Tag Archives: Thomas Sowell

What determines the prices of goods and services in a market economy?

Basic Economics: Prices are set by supply and demand
Basic Economics: In a free market, prices are set by supply and demand

A few days ago, I posted the meme above on the blog’s Facebook page. The meme makes fun of unionized public school teachers, who feel entitled to the same salary and benefits as doctors, software engineers, etc. in the private sector. I thought that all Americans were familiar with basic economics. But judging from some of the comments to the meme, that is not the case. This post will help.

So, the point of this meme is simple, it’s to point out that the teachers who belong to teacher unions are ignorant of basic economics, specifically, the law of supply and demand. As we’ll see in a minute, this is literally lesson 1 of Economics 101.

When there is more demand for a product or service than there is a supply for it, then prices go up. When there is more supply for a product or service than there is a demand for it, prices go down.

A good place to see this explained is in a book by famous black economist Thomas Sowell. Thomas Sowell has written many books, but he wrote one book in particular for people who have no knowledge of basic economics. It’s called “Basic Economics: A Citizen’s Guide to the Economy“. And the first few chapters explain how prices are set by supply and demand:

  1. What is Economics?
  2. The Role of Prices
  3. Price Controls
  4. An Overview of Prices

Most people who commented on the meme had some knowledge of basic economics, and how prices are determined.

Here’s Bruce:

Wages–the prices of labor–are set by free people bidding in an open market for the labor of people willing to work. They are not set by an emperor weighing abstractions. There are 3.7 million teachers working in the US, and only about 5000 professional athletes.

And Chris:

My coworkers and I (we are fintech people with highly specialized knowledge and computer skills) were talking about some computer-related consultants who are so specialized and so good that they command hundreds (if not thousands of dollars per hour). The top of the top cyber security guys, who do presentations at conferences on threats and vectors? Yeah, thousands if not tens of thousands of dollars per hour.

So far, so good. But others argued that the prices of goods and services are determined by a sinister cabal of politicians and other elites, who paid athletes lots of money in order to distract the masses with “bread and circuses”. Now, I know what you’re thinking. How does paying athletes MORE get people to care about sports? It doesn’t. Actually, it’s the (widespread) demand to see the performance of (scarce) elite athletes that causes the wages of those athletes to increase. It’s not a conspiracy – it’s free people making choices about what they want to buy in a free market.

It turns out that there are two views of how wages are set in an economy:

The labor theory of value (LTV) is a theory of value that argues that the economic value of a good or service is determined by the total amount of “socially necessary labor” required to produce it.

LTV is usually associated with Marxian economics… The LTV is central to Marxist theory, which holds that the working class is exploited under capitalism, and dissociates price and value. Marx did not refer to his own theory of value as a “labour theory of value”.

Mainstream neoclassical economics tends to reject the need for a LTV, concentrating instead on a theory of price determined by supply and demand.

Marxists economists believe that the value of a good or service is determined by the social utility of the work produced. But classical (“free market”) economists believe that value is determined by the scarcity of the good or service relative to the demand from consumers.

So, a Marxist economist might say “teaching English is valuable because it is relevant and meaningful”. But, a classical economist would say “conducting a security audit on distributed point-of-sale system is valuable, because few people can do it, but many people want it”.

So, the conspiracy theorists view of economics, which asserts that teachers should be paid more than software engineers and doctors, is actually based on Marxist (atheistic) assumptions. And yet many of the people who hold to the conspiracy view of prices fancy themselves to be Christians and conservatives.

I’ve noticed that school teachers and non-STEM university students and professors are very likely  to hold to the conspiracy theory view of prices and wages. Robert Nozick wrote a paper about why this happens. It turns out that “wordsmiths” (his word) are conditioned by their performance in the classroom to expect success in the free market economy. But when they find that their “brilliance” in English poetry, Medieval history, or lesbian dance theory has no value to anyone else, they fall in with these Marxist assumptions and conspiracy theory views of the economy. It’s a coping mechanism for people who value academic acclaim more than doing something useful for their neighbors.

Consider this article from College Pulse about a survey of 10,590 undergraduate students:

Students with certain majors are far more likely than their peers to approve of socialism. Philosophy majors, in particular, have a positive view of socialism. Nearly 8 in 10 (78%) say they view the economic system favorably, followed by 64% of anthropology majors, and 58% of both English and international relations majors. Accounting and finance majors are least likely to view socialism positively (20% and 22% respectively).

Do you know what accounting and finance students have to study? Basic economics.

I noticed that the practical commenters who were trying to explain why teachers earn less than software engineers all had some experience working for a living in the private sector. A couple of them mentioned how studying economics on their own had led them to a correct understanding of how the economy works. That’s what happened to me, as well.

As soon as I got my first job as a software engineer, and finished my study of Christian apologetics, the very next thing I studied was economics. It was Dr. Jay Richards who got me interested in it, when I heard him speaking about economics in an apologetics lecture for Stand to Reason. I contacted him, and he recommended the works of two famous economists, F. A. Hayek and Thomas Sowell. And that’s what I want to recommend to you, too. Our continued liberty and prosperity depends on ordinary Americans taking the time to educate themselves about basic economics.

Two black economists explain how to end poverty in America

Economist Walter Williams
Economist Walter Williams

Walter Wiliams is one of my two favorite economists, the other being Thomas Sowell.

Here is his article on wealth and poverty on Creators written by Dr. Williams.

First, real poverty is not common in America:

There is no material poverty in the U.S. Here are a few facts about people whom the Census Bureau labels as poor. Dr. Robert Rector and Rachel Sheffield, in their study “Understanding Poverty in the United States: Surprising Facts About America’s Poor”, report that 80 percent of poor households have air conditioning; nearly three-quarters have a car or truck, and 31 percent have two or more. Two-thirds have cable or satellite TV. Half have one or more computers. Forty-two percent own their homes. Poor Americans have more living space than the typical non-poor person in Sweden, France or the U.K. What we have in our nation are dependency and poverty of the spirit, with people making unwise choices and leading pathological lives aided and abetted by the welfare state.

Second, the “poverty” is not caused by racism, but by poor choices:

The Census Bureau pegs the poverty rate among blacks at 35 percent and among whites at 13 percent. The illegitimacy rate among blacks is 72 percent, and among whites it’s 30 percent. A statistic that one doesn’t hear much about is that the poverty rate among black married families has been in the single digits for more than two decades, currently at 8 percent. For married white families, it’s 5 percent. Now the politically incorrect questions: Whose fault is it to have children without the benefit of marriage and risk a life of dependency? Do people have free will, or are they governed by instincts?

There may be some pinhead sociologists who blame the weak black family structure on racial discrimination. But why was the black illegitimacy rate only 14 percent in 1940, and why, as Dr. Thomas Sowell reports, do we find that census data “going back a hundred years, when blacks were just one generation out of slavery … showed that a slightly higher percentage of black adults had married than white adults. This fact remained true in every census from 1890 to 1940”? Is anyone willing to advance the argument that the reason the illegitimacy rate among blacks was lower and marriage rates higher in earlier periods was there was less racial discrimination and greater opportunity?

Third, avoiding poverty is the result of good choices:

No one can blame a person if he starts out in life poor, because how one starts out is not his fault.

If he stays poor, he is to blame because it is his fault. Avoiding long-term poverty is not rocket science. First, graduate from high school. Second, get married before you have children, and stay married. Third, work at any kind of job, even one that starts out paying the minimum wage. And finally, avoid engaging in criminal behavior. It turns out that a married couple, each earning the minimum wage, would earn an annual combined income of $30,000. The Census Bureau poverty line for a family of two is $15,500, and for a family of four, it’s $23,000. By the way, no adult who starts out earning the minimum wage does so for very long.

Fourth, what stops people from making good choices is big government:

Since President Lyndon Johnson declared war on poverty, the nation has spent about $18 trillion at the federal, state and local levels of government on programs justified by the “need” to deal with some aspect of poverty. In a column of mine in 1995, I pointed out that at that time, the nation had spent $5.4 trillion on the War on Poverty, and with that princely sum, “you could purchase every U.S. factory, all manufacturing equipment, and every office building. With what’s left over, one could buy every airline, trucking company and our commercial maritime fleet. If you’re still in the shopping mood, you could also buy every television, radio and power company, plus every retail and wholesale store in the entire nation”. Today’s total of $18 trillion spent on poverty means you could purchase everything produced in our country each year and then some.

Regarding those last two points, here is Thomas Sowell:

Economist Thomas Sowell blames welfare for killing the black family
Economist Thomas Sowell blames welfare for killing the black family

To illustrate this point, here’s a graph with some helpful data taken from the U. S. Census.

Black women were more likely to be married before welfare programs
Black women were more likely to be married before welfare programs

In fact, there is a whole video featuring Thomas Sowell to go with this graph:

And an article to go with it:

If we wanted to be serious about evidence, we might compare where blacks stood a hundred years after the end of slavery with where they stood after 30 years of the liberal welfare state. In other words, we could compare hard evidence on “the legacy of slavery” with hard evidence on the legacy of liberals.

Despite the grand myth that black economic progress began or accelerated with the passage of the civil rights laws and “war on poverty” programs of the 1960s, the cold fact is that the poverty rate among blacks fell from 87 percent in 1940 to 47 percent by 1960. This was before any of those programs began.

Over the next 20 years, the poverty rate among blacks fell another 18 percentage points, compared to the 40-point drop in the previous 20 years. This was the continuation of a previous economic trend, at a slower rate of progress, not the economic grand deliverance proclaimed by liberals and self-serving black “leaders.”

Ending the Jim Crow laws was a landmark achievement. But, despite the great proliferation of black political and other “leaders” that resulted from the laws and policies of the 1960s, nothing comparable happened economically. And there were serious retrogressions socially.

Nearly a hundred years of the supposed “legacy of slavery” found most black children being raised in two-parent families in 1960. But thirty years after the liberal welfare state found the great majority of black children being raised by a single parent.

The rest of the article points out how even crime rates among blacks were caused by the implementation of soft law enforcement policies by progressives. Just look at the big cities if you want to know what it is like for blacks to be ruled by Democrats. It sucks!

If everybody started to read more Thomas Sowell books, we would be much better off as a country! Only good things happen when people stop watching TV and listening to music and watching movies, and instead settle down in a chair with a Thomas Sowell book. I recommended a bunch of them in a previous post.

Dave Rubin interviews my favorite economist: Thomas Sowell

Economist Thomas Sowell
Dr. Thomas Sowell – the best economics teacher you will ever learn from

Two half-hour interviews with my FAVORITE economist, Thomas Sowell. If you haven’t read any books by Thomas Sowell, then you don’t know how wonderful economics can be. Thomas Sowell stands for the proposition that before you adopt an economic policy, you have to consider what incentives it will create for everyone involved. And he backs up his ideas with studies that span the whole range of times and places. It turns out that many bad ideas have already been disproved in different times and places, and Thomas Sowell knows them all. Thomas Sowell is a man of facts and evidence.

Description of part one:

Dr. Thomas Sowell (Economist) joins Dave to discuss his Marxist past, free speech on campuses, distinguishing between classical liberalism and libertarianism, and his new book “Discrimination & Disparities.

Part one:

“This idiot has stumbled on something that will ruin us all”. LOL!

Description of part two:

Dr. Thomas Sowell (Economist and Author) joins Dave to discuss the role of government, the problem with minimum wage laws, his experience as a black conservative, debunking systemic racism, the importance of common decency, and his new book “Discrimination & Disparities.”

Part two:

In the comments, Dave explains that YouTube has demonetized the video. I suppose that this is because the video contains conservative ideas, and YouTube is owned by the far-left Google.

Anyway, I recommend getting your hands on some Thomas Sowell books.

This one seems to be a collection of introductory essays:

The Thomas Sowell Reader

I haven’t read it, but it has the highest reviews of any of his books. What I would recommend is picking up one of the OLDER versions of his “Basic Economics”:

Basic Economics

You can get a used one for a couple of bucks. I read the second edition a while back, and I remember that just reading the first 3 chapters knocked my socks off. Some helpful person even uploaded the audio of the edition I read to YouTube. Just listen to the first 3-4 chapters, and you’ll see what I mean. No one who wants to understand how the world really works can ignore Thomas Sowell.

One that I still haven’t read that’s short and sweet is:

The Vision of the Anointed

But a later book that is similar is actually my favorite Thomas Sowell book:

Intellectuals and Society

I also liked this one a lot:

Economic Facts and Fallacies

I once dated a homeschooled girl who came from a large, rural family. This family produced brilliant children, but the parents didn’t really believe in college. I told the girl that to marry me, she would have to get a college degree. She and her parents didn’t really like that, and we broke up. However, I did tell her that she should read Thomas Sowell, because she had some left of center views on public policy, e.g. – health care. I found out later that she went on to read SIX Thomas Sowell books in two months. After that, she went on to get a BA in economics via distance learning, with a 4.0 GPA! I think part of that transformation is due to the Thomas Sowell books. Thomas Sowell changes lives.

I have to include this clip of Thomas Sowell from a long time ago:

He understood the things we are fighting about today decades ago. This man should have been our first black president.

By the way, Dave Rubin does a lot of good interviews. This one that he did with Larry Elder was worth watching.

Two black economists explain how to not be poor in America

Economist Walter Williams
Economist Walter Williams

Walter Wiliams is one of my two favorite economists, the other being Thomas Sowell.

Here is his article on wealth and poverty on Creators written by Dr. Williams.

First, real poverty is not common in America:

There is no material poverty in the U.S. Here are a few facts about people whom the Census Bureau labels as poor. Dr. Robert Rector and Rachel Sheffield, in their study “Understanding Poverty in the United States: Surprising Facts About America’s Poor”, report that 80 percent of poor households have air conditioning; nearly three-quarters have a car or truck, and 31 percent have two or more. Two-thirds have cable or satellite TV. Half have one or more computers. Forty-two percent own their homes. Poor Americans have more living space than the typical non-poor person in Sweden, France or the U.K. What we have in our nation are dependency and poverty of the spirit, with people making unwise choices and leading pathological lives aided and abetted by the welfare state.

Second, the “poverty” is not caused by racism, but by poor choices:

The Census Bureau pegs the poverty rate among blacks at 35 percent and among whites at 13 percent. The illegitimacy rate among blacks is 72 percent, and among whites it’s 30 percent. A statistic that one doesn’t hear much about is that the poverty rate among black married families has been in the single digits for more than two decades, currently at 8 percent. For married white families, it’s 5 percent. Now the politically incorrect questions: Whose fault is it to have children without the benefit of marriage and risk a life of dependency? Do people have free will, or are they governed by instincts?

There may be some pinhead sociologists who blame the weak black family structure on racial discrimination. But why was the black illegitimacy rate only 14 percent in 1940, and why, as Dr. Thomas Sowell reports, do we find that census data “going back a hundred years, when blacks were just one generation out of slavery … showed that a slightly higher percentage of black adults had married than white adults. This fact remained true in every census from 1890 to 1940”? Is anyone willing to advance the argument that the reason the illegitimacy rate among blacks was lower and marriage rates higher in earlier periods was there was less racial discrimination and greater opportunity?

Third, avoiding poverty is the result of good choices:

No one can blame a person if he starts out in life poor, because how one starts out is not his fault.

If he stays poor, he is to blame because it is his fault. Avoiding long-term poverty is not rocket science. First, graduate from high school. Second, get married before you have children, and stay married. Third, work at any kind of job, even one that starts out paying the minimum wage. And finally, avoid engaging in criminal behavior. It turns out that a married couple, each earning the minimum wage, would earn an annual combined income of $30,000. The Census Bureau poverty line for a family of two is $15,500, and for a family of four, it’s $23,000. By the way, no adult who starts out earning the minimum wage does so for very long.

Fourth, what stops people from making good choices is big government:

Since President Lyndon Johnson declared war on poverty, the nation has spent about $18 trillion at the federal, state and local levels of government on programs justified by the “need” to deal with some aspect of poverty. In a column of mine in 1995, I pointed out that at that time, the nation had spent $5.4 trillion on the War on Poverty, and with that princely sum, “you could purchase every U.S. factory, all manufacturing equipment, and every office building. With what’s left over, one could buy every airline, trucking company and our commercial maritime fleet. If you’re still in the shopping mood, you could also buy every television, radio and power company, plus every retail and wholesale store in the entire nation”. Today’s total of $18 trillion spent on poverty means you could purchase everything produced in our country each year and then some.

Regarding those last two points, here is Thomas Sowell:

Economist Thomas Sowell blames welfare for killing the black family
Economist Thomas Sowell blames welfare for killing the black family

To illustrate this point, I stole a graph from the Twitter feed of a famous man-blaming sociology professor who shall not be named (although his name rhymes with Vlad FillBox).

Black women were more likely to be married before welfare programs
Black women were more likely to be married before welfare programs

In fact, there is a whole video featuring Thomas Sowell to go with this graph:

And an article to go with it:

If we wanted to be serious about evidence, we might compare where blacks stood a hundred years after the end of slavery with where they stood after 30 years of the liberal welfare state. In other words, we could compare hard evidence on “the legacy of slavery” with hard evidence on the legacy of liberals.

Despite the grand myth that black economic progress began or accelerated with the passage of the civil rights laws and “war on poverty” programs of the 1960s, the cold fact is that the poverty rate among blacks fell from 87 percent in 1940 to 47 percent by 1960. This was before any of those programs began.

Over the next 20 years, the poverty rate among blacks fell another 18 percentage points, compared to the 40-point drop in the previous 20 years. This was the continuation of a previous economic trend, at a slower rate of progress, not the economic grand deliverance proclaimed by liberals and self-serving black “leaders.”

Ending the Jim Crow laws was a landmark achievement. But, despite the great proliferation of black political and other “leaders” that resulted from the laws and policies of the 1960s, nothing comparable happened economically. And there were serious retrogressions socially.

Nearly a hundred years of the supposed “legacy of slavery” found most black children being raised in two-parent families in 1960. But thirty years after the liberal welfare state found the great majority of black children being raised by a single parent.

The rest of the article points out how even crime rates among blacks were caused by the implementation of soft law enforcement policies by progressives. Just look at the big cities if you want to know what it is like for blacks to be ruled by Democrats. It sucks!

You might have heard about Thomas Sowell because some celebrity I don’t know anything about has been tweeting all kinds of stuff by Dr. Sowell:

Now this celebrity is tweeting my favorite economist Thomas Sowell
Now this celebrity is tweeting my favorite economist Thomas Sowell

If everybody started to read more Thomas Sowell books, we would be much better off as a country! Only good things happen when people stop watching TV and listening to music and watching movies, and instead settle down in a chair with a Thomas Sowell book. I recommended a bunch of them in this previous post.

Dave Rubin interviews my favorite economist: Thomas Sowell

Economist Thomas Sowell
Dr. Thomas Sowell – the best economics teacher you will ever learn from

Two half-hour interviews with my FAVORITE economist, Thomas Sowell. If you haven’t read any books by Thomas Sowell, then you don’t know how wonderful economics can be. Thomas Sowell stands for the proposition that before you adopt an economic policy, you have to consider what incentives it will create for everyone involved. And he backs up his ideas with studies that span the whole range of times and places. It turns out that many bad ideas have already been disproved in different times and places, and Thomas Sowell knows them all. Thomas Sowell is a man of facts and evidence.

Description of part one:

Dr. Thomas Sowell (Economist) joins Dave to discuss his Marxist past, free speech on campuses, distinguishing between classical liberalism and libertarianism, and his new book “Discrimination & Disparities.

Part one:

“This idiot has stumbled on something that will ruin us all”. LOL!

Description of part two:

Dr. Thomas Sowell (Economist and Author) joins Dave to discuss the role of government, the problem with minimum wage laws, his experience as a black conservative, debunking systemic racism, the importance of common decency, and his new book “Discrimination & Disparities.”

Part two:

In the comments, Dave explains that YouTube has demonetized the video. I suppose that this is because the video contains conservative ideas, and YouTube is owned by the far-left Google.

Anyway, I recommend getting your hands on some Thomas Sowell books.

This one seems to be a collection of introductory essays:

The Thomas Sowell Reader

I haven’t read it, but it has the highest reviews of any of his books. What I would recommend is picking up one of the OLDER versions of his “Basic Economics”:

Basic Economics

You can get a used one for a couple of bucks. I read the second edition a while back, and I remember that just reading the first 3 chapters knocked my socks off. Some crazy person even uploaded the audio of the edition I read to YouTube. Just listen to the first 3-4 chapters, and you’ll see what I mean. No one who wants to understand how the world really works can ignore Thomas Sowell.

One that I still haven’t read that’s short and sweet is:

The Vision of the Anointed

But a later book that is similar is actually my favorite Thomas Sowell book:

Intellectuals and Society

I also liked this one a lot:

Economic Facts and Fallacies

I once dated a homeschooled girl who came from a large, rural family. This family produced brilliant children, but the parents didn’t really believe in college. I told the girl that to marry me, she would have to get a college degree. She and her parents didn’t really like that, and we broke up. However, I did tell her that she should read Thomas Sowell, because she had some left of center views on public policy, e.g. – health care. I found out later that she went on to read SIX Thomas Sowell books in two months. After that, she went on to get a BA in economics via distance learning, with a 4.0 GPA! I think part of that transformation is due to the Thomas Sowell books. Thomas Sowell changes lives.

I have to include this clip of Thomas Sowell from a long time ago:

He understood the things we are fighting about today decades ago. This man should have been our first black president.

By the way, Dave Rubin does a lot of good interviews. This one that he did with Larry Elder was worth watching.