few, if any, questions or doubts with the reader about the benefits of free trade and the harms of protectionism.

Something that could have made the book even better , a little more elaboration on the "dumping" argument. Overall, a Must Read book , if you really want to know how free trade benefits all and how protectionist policies are encouraging impoverishment..something very relevant in the context of Nepal.

Mar 8, 2010

Ludwing Von Mises's Bureaucracy : A review


“Progress is precisely that which the [bureaucratic] rules and regulations did not foresee.”

As it is with every centrally planned or socialist economy, bureaucracy has been one of the major impediments to progress in Nepal. Excessive corruption and shameless inefficiency characterizes Nepalese bureaucracy. Though in many cases the very inefficiency has saved us the troubles of bureaucratic whim and regulation, it is among the primary hindrances to economic progress. No wonder the picture of bureaucracy drawn by Ludwig Von Mises in his book “Bureaucracy” bears uncanny resemblance to our bureaucracy.

First published in 1944 Bureaucracy is a classic economic treatise. It contrasts the two forms of economic management - that of a free market economy and that of a bureaucracy. In the market economy entrepreneurs are driven to serve consumers by their desire to earn profits and to avoid losses. In a bureaucracy, the managers must comply with orders issued by the legislative body under which they operate; they may not spend without authorization and they may not deviate from the path prescribed by law.

Mises has tried to explain why the private ownership and management of public goods easily triumphs over the public administration which is full of rules, regulations, authorizations and official codes and yet devoid of any real incentives for the managers to act in the client’s benefit.

Free Market economy being dependent on the wish of its customers has strong incentives to work efficiently and effectively, use its resources properly so that profit is maximized whereas in the bureaucratic management the managers have less incentives to use the resources effectively because since the resource doesn’t belong to them and efficient use isn’t going to bring them any reward.

As Mises points out, the inability to measure the outcome of publicly administered management economically is another reason for the inefficient operations of bureaucratic management. Bureaucratic management due to its inability or unwillingness to act beyond the official codes and plans fails to recognize and even works to hamper progress and innovations which is why he says progress is precisely that which the [bureaucratic] rules and regulations did not foresee.” He goes on to explain due to the very nature of these approaches to management, bureaucratic management works only for some services such as police, justice administration but fails every place else. “Bureaucracy” comes as a blow to big government fans who tend to believe government to be the panacea for all problems.

Overall, Bureaucracy is a perceptive and concise (around 100 pages) book to understand the dangers of socialism and bureaucratic management. If you have never read Mises, you are in for a treat.

Mar 4, 2010

Lawrence Reed's Striking the Root: A review


My latest read as a dose of liberty was Lawrence W. Reed's "Striking the root", a collection of short essays on liberty. Previously I had read Reed's article "Seven Principles of Sound Public Policy". It had been a rewarding read . So was this one as well.
Lawrence W. (Larry) Reed, 56, is president of the Foundation for Economic Education (FEE), headquartered in Irvington-on-Hudson, New York, a position he has held since September 1, 2008. Before joining FEE, Reed served as president of the Mackinac Center for Public Policy, a Midland, Michigan based free-market think tank. To date, he remains Mackinac’s president emeritus. ( Wikipedia )

As per the author, the title of the volume was derived from the quote by Henry David Thoreau "There are a thousand hacking at the branches of evil to one who is striking at the root." And indeed the volume is a huge blow at the root of evils of present day societies i.e. collectivist thinking and growing clutches of state intervention. The attitude of people to benefit at the expense of others. The author has been well able to strike at the roots with the club of liberty. Striking the Root is an excellent and quick read on the ideals of liberty. Reed's examples drive home the fact that a government who intervenes makes a bigger mess rather than fixing the initial problem.

The volume is easy to read and yet very rewarding. The essays are short and precise. Anyone interested in understanding the functioning of a free society and the way state intervention and collectivist approaches are causing evils in the society will highly benefit from the book.

I especially enjoyed reading the essays "Government Education reinvents government", "To own or be owned: That is the Question", "An open letter to Statists everywhere", "The true meaning of Patriotism", "Who owes what to whom?" , "What is real compassion?" and "Reviving a Civil Society".

Sep 20, 2009

Frederick Bastiat's "The Law": A review


The Law, first published as a pamphlet in June, 1850, as a response to socialism in France, is already more than a hundred years old. And because its truths are eternal, it will still be read when another century has passed.

Frederic Bastiat (1801-1850) was a French economist, statesman, and author. He did most of his writing during the years just before - and immediately following -- the Revolution of February 1848. This was the period when France was rapidly turning to complete socialism. As a Deputy to the Legislative Assembly, Mr. Bastiat was studying and explaining each socialist fallacy as it appeared. And he explained how socialism must inevitably degenerate into communism.

In "The Law" ,Bastiat demonstrates a thorough and flawless understanding of both the bright and dark sides of human nature, of the essential role each has played in the growth and divergence of collectivist and (18th century) liberal ideologies, and most importantly, the resulting tendency for government, in all of its most common manifestations, to grow and for liberty to yield. The principles proffered herein are the very genesis of the body of thought most commonly attributed to such brilliant authors as Milton Friedman, F. A. Hayek, Adam Smith, and Thomas Paine. Bastiat was the consummate humanitarian, and a genius with no peer.

An excerpt from the book:

"But, unfortunately, law by no means confines itself to its proper functions. And when it has exceeded its proper functions, it has not done so merely in some inconsequential and debatable matters. The law has gone further than this; it has acted in direct opposition to its own purpose. The law has been used to destroy its own objective: It has been applied to annihilating the justice that it was supposed to maintain; to limiting and destroying rights which its real purpose was to respect. The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense into a crime, in order to punish lawful defense."

Overall, a must read book for anyone who wants to understand the nature of the government and the value of liberty!

Jun 10, 2009

Economics in One Lesson: A review


"The art of economics consists in looking not merely at the immediate, but at longer effects of any act or policy, it consists in tracing the consequences of that policy not merely for one group, but for all groups.”

Usually considered one of the most important books in economics, Henry Hazlitt's classic, Economics in One Lesson, is an easy-to-read introduction to the concepts of economic liberty. This manifesto of free market economics has taught millions sound economic thinking. Written in a very lucid manner and revolving around the central theme of free markets, the book is as simple to read and understand as compelling and profound it is in its logic. The hardheaded, sensible and resonable way used to deal with the basic economic principles makes it clear that economic idealism which entails in expansion of government's intervention in markets often results in tyranny,corruption and ultimately waste of resources, impoverishing the majority. The logics presented are based on the common senses and basic economic principles and hence even the most determined anti-free market activist can't afford to ignore them.

The book was written when Hazlitt was an editorialist at the New York Times with the hope of creating a book on economics that would boil down all the principles of economics into few simple lessons that even layman would understand and never forget. Fortunately, the book has proved to be successful in its intent.

The book was written based on some stories by Bastiat and it was the book that made the the idea of the "broken window fallacy" so famous.A must read book for anyone interested in understanding how economy works and thinking like an economist. Besides, after reading the book , you will think twice regarding the economic decisions being made around you.

Apr 29, 2009

Common Sense Economics: A review


Though, my blog has readers almost next to none but still I must say it has been a long long time since I updated my blog and I was afraid that my blog was slowly going into oblivion. Looking around in search for something to post , i found a short review I had written about this book called "Common Sense Economics", which one of the first book i read in my quest for understanding free market economy and its importance. I present my readers my review .


Common Sense Economics

What Everyone Should Know About Wealth and Prosperity
By James Gwartney, Richard L. Stroup, and Dwight R. Lee

Economics and fun have long been an oxymoron to a layman. Economics has been accused of being too abstract, irrelevant, unrealistic and boring subject but here comes a book that defies all these notions. "Common Sense," subtitled "What Everyone Should Know About Wealth and Prosperity," contains a wealth of information about the major sources of economic progress, economic progress and the role of government, and important elements of practical personal finance. Written by three of the most prominent economists of today, this book acts as a bridge between common sense and the basic principles of economics. Its language is simple, clear and straightforward but not at the cost of any important insights and basic economic theories. It is a book with strong message justified by strong arguments- economic progress is the result of competitive & free markets, of individual initiatives and minimalist state.

The last section of the book contains finance principles on how to invest your money, using the principles of compound interest and how to get more out of your money. There's nothing in the book that goes beyond common sense, something rare these days.

Summary

Part I: The Key Elements of Economics

-Incentives matter
-No matter what people care about personal costs and benefits. Incentives play vital role when people make specific decisions
-Applies to economical, political and social situations, selfish and altruistic acts.
-There is no such thing as a free lunch.
-Productive resources that fulfill human desires are limited whereas human desires are virtually unlimited
-Everything has a cost, direct or opportunity cost. If a resource is free for a person, then the cost is being borne by someone else.
- Decisions are made at the margin.
-Decisions or choices always involve additions to, or subtractions from current conditions, rather than "all-or-nothing" decisions.
-Political actions also reflect decisions made at margin.
-Trade promotes economic progress.
-Trade moves goods from people who value them less to people who value them more.
-Trade makes larger outputs and consumption levels possible because it allows each of us to specialize more fully in the things that we do best.
-Voluntary exchange makes it possible for firms to achieve lower per-unit costs by adopting mass production methods.
-Transaction costs are an obstacle to trade.
-Costs incurred in transactions make trade costly.
-Not all middlemen are obstacles; sometimes they reduce transaction costs by brokering deals.
- Profits direct businesses toward activities that increase wealth.
-People earn income by helping others.
-Only if people value a person's service will they be paid
- High earnings come from providing goods and services that others value
-Economic progress comes primarily through trade, investment, better ways of doing things, and sound economic institutions.
-Investments in productive assets (e.g. tools and machines) and in the skills of workers enhance our ability to product goods and services.
-Improvements in technology spur economic progress.
-Improvements in economic organization can promote growth.
-The "invisible hand" of market prices directs buyers and sellers toward activities that promote the general welfare.
-Too often long-term consequences, or the secondary effects, of an action are ignored.

Part II: Seven Major Sources of Economic Progress

-Legal system: The foundation for economic progress is a legal system that protects privately owned property and enforces contracts in an even-handed manner.
-Private ownership encourages wise stewardship.-Private ownership encourages people to use their property productively.
-Private owners have a strong incentive to develop things that they own in ways that are beneficial to others.
-Private ownership promotes the wise development and conservation of resources for the future.
-Competitive markets: Competition promotes the efficient use of resources and provides a continuous stimulus for innovative improvements.
-Competition places pressure on producers to operate efficiently and cater to the preferences of consumers. Firms that fail to provide consumers with quality goods at competitive prices will experience losses and eventually be driven out of the markets.
-Competition gives firms a strong incentive to develop better products and discover lower-cost methods of production.
-Competition also discovers the business structure and size of firms that can best keep the per-unit cost of a product or service low.
-Limits on government regulation: Regulatory policies that reduce trade also retard economic progress.
-Many countries impose regulations that limit entry into various businesses and occupations.
-Regulations that substitute political authority for the rule of law and freedom of contract will tend to undermine gains from trade.
-The imposition of price controls will also stifle trade.
-An efficient capital market: To realize its potential, a nation must have a mechanism that channels capital into wealth-creating projects.
-To make the most of its potential for economic progress, a nation must have a mechanism that will attract savings and channel them into the investments that are most likely to create wealth.
-Monetary stability: Inflationary monetary policies distort price signals, undermining a market economy.
-Low tax rates: People will produce more when they are permitted to keep more of what they earn.
-High tax rates discourage work effort and reduce the productivity of labor.
-High tax rates will reduce both the level and efficiency of capital formation.
-High marginal tax rates encourage individuals to consume tax-deductible goods in place of nondeductible goods, even though the nondeductible goods may be more desirable.
-Free trade: A nation progresses by selling goods and services that it can produce at a relatively low cost and buying those that would be costly to produce.
-The people of each nation benefit if they can acquire a product or service through trade more cheaply than they can produce it domestically.
-International trade allows domestic producers and consumers to benefit from the economies of scale typical of any large operations.
-International trade promotes competition in domestic markets and allows consumers to purchase a wider variety of goods at lower prices.

Part III: Economic Progress and the Role of Government

-Government promotes economic progress by protecting the rights of individuals and supplying goods that cannot be provided through markets.
-Government is not a corrective device.
-The costs of government are not only taxes.
-There is the loss of private-sector output that could have been produced with the resources that are now employed producing the goods supplied by the government.
-There is the cost of resources expended in the collection of taxes and the enforcement of government mandates.
-There is the cost of price distortions resulting from taxes and borrowing.
-Unless restrained by constitutional rules, special interest groups will use the democratic political process to fleece taxpayers and consumers.
-Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively.
-Government slows economic progress when it becomes heavily involved in trying to help some people at the expense of others.
-The costs of government income transfers are far greater than the net gain to the intended beneficiaries.
-An increase in government transfers will reduce the incentive of both the taxpayer-donor and the transfer recipient to earn income. Economic growth will thereby be retarded.
-Competition for transfers will erode most of the long-term gain of the intended beneficiaries.
-Programs that protect potential recipients against adversity arising from their imprudent decisions encourage them to make choices that increase the likelihood of the adversity.
-Central planning replaces markets with politics, which wastes resources and retards economic progress.
-Central planning merely substitutes politics for market verdicts.
-The incentive of government-operated firms to keep costs low, be innovative, and efficiently supply goods is weak.
-There is every reason to believe that investors risking their own money will make better investment choices than central planners spending the money of taxpayers.
-There is no way that central planners can acquire enough information to create, maintain, and constantly update a plan that makes sense.
-Competition is just as important in government as in markets.
-Constitutional rules that bring the political process and sound economics into harmony will promote economic progress.

Part IV: Twelve Key Elements of Practical Personal Finance

-Discover your comparative advantage.
-Be entrepreneurial. In a market economy, people get ahead by helping others and discovering better ways of doing things.
-Providing others with goods and services that are highly valued compared to their cost is the key to financial success.
-Spend less than you earn. Begin a regular savings program now.
-Don't finance anything for longer than its useful life.
-Two ways to get more out of our money: Avoid credit-card debt and consider purchasing used items.
-Begin paying into a "real-world" savings account every month.
-Put the power of compound interest to work for you.
-Diversify-don't put all of your eggs in one basket.
-Indexed equity funds can help you beat the experts without taking excessive risk.
-Invest in stocks for long-run objectives; as the need for money approaches, increase the proportion of bonds.
-Beware of investment schemes promising high returns with little or no risk.
-Teach your children how to earn money and spend it wisely.