Today, we’re now moving on from talking about the national economy to the international economy as we dive right into the 21st chapter of Thomas Sowell’s Basic Economics. In this chapter, we begin by talking about international trade.

If you haven’t read my previous summaries and analyses on this book yet, please click here. Otherwise, let’s get to it!

Chapter Summary

In discussing international trade, we must always remember that it’s not a “zero-sum” game, nor is it a “winner vs. loser” dynamic. In trade, all sides wish to benefit from the agreement, or it wouldn’t make sense to continue to trade, since they can just continue to do their own internal trading.

Additionally, we need to remember that all economies rise as buying increases, since jobs are created for workers to produce those additional goods and services. There is no “fixed” number of jobs. Instead, the idea of “a rising tide lifts all boats” applies as countries’ economic prosperity means an increase of jobs on all sides.

Of course, politics often gets in the way of it all. As Sowell explains:

“The basic facts about international trade are not difficult to understand. What is difficult to untangle are all the misconceptions and jargon which so often clutter up the discussion.”

The wealth of a nation consists of the goods and services it provides. Often, the political rhetoric is centered around surpluses and deficits in trade balance, but the reality is that denying consumers the ability to buy things at the lowest prices they want is what hurts an economy. So how does this factor into trade?

The Basis for International Trade

There are three ways countries gain from international trade: absolute advantage, comparative advantage, and economies of scale.

Absolute Advantage is the advantage one country has over another in the production of some kind of good or service. For example, in tropical areas, it is much easier to produce tropical fruits than in colder climates. This advantage means that the production of that good is much cheaper and easier, and thus less costly.

Comparative Advantage is more relative. Because a focus to produce one product often means less focus to produce another product, it’s not always about how much it costs to produce something, but also the trade-off in choosing not to produce as much of something else. This means that even if a country is better than another at producing anything, it can still trade with that other country. In the event this happens, the more productive country can specialize on producing one kind of product while the other specializes in another product, thus benefitting each other immensely. It’s only when one country can produce everything more efficiently that there wouldn’t be any point in trading.

This is a pretty important point. For example, while while Great Britain has been able to provide enough food for all of its people, it does not actually produce the majority of its food. Instead, it produces manufacturing, shipping, and other services, and then buys food from other nations. This gives the British the ability to feed its people far better than attempting to grow the food on their own ever could.

Economies of Scale, as discussed in Chapter 6, is the ability to increase the amount of production or service in a specific area. It is also an important part of international trade, because there are some things, such as car manufacturing, that just aren’t cost effective until you’re making a lot of them at a time. A lot of this depends on how large a population is in a given country, as well as how efficiently it can trade with others.

A key part of participating in economies of scale is when a country attempts to restrict its people’s ability to produce, thereby inflating prices. When such a country begins to trade, its internal small businesses often experience a crash, as their small scale is forced to reckon with the massive production of other countries.

International Trade Restrictions

Thus, a key component of international economics is realizing that, like other kinds of economic activity, it can quickly displace inefficient methods of production and service for more efficient ones, no matter where in the world a country is. Politically, this often ends up with locals calling their government to protect them from foreign competition. And so, let’s look at some of the fallacies that are often brought out to argue against it.

The High-Wage Fallacy is the idea that countries with higher average wages can’t compete with those with lower ones. It might sound correct, but this is false when we understand the complexity of cost. To begin, wage rates, labor costs, and total costs are different things. Wage rates are related to each hour one works. Labor costs are related to each unit of output. Total costs includes labor costs, but also includes things like raw materials, cost of capital, transportation, and things that are needed to bring a product or service to the market.

Thus, the reality of high wages in a prosperous country is that, more often than not, those high wages reflect higher output, which means it actually has lower labor costs. Another way to think about it is that a more prosperous country has a better ability to make labor cost less, even if individuals are paid more wages. Remember, a free market incentivizes the reduction of costs, including paying more wages. However, an employer must pay a wage high enough to retain workers, and experienced workers who stay around are far more efficient than high-turnover workers.

But what about all those jobs like telemarketing and programming in the United States lost to countries like India? While certainly it can be argued that some jobs are shifting around to different countries, this doesn’t mean that there is a net loss of jobs overall in a higher wage country (in this case, the United States). After all, while the programming can be done in India, you would still need international managers, good team builders who can work cross-culturally, and even translators—jobs which are created in the higher wage country because of such shifts in economic activity.

Of course, the reality of this may still hurt those who suffer from the jobs that did go overseas. But the answer IS NOT to restrict domestic or international markets, as that actually often reduces both new job creation and prosperity in the long term, which further hurts those who suffer from the shift in jobs landscape. While it is politically convenient to pitch a story of “us vs. them“, the reality is that the only people who gain from such a pitch are domestic special interest groups. Everyone one else loses.

This is especially pertinent when politicians propose or are pressured to save jobs as a key component in dealing with international trade. Such a thing usually happens through restricting trade. By increasing tariffs on imports, it is more often the case that unemployment actually increases, and exports in the same industry suffer as well. This is because, in a free market, if it is truly more efficient and less costly to produce something elsewhere, restricting doing such things is enforcing less efficient and more costly methods on the market. This economic fact doesn’t change just because politicians or the public want to help people. Thus, as time goes on, a national market that is forced to be less efficient and more costly must compete on the international stage, and its disadvantage eventually decreases employment for that nation, and other countries buy less of its products as well.

What about temporarily applying economic restrictions to protect infant industries in the interest of fostering growth? While many economists agree this may be a good idea in theory, in practice, most infant industries aren’t really cared for enough by politicians to get protection in the first place. Instead, old inefficient and quickly obsoleting industries often do have the political clout to receive subsidies and favorable legislation, often at the expense of the public and market.

National Defense is another area in which international trade is restricted. Such restrictions are not necessarily due to political shenanigans, but because it’s typically unwise to buy munitions and weaponry from another nation you may be in conflict with in the future. However, many things are done in the name of national defense, though the products being restricted may have very little to do with such things. But when done correctly, both economists and politicians actually agree that the export of domestic military-based products and technologies should be restricted.

Many accuse non-domestic countries of dumping products at prices below cost in order to drive domestic businesses out and allow the foreign market to take over. Of course, it’s pretty difficult to calculate the real cost of production, with all the differing circumstances and environments with which one can produce different goods and services. But again, reality comes to a fore in that, if a company is producing something below cost, it will quickly find itself unable to sustain in the long run (as discussed in chapter 8). Thus, even if such a thing were true, as long as governments aren’t subsidizing these affairs, in the short term there may be some domestic losses, but the market will always rebalance itself out, and those selling under cost will soon be out of business themselves.

In all this, it’s important to distinguish the kinds of restrictions that can be imposed on an economy, especially in an international sense. Tariffs are taxes on imports, and effectively raise cost of imports to help domestic businesses compete. Import Quotas limit the amount of a specific good that can come from a given country. Both generally raise prices. However, a quota makes the cost of an import more obscure to the public, and so people are less aware of its effects. Thus, the effect of quotas often raise domestic prices far more than tariffs, but are just as easily passed by political officials because of the ambiguity of such laws.

Changing Conditions

Just as in national and local economics, we must remember that, over time, things change. The centers for production of various goods and services shift from country to country over time, and industries rise and fall.

A great example is the digital technology and computing industry, which began in the United States, but slowly made its way around the world. As the hardware became easier to produce en mass, computer components went from being mainly made in the US to mainly made in Asia. Similarly, the software industry grew in the United States, and is now making its way around the world. During the rise of the technological era, it was common to see headlines which talked only about the masses of lay-offs happening in the tens of thousands in American industries. Yet, millions of new jobs were being created across the country.

In the current climate, many are in outcry at the “outsourcing” of American jobs overseas. Yet, as given before, when looking at jobs, it’s important to look at the net number of jobs, not just what’s in decline. If the number of jobs created outgrows the number of jobs lost, then it doesn’t matter if outsourcing is happening. In fact, outsourcing could actually produce better economic results and job growth, as there’s plenty of evidence that the outsourcing of jobs actually also lead to newly created domestic jobs.

As Sowell explains, this is why most economists are very positive about free trade internationally, though in the political arena, there is much support for protectionism, and against ‘globalization’. Of course, that term ‘globalization’ is a loaded term, and not all of it has to do with free trade in the international arena.

My Thoughts

The idea of comparative advantage, especially as it relates down to the individual, is a very interesting way to look at economics. I come from a background which admires a ‘self-made’ person. In other words, the more you are able to do-it-yourself, the more respect you generally have (even if it’s just self-respect). But comparative advantage understands that the delegation and specialization of tasks is not about whether you can do-it-yourself, but the economic advantage you gain by not doing everything yourself.

Of course, this all sounds great until you try to rely on others, and those others fail to follow through. I’ll write a blog on this in the future, but such dependencies, and the failure of those dependencies, is a lot of the problem with businesses in general. In today’s modern era, entrepreneurship has been romanticized into this idea of creating a start-up with a brilliant original idea that will take over the world. But the fact is that most businesses are “middle-management” businesses. In other words, they serve to provide expertise in a small field that is interconnected with other things. Rather than being the whole chain, it is just a link in the system.

I would venture to guess that the businesses which thrive are the ones that find that niche (even if it is one with a few competitors), and do really really well in them.

Maybe this is why a lot of non-DeFi cryptocurrency businesses fail. Most crypto projects, like EOS, Tezos, and others want to be the whole caboodle. Not only do they want to create their own digital currency, but they want to innovate the tech as well, in addition to wanting to be the dominant force in the crypto world, as well as disrupting the current financial system, as well as creating a better Facebook, or Twitter, or something else. Very few ‘disrupter’ crypto projects build on the back of another cryptocurrency that already exists.

I think that’s part of the reason why the Ethereum ecosystem is successful, despite its current flaws in energy consumption and high gas fees. The projects based in Ethereum are built on an already well-known and well-functioning chain which is being actively worked on. Thus the exchange of coins and software coding platform is already taken care of.

But some projects even on Ethereum have the same problem.

Currently, the Brave project is torn between being a good browser and providing a good, stable digital token platform. Visiting their subreddit is a good place to get discouraged from trying their products, as it’s easy to find many posts talking about the problems with BAT. They have issues sending out tokens to all users, issues with browser bugs, issues with getting advertisers to hop in on the project, etc. While I’m not one to tell anyone what to do with their businesses, this idea of doing everything yourself may be the reason why many of these crypto projects fail. They attempt to tackle too much in the beginning, instead of being really good at one thing first, before venturing on.

This week, in the 20th chapter of Thomas Sowell’s Basic Economics, we finish looking at the national economy by exploring special miscellaneous issues not yet touched.

If you want to see my previous summaries and thoughts on this excellent book, please click here. Otherwise, here we go!

Chapter Summary

The Scope of Government

In many general areas of society, there is an overlap in the abilities of government and economics to overlap. Things like housing, transportation, and education can be decided by either government or the market, and the need to understand the effectivity of each helps us answer which is better in each circumstance.

Political choices are binding until future elections. Furthermore, rather than taking things piecemeal, they are package deals, since politicians stand on multiple platforms. On the other hand, consumers make choices day-by-day, and change them based on their own desires. So the choice is between voting categorically (despite perhaps not agreeing with everything in that platform) and trusting that the policies will do well over time, or being able create change in the national economy little by little.

However, politics incentivize governments to create change, even when change isn’t necessary, or could destabilize the national economy. For example, in recessions and depressions, the public often pressures and expects governments to do something at scale, even if it would be in the best interest of the economy in the long term to do nothing.

This happened in the United States during the Great Depression, where government spent large amounts of tax revenues to intervene in the economy, resulting in massive and counterproductive unemployment and furthering recession. During the years of the Reagan administration, on the other hand, when the stock market crashed once again, the media noted the President’s failure to react, but also 20 year expanse of “steady growth and low inflation”.

The problem, of course, in any kind of monetary and financial policies is the complexities of a national economy, along with the lack of predictable outcomes for such policies. Theorizing what could happen economically is different from what does actually happen. It is more likely that monetary policy negatively effects business viability and employment, since a trial and error process is effective because of correction of errors.

Government Obligations

The public also often has various expectations and obligations for government. Of course, such obligations vary with different individuals and groups, and are impossible to estimate. Should the government compensate for unemployment? Should they loan money and not expect repayment in times of crisis? How should governments provide pension plans? The varied answers depending on who you ask these questions illustrate the difficulty of understanding the role of government.

But in the national economy, the difference between government and market forces can show us which is better. For example, government funded pension programs are paid for by using current tax dollars to pay for current pensions. This is simply money transference (i.e. spending money), and no real wealth builds up over time. On the other hand, private insurance companies which provide pensions and annuities invest customer premiums, and pay pensions through the overflow of those investments. This creates real wealth.

The problem of government pensions is clearly seen in the Social Security system of the United States. The flow of tax payer dollars to retirees works as long as the birthrate consistently increases. But when it declines, resulting in a retiring class larger than the working class, as in most modern nations such as the United States and western European nations, the slow roll of impending crises becomes inevitable. In fact, most people in these and other nations do not expect to receive their pensions when they retire.

Market Failure and Government Failure

As we talked about before, though both markets and government have failures successes, the way they fail and succeed are incentivized and constrained differently. We can see how this plays out when private businesses, like banks, are nationalized or controlled politically. Because politicians are not beholden to economic incentives (their pay is based on what they themselves vote for, as well as what is politically popular), the banks they take over often become less efficient, and collect more risky debt.

For example, in the United States, laws encouraged banks to give ‘subprime’ loans, which led to the disaster of the 2007-2008 mortgage crisis. Similarly, in India in the late ’60s, nationalizing banks led to loans being made only to the rich, though they were called the “deserving poor”. A great quote from Sowell here gives us some perspective:

As an entrepreneur in India put it: “Indians have learned from painful experience that the state does not work on behalf of the people. More often than not, it works on behalf of itself.”

As an aside, the history of using political means to rectify economics is very old. The market alternative, in view of history, is actually quite young, and the combination of the market and democratic societies is even newer, especially if you count the United States as the first one.

Elected officials are not incentivized by failure in their policies. If policies fail, politicians are more likely to blame other factors than themselves and their platform. Thus, if they are able to successfully pass the blame (and in many cases they do), they can stay in office never having truly learned a thing (except how to attack the opposition to stay elected).

On the other hand, the incentive of markets is to admit failure and reverse quickly. If you don’t, your business will very quickly become uncompetitive and bankrupt. And so, the two processes often produce very different results, even in similar situations (like the banking example above).

My Thoughts

I had an interesting conversation on Ruqqus the other day with a netizen who believed that aspects of socialism (centralized control of the economy) and capitalism (market control of the economy) could work together. During our conversation, it became apparent to me that a misunderstanding of the two may have caused him or her to attempt to propose such a thing.

The idea that socialism is simply just government involvement in economics is false. Socialism means centralized control over an economy, meaning that government (which is supposedly the will of the public) determines and pre-plans all or some aspects of an economy. It is not (as the fellow I had a conversation with thought) simply the government providing the market with leases on property with which to build on. Depending on how the latter is done, it could be either capitalist or socialist.

The reason why socialism doesn’t work is not because “governments are evil”, but rather because governments have no incentive to make good, long term economic decisions. I’m not even saying that government officials and politicians won’t try to make good economic decisions. After all, they will at the very least try to appear to do so, so as to make sure they stay in office. But because markets and economies are infinitely more complex than any single entity can hope to understand, any centralized authority will always be less efficient and wasteful, and thus economically deficient, in its decisions.

That, I believe, is the main argument Sowell has against government control in the national economy.

There is also the problem in misunderstanding voting. Or rather, believing that voting as a tool is only available in the political process. The truth is that the electoral process also happens in economics. It’s actually how the market works. In the modern day, we call it “voting with our dollar”.

A win by a candidate usually has lasting effects in the political process. In the United States, once a political candidate is voted into the Executive or a Legislative office, they are there for 4 years at minimum. This means that these political officials have 4 years to do whatever they want. Because most people are interested in keeping their job, the vast majority of what political officials do is prepare for their elections in 4 years. They may try to do what their platform was about (although these days it’s more of what their political party is about), but such things can take much longer than their never-ending desire to get re-elected in 4 years.

And, again, this isn’t exactly an evil thing. Instead, it’s the rational thing. If you truly believe that you (as a political candidate) have the best and most moral ideas to be executed on a public platform, you should do your hardest to make sure that you stay in that office.

The problem, of course, is that markets and economies shift far faster, and in far more unpredictable ways than politics. The idiom “politics is downstream from culture” is pretty true. And culture, as an ever-shifting entity, will also drive markets. When markets are allowed to be free, they willingly adapt extraordinarily fast to changing ideas and opinions, because there is no government or political authority forcing something to stay longer than the market desires, or preventing something from rising that the market wants. And thus, in the tides of change, markets definitively become a better mechanism for the national economy than centralized entities.

This is a very simply argument that anyone can understand. Oftentimes however, people don’t believe they have the capital to participate in the market system. And when they believe such things, they are incentivized to shift to gain political capital instead. Thus, in a rationalistic sense, politics becomes a large focus for the impoverished and working class, because it’s easy to convince them (who are the masses) that they can get their way through politics rather than participating through the market. And politicians take advantage of this fact regularly.

So what is the solution to all this? While I certainly believe technologies like blockchain and cryptocurrency will help toward this direction, we need a more basic and universally applicable understanding here. Namely, that each individual human being is powerful and able to make his or her own decisions to the betterment of their own lives.

When we truly believe and understand this simple thing, everything changes. We don’t need to be celebrities to make a difference, nor to be powerful. We are powerful in ourselves. No longer will we want to rely on politics or government for the betterment of our own lives, because we understand that our individual selves are the greatest and most reliable empowerment. No longer can we be tricked by the emotion of compassion to let politicians take care of the poor and impoverished. We ourselves will go out of our way to help the poor and needy as we see best. Will there be people that don’t help? Certainly. But that doesn’t give us the right to snatch the money from other powerful people to do what we want.

More than any crypto or other technology, this understanding can shift the world.

Now on the 19th chapter of Thomas Sowell’s Basic Economics, we take a look at how governments take their share of the national output and put it to use.

If you want to take a look at my previous summaries and thoughts on this book, please click here. Otherwise, let’s get into government finance!

Chapter Summary

Governments today generally have two main ways of financing what they want to do. The first way is to take from the national output in the form of monetary taxes today. The second is to issue government bonds (debt). If taxes are used to cover all of its spending, then the government budget is considered balanced. If taxes exceed government spending, then the budget is considered to be in surplus. If taxes cannot cover everything the government wants to do, then it is in deficit. The accumulation of such a deficit over time is called “the national debt”.

Government spending pays for many things, including things that would be used in the current year a budget is determined (e.g. utilities, military or civilian pay, etc.) as well as things that would be of benefit to the public for the future (e.g. highways, dams, etc.). Some of these activities are considered better supported through taxes, while others are considered better supported through issuing bonds.

Government Revenues

The main assumption behind tax rates is that, the higher the tax rate, the higher the revenue the government receives. However, because of various other factors, this is not necessarily true. For example, people generally move away from a heavily taxed jurisdiction. Thus, when the local government raises taxes, people move away, and the revenue doesn’t actually increase. In fact, it might decrease.

The opposite happens as well. When the US federal government lowered its capital gains tax from 28% to 20% in 1997, it actually gained revenue (almost 2 times, in fact), as the lower taxes incentivized more people to increase their investments, which gave more return than bonds. This shouldn’t be surprising, actually, given that businesses themselves often make more money by charging lower prices. And it’s not a phenomenon only occurring in the United States.

This gets more complex as we dive into looking at who bears the financial burden of paying taxes to the government. There’s this idea of “taxing the rich” in society, so that they bear more financial burden in taxes. However, oftentimes, the wealthy can take advantage of various financial instruments to keep themselves from paying those higher taxes. The same such financial instruments are often not available to the normal person.

Furthermore, there is often more sales tax than tax on investments. People of lower income tend to spend a higher percentage of that income on consumer goods, which means that they spend a higher percentage on taxes than higher income people.

The same goes for things like Social Security. When an employer must consider the taxes paid for Social Security, they must front the cost when hiring a new worker. While a worker might not necessarily see a reduction in their own paycheck, in reality, they are missing out on the money that their employer had to pay to Social Security. Such taxes on businesses are thus almost always passed down to the consumer to pay for.

This is why the discussion of taxing the rich and poor is irrelevant, because taxes often fall more on income than real wealth. People who are wealthy may not work at all, and so experience very little of the taxes that the ordinary person has to pay. A “progressive” income tax, one which taxes higher income earners more than lower ones, actually prevents hard working people from earning much at all, while leaving the truly wealthy untouched.

So what if we increased taxes on those capital gains? The issue, of course, is that capital takes time to pay a return, if it even does so. However, just because a piece of capital has increased in value doesn’t mean that, in itself, has allowed its owner to earn anything. Valuation has many aspects, and changes through time and circumstance. Not all of those will increase earnings. Thus, doing so will often keep investors away from the capital, causing a massive drop in productivity and employment, destroying an economy.

The power to issue bonds also extends to local governments, which use them to finance local building projects. This may sound like a good use of government resources, but the reality is more complicated. For example, when a government acquires land from other owners to ‘upgrade’ or ‘redevelop’ the property, it does so under the guise of progress (a favorable way to gain votes). But because the acquisition is forced, it does not take into account the real market value of the properties. Thus, resources are artificially allocated for the acquisition and redevelopment at a rate under the real cost. The consequence of this is a higher rate taxation that would then be put on future owners of that development.

Government bonds aren’t free. They are simply the government borrowing money to be repaid through future government revenues.

Thus we come to national debt. National debt isn’t always what it is said to be by the public. As an example, if a union worker is in debt by thousands of dollars, that might seem like a lot. But a millionaire can easily step in and pay that debt. Thus, national debt must be compared to national output or national income to have any sort of meaning. In the same way that someone who builds more credit card debt than they are able to pay off will send him or her into massive financial issues, government debt must be understood in the context of current expenditures, and what the future tax payers will have to bear.

Complexity is again added when people outside of the country buy into the nation’s bonds. When such a thing happens, those outside of said country are basically collecting wealth from the future generations of that nation, as the tax revenues must go to those nations. Even if all bonds are held inside the nation, it still is a tax burden the present is making on the future. This doesn’t necessarily mean that the public doesn’t benefit from the use of those bonds. After all, highways and other government funded utilities are very much beneficial for the public. However, that doesn’t erase the fact that the money being raised to fund these public goods and services will still need to be paid for by future generations.

In addition to taxes and issuing bonds, governments can also sell goods and services, such as land or surpluses of other goods (e.g. military equipment) that it owns. The sale of such often has a different impact on the economy than a normal private business, and as such, the prices paid for them are also quite different. This is because it isn’t just a monetary transaction, but transferring real resources that affect, en mass, the efficiency of allocating resources.

For example, it used to be that private businesses in the United States were responsible for much of the public transportation. However, as the local governments clamped down on how much fares could be charged, most of these services passed their ownership to governments. However, since there was no incentive for government to raise the prices back up (it would be unpopular to do so), instead government tax revenue was allocated towards it. In other words, rather than letting the market determine whether it was worth using the service, resources from other sectors were used to prop it up, and thus inefficiently using resources that have other use-cases.

This is a big problem with government-run things. Since local services are paid for by national tax revenue, there is no incentive to charge for them based on how well cared for the local service is. So from things like national parks, which are underpaid, to bridges with tolls, which are often overpaid, the price structure does not reflect the real cost.

Government Expenditures

There are things that the government must pay for, and then other ventures which are more voluntary. Many government services are officials who decided to voluntarily create programs or departments for, while other things like unemployment insurance are things it must pay for because of pre-existing laws. In this way, though we blame current government officials for the problems of today, in reality, sometimes its more due to pre-existing laws which they have to obey. Such is the case with things like Medicaid, Medicare, and Social Security.

In any case, government spending has repercussions on the economy as a whole. For example, in an economic downturn, the government collects less taxes because people are making less. However, they must spend more at the same time, as more people become reliant on unemployment insurance and other such things. This cushions a nation’s decline in output, and the government can give a lot of purchasing power to the economy. If an economy is doing well, the government is taking more while giving less, thus taking purchasing power from the public. While it may be ideal that the government always spends the money it is given, this is not reality.

When looking at the cost of government expenditures, it’s important to understand the difference between the cost to the government, and the cost to the economy. A government agency forbidding building of infrastructure in a certain location may cost very little as a law to keep, but may be devastating on the economy as a whole, as the real estate would be unused to create value by the public.

We can see this in the examples of criminals and prisons. While many may argue that the cost of creating prisons and locking up criminals for a long time is a lot, the cost of allowing such criminals to freely roam in public may be greater.

Are there benefits of government expenditure? There are certainly things that everyone would consider desirable, but each individual may value those beneficial things differently. This becomes entangled in politics when people who are not willing to pay a higher price for a certain product outnumber those who are. Politically, it’s convenient to define the higher price as a problem, thus gaining popularity among those who number more and want to make things more ‘affordable’. The government then forces the price down, but must subsidize that cost through tax payer dollars. Thus, the reality becomes that everyone has to pay for that product, rather than only the market for which it was designed.

The problem is that we often don’t see the little costs along the way. For example, it’s pretty normal that a huge sports stadium is built in cities where there is very little maintenance on roads, highways and bridges. This is often because it’s quite costly to actually repair all those potholes and things, while a sports stadium not only looks good to the public (i.e. great ribbon-cutting ceremonies for the officials), but is often cheaper to build as well.

Government Budgets

Government budgets are predictions of what it will spend in the future. Because of this, there is a lot to be said about the underlying assumptions of these predictions. If the predicted costs and payments of the future are based higher rates on the income of the past, it may be that lawmakers predict a rise in revenue, when in fact the opposite will happen.

As explored before, a reduction in tax rates often leads to a gain in tax revenue. Thus, when “tax cuts for the rich” happen, oftentimes, there is an actual increase in revenue from the same people. Yet, the public is often inundated with the idea that increasing tax rates for the rich will help alleviate the financial burden of those in with lower income.

And so, while many may believe congressional budget committees are non-partisan, the opposite is in fact true. Assumptions that politicians have about growth rates, rates of return, and other factors underly much of politics, so much so that even the budgetary arm of the government can become hyper-partisan, given the right assumptions. Such assumptions can prove disastrous when the money government owes to the public is misunderstood or miscalculated.

My Thoughts

I believe more and more that thinking about governments as just another form of business, albeit one which can often create the rules it wants to abide by, is a more effective way to understand them. And it is because they can create the rules they want to follow that we must always limit government in any and all capacities.

After all, most people trust that their own decisions are, by and far, better than those of others. Such a belief becomes amplified in groups, where those in the group believe that their collectively agreed upon decisions are greater than those of others. When such an entity gets to create the rules everyone must abide by, including themselves, it leaves out the word and information of the minority and the competition.

Interestingly, I think it’s easy to understand this phenomenon even outside of the arbitrary categorizing of ‘public vs. private’ or ‘government vs. businesses.’

In this case, we can assume government represents an arm of utility that must be rigidly followed, whereas the other side (i.e. private or business) represents where the rules are malleable, depending on the desires of the public. If we apply this idea to the growth of the digital tech industry, the results are basically the same.

Imagine an era where the computers you used could only be typed on, and all commands and programs were done through the keyboard. There is no mouse, no icons, no graphics of any kind. Such was the world prior to the Macintosh. In this world, the users had to bend to the will of the hardware designers and programmers, people who had no interest at all in helping them use computers for their own needs.

Then Apple comes along and takes the idea of the GUI from Xerox and puts it on a publicly usable computer. And of course, we know what happened after that. History was made as computing became a roaring industry that has global ramifications today. And programmers and technicians all over the world have benefited from it.

The analogy, here, of course, is that when the public could choose the set of rules it wanted to abide by in computing, the revenue from and for all programmers and developers spiked up, not down.

I believe that, in the same way, if governments are forced to compete to see which of its rules are actually the best for the public, then the best rules will rise to the top. The problem, of course, is that governments aren’t incentivized to compete, but rather to monopolize and expand. I touched on this idea, and the possible solution, in the previous chapter analysis. But given that its unlikely that governments would attempt to downsize and limit themselves, I think there may be other solutions that we can look towards to form a better governance system.

The Crypto Perspective

The advent of blockchain and cryptocurrency has, I believe, allowed the world of the Internet a second chance to decentralize and introduce market forces into governance. Blockchains are technologies, and interestingly, just as Web 2.0 forced governments to reckon favorably with the nascent social internet of the time, as blockchain grows, and its power to transform and benefit societies does as well, governments will need to learn to cooperate and compete well with them, or be left behind.

Governance is clearly the next phase of blockchain. Even Vitalik Buterin agrees. And it’s actually already started, most recently with France already using Tezos to vote on a local project. But it may not be blockchains replacing political elections and other utilities that is going to revolutionize governmental systems. Instead, the fact that these blockchains in themselves aren’t local to any government will actually prevent them from being subservient to any national authority. Furthermore, there are so many blockchains, many which actually replicate the utility of each other, in addition to all their differences, that blockchain governance will be nearly impossible to keep down. Governments will be forced to cooperate, or be left behind in the dust of progressive technology.

There is a problem, of course. Namely that most governance systems for blockchain rely on democratic voting to make changes on it. While this is great for small nascent communities (as most blockchains are now), as participants grow on the chain, this may become messy. There are many failings with democracy, as I pointed out with a previous post, the most important of which is the mob mentality that it tends to devolve into.

We must remember that decentralization and democracy, though having similar traits, are not exactly the same. Both have the roots in allowing the public to make governmental decisions. However, democracy concentrates (i.e. centralizes) those governmental decisions to impact all of society. On the other hand, the root of decentralization is giving the smallest group or entity the ability to make decisions for itself. Thus, while democracy can certainly be helpful, if a blockchain ever reaches more than a small nascent community, that democracy may actually be a detriment to its system, just like any governmental system. As it gets bigger, the minority opinion actually gets suppressed, even if it’s a better idea.

Thus, it may be a good thing that multiple blockchain systems are being developed. From Ethereum to Tezos to Kava to XRP, each of these systems have their own way of governance, as well as utility. As they compete and jockey for positioning, the ideal way would be that many boats rise with the tide of mass adoption. And as they do, people will be able to use these new financial instruments and invest where they feel free to.

Markets don’t exist by themselves, but are located within ecosystems. One of these ecosystems is often government institutions. In this chapter of Thomas Sowell’s Basic Economics, we will be taking a look at various government functions and how they affect a national economy.

If you want to see my summaries of previous chapters, please click here. Otherwise, let’s get going!

Chapter Summary

Every market works within a framework of rules, and those rules are enforced by entities, often what we call the government. Governments define limits, and sets the norm of measurements, taxes, and other related things, which are expected. However, governments, also sometimes do unexpected things or expand their role within an economy. Thus, across the present and in history, the role which governments play in an economy is often a controversial and varied one. Let’s take a look at these expected and unexpected facets of government.

Law and Order

A government which restricts its own role in an economy is actually a rare thing, and it often takes many hundreds of years to get there. Since human governments are often the people with the power to assert their authority, even when a country has an abundance of natural resources, corruption of the people in those governments can keep a country poor.

Corruption is often the culprit behind inefficiency in an economy. The vast amounts of red tape, idling bureaucracy, and bribery add to the costs consumers must bear, in addition to lowering standards of living. It sometimes gets so bad, that investors and aid agencies need to take corruption into account in calculating their investment and lending into certain countries, and nations known for high levels of corruption often have a hard time hiring out their workers. From delays in economic activity to nepotistic practices, corruption in countries only hurts those countries’ own economies.

Laws within countries must also be consistently applied for them to be economically effective. If or when laws change on the whim of political officials, the risk of investment tends to rise, and thus decrease. Historically, consistency in rule of law was what allowed Britain to become the first industrialized nation. It’s what allowed its citizens as well as foreigner to confidently invest in the nation. When the European powers began to colonize Southeast Asia, the consistency of western laws rather than the power of local rulers and tribes caused an influx of immigration from China and India to these regions.

Even when there is discrimination, as long as such laws are consistent, they may actually produce positive economic developments. For example, the Chinese and Indian immigrants to European colonies didn’t have the same rights as Europeans, but they still were able to create a profitable businesses in spite of this. Similarly, Christians and Jews in the Ottoman Empire (during its centuries of prosperity) didn’t have the same rights as Muslims, but were able to rely on dependable laws which enabled them to prosper commercially, industrially, and in banking than even the Muslims living there. This isn’t to say such discrimination is right, but rather a simple commentary on the positive effects of consistently applied laws.

Property rights are also an important aspect of the relationship between government and economics. What property rights do is incentivize individuals to ensure that the transmission of their property is secure and as free from loss as possible. In other words, property rights create a self-monitoring system that is more effective and cheaper than third-party monitoring. Unowned land is often unkept versus owned land, animals that are owned by someone aren’t ever threatened with extinction, and lumber companies will reseed the land they own and use so as to keep their business alive.

Thus, the ability to own property actually benefits society as a whole, even for people who don’t own much, but live in a society which allows others to do so. For example, entrepreneurs or other investors and venture capitalists can buy the massive estates of the rich and divide them into apartment complexes or smaller homes, and thus benefit for those who are not as rich. While individuals within these communities may have less money than a wealthy person, in aggregate, they actually have more buying power in a free market than a single wealthy individual.

Problems arise when the wealthy (read: politically connected) restrict others’ property rights through law. In California or Virginia, there are locales that require any lots that are sold to be one acre more per house. This restricts the price above the average person’s ability to pay. Furthermore, oftentimes there are commissions to preserve historical sites or provide zoning laws that will begin to limit the ownership ability of individuals within a community, justified often as “owned collectively”. These practices keep people with average incomes out of certain areas, while at the same time increasing the value of an increasingly scarce resource.

Sowell argues that “property rights need to be assessed economically in terms of the incentives created by their existence, their modifications, or their elimination”. In other words, the cure for the wealthy using their own property to restrict others isn’t the elimination of property rights, but an understanding of their economic incentives.

Order in society isn’t just about government and laws, but also about the very people within a nation. The ability to conduct honest and dependable business depends on the people within the country, especially since a lot of it is done between people who don’t know each other at all. Those who often can rely on each other in often have a competitive edge on those who can’t, regardless of whether the legal system is dependable. This is true whether you’re a Hasidic Jew in New York, Marwaris in India, or a Chinese immigrant in other Southeast Asian country. In this way, honesty becomes an economic factor, not just a moral idea.

Let’s look at landlords. Oftentimes, rent control laws are enacted because of complaints against dishonest landlords charging high prices. But, because maintaining good utility services have high costs, the landlords who are honest will have higher bills for their renters, or their property becomes worthless. On the other hand, landlords who accept bribes will allow their utilities to stay at a lower rate, so their charge to renters may be lower. In such a situation, rent control will have an adverse effect on the honest landowners, rather than actually hurting dishonest ones. In fact, some dishonest landlords have gone so far as to burn their own properties down in an effort to bid away their property for money a while after rent control laws are enacted. As Sowell points out:

When laws and policies make honesty increasingly costly, then government is, in effect, promoting dishonesty.

External Costs and Benefits

A lot of the decisions made in market transactions depend on whether prices reflect the real costs and benefits of products and services. Yet, there are costs that are counted as “external”, and not part of the actual transaction, and thus unaccounted for by the market. These external costs are more efficient for government to deal with than markets.

Here are a few examples. When an electric company purchases coal to power their generators, the pure cost of buying that coal does not take into account the pollutant that would result in health costs to residents around it. Another example is if people buy mud flaps for their cars, which prevents mud and water from being thrown on the windshield of a car behind them. In this case, the person behind is benefiting from the purchase, even though they didn’t pay the cost. These costs and benefits are external, in which case it is easier for the government can simply mandate all cars to have mud flaps than for a market to judge.

The same goes for a military defense. While individuals within a nation may or may not agree with spending money on it, a military defense would beneficially defend both supporters and non-supporters. And since a very small number of people would understand the cost and benefits of having such a thing, letting government be responsible for it would be more efficient for most circumstances.

The question isn’t a “government” vs. “private”, as if those are always mutually exclusive. Instead, it’s deciding between the benefits of decisions being made by collectives versus individuals. Many collective decisions don’t actually need to be made by official national or even local governments, but could be made by people simply coming together to form a group they agree or cohere with. In other words, external costs and benefits must be weighed when deciding whether to pursue an end goal with the incentives of the market or politics.

Incentives and Constraints

It is important to keep in mind the difference between what government can do, and what it is likely to do. Since government is made up of people, each of whom have separate interests, it is much more likely that those people will pursue those interests than the public interest, or even policy agendas. It is thus unwise to think of government as a monolithic structure, even when it is as centralized as a totalitarian regime. For example, in the Soviet Union, different government ministries would often go out of their way to avoid relying on each other, causing an extraordinary wasting of resources. Such differences are even more pronounced in democratic societies.

We must always remember that the main political incentive is popular action, even if the result of that action is worse than no action. For example, the results of good or bad education often requires years before results can be achieved. However, it is normal for politicians to promise and spend lots of money on it, even if there isn’t much to show that their policies have beneficial effects. What this amounts to, then, is more money being poured into ineffectual laws.

Furthermore, governmental policies are often applied categorically. Earlier, we talked about how things such as having clean water and air are more easily dealt with by the government. However, since there isn’t a limit to how clean the air or water could be (e.g. you can always want ‘purer’ water), government policy is incentivized to continue to increase the standard of that purity, and thus escalating costs and taxes. This doesn’t even touch how to determine whether something counts as an impurity or health risk. In these situations, the aggregate cost of policies can become extraordinarily heavy on the public of a nation at large.

The problem is that there are no incentives or constraints that would force government to hold account to these costs. In fact, oftentimes, governments will use whatever agreement exists for their power to increase it, or at the very least extend it. For example, in 1933, US President Franklin D. Roosevelt used presidential powers created during the First World War to take the US off the gold standard. However, this power was originally created only to prevent trading with enemy nations, and today, this power is continually used for other purposes, despite the fact that there hasn’t been a world war since.

The conclusion is this: before believing that a government apparatus is necessary to solve a problem, and thus expanding the role of that government, it is necessary to carry out the costs, incentive structures, and predict results before doing so. Otherwise, the government will just get bigger and bigger, and it is unlikely that the government will give up that power.

My Thoughts

This is a pretty big chapter, not only in length, but also in terms of content and understanding the role of government. There isn’t much to add to what Sowell has said, but here are a couple thoughts that I’ve had as I wrote the above summary.

Government Accountability: Can it Exist?

One of the big issues outlined by Sowell, and many others, is the fact that there isn’t much that can constrain and keep governments in check. Unlike the market, in which competition between people and businesses incentivizes higher quality as well as decreasing cost, there is no government apparatus that can keep it in check to make sure that any enacted policies are actually effective.

Well, that’s technically not true. Just like businesses that don’t improve quality or decrease costs will eventually become bankrupt (thus keeping markets in check), it is significant that governments and nations across time have done the same. Empires and kingdoms have fallen across the ages as corruption and oppression increased, and from Rome to the Soviet Union, the cycle of fallen nations continues even today.

But such things exist in the bloodiest of times. And so, the real question is whether a governing body can exist that will keep itself in check so as to not collapse and cause the destruction of many human lives.

The political system of the United States was founded with this ambition, with its three bodies of government (Legislative, Executive, and Judicial) created to “check and balance” itself. But, after nearly 300 years, it’s become pretty clear that the federal government of the United States has expanded beyond constraint.

When the US was first founded, its first two parties were not Democrat and Republican, but rather the Federalists and Anti-Federalists. The Federalists eventually won out to create the United States Constitution, and united the 13 colonies under a single nation. But, interestingly, the Anti-Federalists made a few predictions about the US that have turned out to be pretty true. According to wikipedia, these were their primary concerns:

The Bill of Rights was the only thing the Federalists agreed with and stuck onto the US Constitution. However, the other four points, having not been addressed, have become the insane reality of the US government.

Indeed, the US Presidency has expanded so much, that while it isn’t an official monarchy in terms of election, it certainly is in terms of power and authority. Additionally, the courts, especially the US Supreme Court, has become the battleground on which all policies are decided. In all this, the federal government has taken away much of the power of state governments, while being the least responsive to the needs of local populations.

And so, I believe we can see that, despite their best efforts, across the course of a few centuries, the current federal government of the United States is indeed in trouble.

While it is unlikely that government policy-makers and officials will vote to reduce their power, we can, perhaps, surmise a path that can work. In fact, it’s not too difficult to imagine a better system if we place government under the same lens as corporations and businesses. If corporations and businesses are kept in check through competition, then governments can be as well.

The easiest way to think about this is to realize that local governments are already in competition with one another. The municipals of cities and towns compete for residences and businesses. If a certain city or town has adverse laws, people can migrate away from them. This forces cities and towns to compete against each other, to create laws and policies that are actually beneficial for its citizens.

Of course, states and nations also compete with each other, but as Sowell points out, it often takes time to see the economic deficiencies of policies, and by the time such things happen, the politicians and wealthy elites who have benefitted from such terrible policies can up and move without suffering the same consequences as the people under them.

And so, the problem becomes, how do we deal with the role of governments greater than local cities or towns? How should we think of and define their roles?

I think a key lies in the founding of the US Declaration of Independence. Let’s take a look:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.

Notice the sentiment here: government is created to secure rights.

Historically, we’ve often viewed government from the top down. Like a pyramid, those with the highest authority preside over those with less, and the higher you move up the chain of command, the smaller the population. In a democracy or a republic, we’ve contextualized this to be a group of political elites rather than a single person, but this scheme still exists.

However, the genius behind the founding of the US is this idea: that government exists under the consent of the governed. In other words, rather than having the highest authority at the top, the highest authority should actually exist at the bottom, the foundation without which the top wouldn’t exist.

It is important, then, to recognize that, in this understanding, the local municipalities of cities and towns should have more authority than the state or federal. As government graduates from city to county to state to country, the authority of those presiding over more population should decrease in authority. This would keep the structure of competition, and would thus incentivize governments to create policies that actually benefit the public.

Practically, how would this work? Well, it’s actually quite easy. For example, if a federal government attempts to tax its citizens, each state should be able to refuse for its citizens the need to pay those taxes. If the state doesn’t exempt its citizens, then the cities and towns within it can do so. Such a thing can go from the simple realm of taxes to any kind of law the federal government enacts. If a city disagrees with a federal law, it can create an exemption for its own citizens from obeying it.

Thus, a city or state or federal government (in the event of a UN or other alliance type situation) has two roles: it can create laws for those under it to follow, and it can exempt the citizens under its jurisdiction from following the higher laws of the land.

For many, this may seem quite strange. After all, what if the federal government creates a beneficial law, and the city you live in doesn’t like it? Well, there’s no reason any individual citizen can’t obey it. After all, if you want to pay those taxes, then by your will, you certainly can. If for some reason a city actively tries to keep you from following federal law, you can simply move to a new city.

By incentivizing cities this way, the best laws will become more of a norm, since cities and states are incentivized to keep their populations happy through competition rather than popularity. And through the exemption process, a larger state or federal government can’t really create a law which will have adverse effects on its population. I mean, it can, but pretty soon, cities which experience the negative effects will be exempting its citizens from following such laws.

There would, of course, be certain laws that all cities and states in a country must follow. Such things would include the Constitution and the Bill of Rights (if such a scenario were to be in the US). This would of course, incentivize politicians to try writing laws as Amendments. There are many ways to deal with this, one of which could be a law that automatically increases the voting requirement the more Amendments are put into law.

In such a world, we will then have truly decentralized.

There’s actually a lot to unpack here, but rather than writing more in an already long-winded review, I’ll simply leave it here to ponder about.

In the last post, I wrote about how to create a website using a content management system called Wordpress, as well as testing it offline using a little app called Local by Flywheel.

Today, we're going to get a little less utilitarian, and a little bit more philosophical, as we explore the why's of creating a website, and how that affects the way we design and build one up.

So let's get to it!

Why Create a Website?

In this day and age, one might ask, “Why would I want to create a website?” After all, we have numerous available social media sites, like Facebook, Twitter, Instagram, Youtube, and others that set up entire platforms so that we can spend less time making our own sites and more time engaging with audiences that flock to these platforms.

There are two basic reasons: customizability and censorship. And of course, both of these two reasons are related to the freedom of expression.

The first one is pretty clear. Every social media website since the fall of MySpace have centered around a single template with which its users can create and interact. These templates are usually pretty decent, aesthetically, and match the design of the platform of origin, but generally constrict what users are able to do. For example, Twitter doesn't allow users to type in more than 140 characters in each 'tweet'. Instagram only allows sharing pictures and video, while disallowing any links to be put in accompanying descriptions. These limitations serve the specific platforms well, but leaves users who want a bit more hanging dry.

By creating and designing your own website, you basically have an unlimited customizability and freedom in expressing what you want on the Internet. This is actually the main reason I began to redesign and recreate my website (I had one from a few years back that I stopped maintaining). While I enjoy blogging and writing on Coil, there's a few restrictions on formatting that have prevented me from really doing what I want on cite. This coupled with the fact that it has changed very little since almost two years ago when I started helped me to realize that I really did want to have my own website to make my posts exactly how I wanted them.

The second reason, and perhaps a more important one today, is the issue of censorship. Whether you like or dislike the personalities that are being de-platformed today, what should bother everyone is that big tech is actively censoring people without even attempting to hide it anymore. Just recently, from the mass erasure of the US President's accounts from Twitter and Facebook (and almost every other account on big web platforms) to the booting of the Parler app from Apple, Google, and Amazon's app stores and web services, it's not difficult to make any argument for creating your own platform or website, if only to save yourself the headache from having to do it later if the censorship overlords come for you.

So how do we go about designing our website? In the first part of this series, I went over themes and plug-ins, but I didn't really explore how that all works together. So let's dive in!

It's all about the User Interface

Let's look at four popular websites: Facebook, Twitter, Instagram, and Tumblr, pictured comparatively below:

We typically use each of these sites for different things. The main use-case for Facebook is to connect with friends and family. People mostly go on Twitter to get small snippets about news items they're interested in with people around the world. Instagram is used to advertise aesthetics and appeal for people so others can see a certain 'lifestyle'. Tumblr is a bit of a mishmash of all of the above, but behaves mostly like a curated site of shared interests (or memes, ha!).

However, did you know that there is a term for these websites outside of the usual umbrella term of 'social media'? These four sites are actually within a genre of sites called 'microblogging' sites. All of them are, in reality, exactly the same. After all, you can use Facebook to look at news, and Twitter to chat with your friends, or Instagram to just curate through your interests.

But we tend to use them differently simply because of one thing: the User Interface.

While some of us may type in the same words or post the same pictures or upload the same video in each of these platforms, most of the time, we change how we interact with each of these places because the user interface is geared towards a specific thing. We would probably talk to our friends and family a bit different than we would to the general public (Twitter vs. Facebook). We would try to be more aesthetically minded when posting pictures on Instagram, or attempt to pack as much punch into our tweets since it's so succinct.

Each of these platforms has a UI that serves to cater towards certain behaviors.

Applications for Our Own Websites

When we are designing our own websites, we want to keep these things in mind, as well. What is the thing that I want people or users to do most with my website? How can I design my site to cater towards those needs?

Let's say I want to create a micro-blogging site. As discussed above, there's a lot more to these kinds of social media sites than what's on the surface. If I'm creating a micro-blogging site, I also want to figure out how I want my users to interact (e.g. through short texts? through photos primarily? etc.).

For example, gfam.live, a social media site that's like a photos-only version of Twitter, has a rule that users can only post selfies. The actual site also is just a split page between user posts and a big welcome page with a smilie. This has created user interaction centered around more intimate subjects, as people post more about their lives and families than products or politics.

The gfam.live website

On my own website, I've decided that I want people to easily be able to see recent posts I've made, while also being able to navigate to the different subjects that I have written or will be writing about. I also wanted easy access to my music page and a helpful “Welcome” that orients people when they land on my home page. That “welcome” changes into a summary of the current post when they are reading any specific blog or essay I've written.

My own website so far

As I wrote in my previous post, the great thing about Wordpress is that there is such a large variety of themes and plugins that it's easy to find something that will at least be similar to how you want the interaction of your site to be like.

Final Thoughts

What I've written so far may be a lot to think about. The easiest thing to do, of course, is just to get started. Just like my website has evolved from its previous iterations, most websites evolve with time as their owners realize how they want to interact with their audience.

And, of course, the other great thing about Wordpress is that it's easy to change your website as your tastes evolve. Since its management is based around posts, pages, and themes, there's no limit on what you can do and how you can do it. Just start, and even with very little experience, anyone can really design a website that they want in very little time.

In the next part, I'll be talking about web-hosting, and the services we can use to publish our websites for the world to see!

A large part of national economics is money and the banking system, which we will be taking a look at today in the 17th chapter of Thomas Sowell's Basic Economics.

If you want to see my summaries and analyses of previous chapters, please click here. Otherwise, here we go!

Chapter Summary

The headlining quote for this chapter is from Milton Friedman, who says:

A system established largely to prevent bank panics produced the most severe banking panic in American history.

Money and banking are essential parts of modern life today. Money helps distribute real resources around society, while banks handle the vast majority of that distribution. Thus, it is important to understand their roles in society.

The Role of Money

Money is very simple: it's an agreed upon intermediary for exchanging anything between people. From sea shells to tobacco, lots of different things have been used for money in the past. It's important to see that money for an individual may be associated with wealth, since other individuals will exchange goods or services for that money. However, on a national scale, money isn't wealth at all. Said country still needs to produce real goods and services.

That doesn't mean, of course, that money isn't valuable. Bartering, which is trading one good for another directly, is a very clumsy system that actually worsens economic activity. Thus, understanding money which is used as a medium of exchange is important.

Inflation, which is simply an increase in prices, is one of the first things to understand. When people have more ability (aka money) to spend, they tend to spend more. If there isn't an increase in productivity, then prices of existing goods increase as well, because that means that there is an increase in demand without an increase in supply. It's a situation where people attempt to outbid each other for what they want. And thus, when there is more money circulating in an economy, prices rise.

This becomes a problem when governments control money, due to the temptation to always try to create more of it. Thus, when there is an inherent limitation in supply of the money material (e.g. gold), it deprives these governments of the ability to inflate an economy. Thus, having something like a gold standard isn't saying that money now has intrinsic value, but simply saying that paper money is limited by the supply of gold.

A country's own money supply isn't just paper fiat, however. It includes whatever instruments exist that can be redeemed for other goods and services. This includes things like IOUs and credit cards, which means that when credits are liquidated, the result is like a reduction of money supply. In addition, countries can use the currency of other nations (e.g. the US dollar is used around the world).

When money isn't limited, inflation reduces the buying power of those who save. For example, the money one had in the 1960's could buy 6x more than in 2013. This means that those who saved their money in the 60's lost more than 80% of its purchasing power. When the public becomes aware of this “silent confiscation” of wealth by their government, they typically flock to gold.

So why would governments inflate? The simple answer is to avoid raising taxes. Raising taxes is politically dangerous, as it looks like an obvious move by the government to take money. Instead, by creating more money, and immediately using it to purchase resources, the government hands off the decreased buying power to the public while still retaining its buying power. Thus, inflation is the hidden tax, as it has the same effect of reducing the people's buying power as explicitly raising taxes.

This is why the wealthy often have their investments in stocks, real estate, or other tangible assets. By doing so, they avoid letting inflation take their value. And so, even when the government proposes to increase taxes on the wealthy, the result is that the wealthy don't receive any increase, because the taxes are on money, which the wealthy don't hold onto.

Deflation is, of course, the opposite of inflation. However, it isn't necessarily a good thing either. This is because declining price levels means that the money you used yesterday could have been used to buy more today. In a market, when things are bought to be sold at a later point, it wrecks havoc on financiers. For example, it causes creditors and debtors to default, as the assets purchased can no longer pay back the interest required on loans. Furthermore, people often save their money during noticeable deflation, escalating the contraction of the money supply, and further snowballing deflation.

What if the government prints money during a deflationary period? After all, if prices are decreasing, and printing money increases supply (and thus prices), could that counteract the effect of deflation?

The problem, of course, is that the things that produce deflation in an economy are not because of a lack of money, but rather a decrease or reduction in economic output. Let's say the reason deflation is happening is because of a shortage in food from farms. This means that there isn't enough harvest to go around, and people become unemployed, since there is less pay to go to them. With less people buying food and more people saving, the price of food begins to collapse. While the government can certainly print money for the unemployed, this does nothing to ensure that there is enough food produced to sell to these people.

We've discussed in previous chapters, of course, of how government involvement in society, whether it's minimum wage hikes or price limits or minimums on goods and services, have always resulted in even poorer economies. So is there a solution here?

Sowell offers a small story of the 1890's, when there was a large hubbub around getting rid of the gold standard, as people were losing the value of their goods during a deflationary period. In the end, political tensions were alleviated with the discovery of new gold in various countries. The value of gold dropped, thus rapidly increasing the value of farm produce. In other words, it wasn't the government that solved the economic problem, but the work of private citizens producing the needed result.

The Banking System and The Role of Banks

Banks exist for many reasons. First they exist to insure the money of other private and public entities at a lower cost. If there were no banks, there would be much more robberies of restaurants or homes or other businesses, since they would have to guard their own money. When multiple entities pool their money together, they can much better purchase the security necessary for their collective wealth.

However, they also play an active role in the economy. For example, since businesses often go from profit to debt, they sometimes cannot cover their own obligations to pay their employees. In these cases, a business can get a loan from the bank, and pay their employees, so that the business can, hopefully and eventually, repay when they are profiting once more.

This is especially important for startups. While certainly private businesses can save up their own money to bail themselves out, banks provide access to an economy of scale that de-risks certain aspects of maintaining businesses (e.g. as mentioned above), especially for the smaller business owners. Even individuals gain access to the greater economy by being financed by the bank if they are using credit cards for purchases.

Of course, in giving access to the economy at large, banks can also help individuals and businesses understand and evaluate investment prospects, such as stocks, bonds, and mutual funds. Furthermore, with banks financing different investments, theoretically, individuals and businesses can also use banks for savings accounts and pension plans.

Why do we need these financial intermediaries? A better way to look at it may be to look at countries which don't have these services. More often than not, these people in these countries are poorer, even if their country has a plethora of natural resources. This is because a financial intermediary is able to facilitate the exchange of natural resources, so that these raw materials can be turned into better goods and services like homes and businesses. In other words, they can help to better produce wealth economically.

Now we need to talk about fractional reserve banking, an integral part of banking today. Basically, modern banking allows banks to only hold a small fraction of the reserves needed to cover deposits and thus add more to the total money supply. The vast majority of depositors are not going to want their money at the same time, and so the bank can take the money they do have and lend it to others. By earning interest on what they loan out, they can make more money with what they currently have.

The problem may be obvious: this only works when depositors do not require most of all of their money at the same time as everyone else. And of course, such a situation may happen when times are tough, or when depositors in general don't believe that the bank will be able to pay them back, and attempt to withdraw all their money in panic. Even if a bank has assets it can sell to cover its debts, it may not be able to sell those assets fast enough to do so.

Such situations have happened, including during the Great Depression in the 1930's in the United States, and masses of banks capitulated. The US then created the Federal Deposit Insurance Corporation (FDIC) so that bank customers don't have to fear bank collapses.

In 1914, a little before all this happened, the Federal Reserve System was also created as a central bank so that the government could control private banks, since it has the power to tell them what they can keep in reserve, as well as lend to those banks. This created a sort of ethos around the Federal Reserve, where its actions or its chairman's words were taken as indications of what the government was going to do economically, which would then affect the prices of the stock market.

Interestingly, some of the worst bank failures in the US occurred after the Federal Reserve was established, including the market crash of 1929 and the Great Depression of the 1930's.

Banking Laws and Policies

Sowell begins this section with a warning in reference to banking, that we shouldn't “repeat the mistake that Lenin made in grossly under-estimating the complexity of business in general”. Let's dive in.

The act of lending out money to private businesses so as to get a return on investment is actually not an easy task. This was a problem that many post-communist nations had. The problem is in the collateral a bank takes, whether that collateral is easily liquidated when a borrower defaults. In many ways, it's easier for a bank to simply buy government securities and bonds, which seem to give a more dependable rate of return.

When there is distrust in the banks, people tend to invest in assets that are less liquid. For example, in India, despite its people having generally higher savings that Americans, much of its individuals' holdings are in gold, the highest in the world. This means that a large part of the country's wealth is actually not used to invest or finance, thus leading to less economic output. The savings that are in Indian banks are generally lent to the government rather than in businesses. The same can be said of China.

When private banks are able to lend more money to the private enterprises instead of the government, the net result tends to be higher rates of interest and thus, higher rates of savings. This in turn creates better economic growth, as banks learn to be more efficient in allocating resources to more successful businesses. But in all of this, there is a lot of risk involved. Is it possible for the government to mitigate these risks?

In the United States, before the FDIC existed, states also had a sort of deposit insurance. These states forbid banks from having branch offices, which was supposed to protect local banks from competition from bigger banks elsewhere. However, this actually made banks more risky since the concentration made it impossible to de-risk vis a vis economy of scale.

Thus, when thousands of banks failed in the 1920's and 1930's, those banks that failed were overwhelmingly in the small communities where these anti-branch laws existed. The FDIC was created in reaction to this, but it was a government reaction to terrible government regulations.

We know that a better scenario can happen because it did, in Canada. At the same time that US banks were failing by the thousands, there wasn't a single bank failure in Canada because it had only a few banks with thousands of branches. These thousands of branches spread the risk out across economic conditions. And even during the Great Depression, the US banks with numerous branches had little failure rates.

FDIC, and other government intervention insurance like it, create problems just as they attempt to reduce risks. After all, there is a chance that people who are insured may engage in more risky behavior than before. The same goes for financial institutions. In addition, governments may miscalculate risks, and give taxpayers the responsibility for cleaning up the mess they created.

This is basically what happened during the Great Recession. In 1977, the United States created the Community Reinvestment Act, attempting to reinvest in low-income communities and make home buying more affordable for low-income people with poor credit history. This incentivized banks to lend to riskier and riskier people, and resulted in the global financial crash (as well as collapse of entire banking institutions and Wall Street firms) in 2007.

My Thoughts

For those who have been following me for a while, this chapter may be eerily similar to a series I did called Be Your Own Bank. At that point in time, I had not read Basic Economics, but it's great to see how similar my ideas were in that series. If you're curious and haven't looked at it, I encourage you to read that series I wrote when I first started blogging on Coil, as it really does lay a foundation for a lot of things that I like to talk about in terms of economics.

Most of what Sowell wrote has to do with traditional finance, but I think it has a lot to say about today's changing landscape, as Fintech and blockchain rise in adoption around the world. So let's get into some crypto talk.

A Cautious Look at Cryptocurrency

I think it's important to understand that, at least today, the vast majority of crypto resides in the realm of currency. This means that, like fiat currency, the majority of crypto has no intrinsic value. Let's look at Bitcoin.

The ethos behind Bitcoin these days is that it is a store of value, just like gold is in the real world. I've compared gold and Bitcoin before, just to reiterate: gold has some intrinsic value because of its allure, its utility, and it's longevity. These are intrinsic traits of gold that make it desirable.

Bitcoin, on the other hand, is the first and worst of all the cryptocurrencies today. It has no utility outside of secure transference (which all the other cryptos have). Its longevity has so far been pretty great, but a decade is a bit short to say something has real longevity (gold has been desirable for at least a couple thousand years).

I'm not saying that Bitcoin is terrible. While it does have its detriments given above, in a sense it is a store of value, but not because of anything intrinsic. Instead, it is a store of value simply because that's what people believe it is. And in this it is actually quite similar to gold.

After all, if some apocalyptic crisis takes the world over, and human beings are left to sticks and stones to fend for themselves, both gold and Bitcoin would prove to be quite useless. And so, we arrive at what I've said above. Since a large majority of cryptos today seek to emulate the success of Bitcoin, the vast majority of them are simply mediums of exchange. Or, in other words, currency.

If we understand this premise, then, we understand that a majority of crypto is basically digital fiat. The mass withdrawal of that fiat from DeFi, even if most depositors are paid (since almost all DeFi is based on a collateralized system), we may still have a disaster on our hands. Adapting what Sowell has said, the ability of loan agents to liquidate their assets in order to pay back depositors is still a requirement in DeFi networks. And, of course, during a crises, it may be that the collateral they hold is actually difficult to liquidate.

This happened on Black Thursday in 2020, where a massive crash nearly upended the crypto space. While it thankfully didn't end crypto, it did show us how fragile the system can be in dire times.

In all of this, I'm not trying to denounce crypto — my intention is the opposite, in fact. My readers will know that I talk often about crypto and the revolution it can theoretically have on our society.

But it's important to come to grips with the fact that, if any crypto is going to survive and become a real asset, it needs to go beyond the simple “store of value” and “currency” narrative, and into the realm of mass utility. In other words, crypto needs to have a use-case that isn't just transferring value, but one that is intrinsically desired and useful in a variety of situations. DeFi can't just be about “yield farming”, as if the increase in one's holdings of a number of tokens is in itself valuable. The token must have value intrinsically.

As announced in my new year post, I'll be sharing my progress as I create my own website, both the how's and the why's. Hopefully, for those who have a similar desire, this will be useful.

Creating a personal website is not very difficult anymore. In the early days of the Internet, it was all about knowing how to code in HTML, Javascript, and a few others to get all the frames and designs out. If you look back on early 2000 website pages, you can see just how much things have changed since then. Part of this was due to the fact that there weren't templates or ready-made schemas for designers, and everyone had to do everything themselves. Back then, “web designer” was basically synonymous with “coder”, rather than the plethora of jobs today, ranging from UI/UX designer to graphic designers.

Now, anyone can design a website, even if you have absolutely no skill in either programming or graphic design. Let me show you how!

Building Websites with a CMS

The first thing to understand is that, for the vast majority of people, building a website revolves around using something called a “content management system”, or CMS. The CMS is generally where you do the majority of your work, whether it is creating the look of the website, making blog posts, uploading photos, linking to your social media, etc. Today, there are a lot of different CMS services like Squarespace and Wix which allow you to build a website from pre-designed templates. The one I will be using is called Wordpress.

The wordpress.org website.

Wordpress has been around for a really long time. Because of this legacy, it has grown to be one of the best supported and most flexible CMS's out there. You can build something as personal as a blog site (which is what I'm doing), or you can build an entire social networking site with it! The amount of things you can do is pretty crazy. In fact, one of the reasons I'm using it is because Coil has a plug-in for Wordpress that allows Coil subscribers to stream payments to the website owner.

With such flexibility, sometimes it may feel a bit daunting to know how to start. Here's how.

Beta-Testing Your Site

There are a couple ways to use Wordpress to create your site. The first is to go to Wordpress.com and just follow the instructions from there. Doing this is similar to Wix and Squarespace and other online CMS's, where they will walk you through website creation step-by-step.

However, like Wix and Squarespace, Wordpress.com is not very flexible, as there is an (admittedly large) array of things you can do, but you won't be able to do much outside of what they allow you to (unless you pay the money to do so). Furthermore, these sites allow you to only edit your website online. In other words, if there are some things you want to test before your website launches, it's basically impossible.

So instead, if you want the full-fledged open-source Wordpress, and the ability to test your site before you launch it, you can download a little app called Local by Flywheel. This is an extremely useful tool that builds the basics of your site for you while giving you all the flexibility of the entire Wordpress suite, and allows you to beta-test it both offline and online. Then, when you're ready to launch, you just export your site to a host online.

The Local by Flywheel website.

After you download the app, install it, and open it (this may take a while at first) you'll be presented with a window that looks like this:

My Local App.

Of course, if you're doing this for the first time, you won't have the actual “TEST” and “THE POOL” listed on there, since those are my sites. Instead, you can click on the big “+” sign at the bottom left to get started. Name your website, then determine the PHP setup environment (I'd recommend sticking with the default), and then choose a name and password for yourself. After you do so, it will generate the needed files, after which you'll end up with something like the below:

After you create your site.

When you're ready, click the “start site” button at the top right hand corner, and wait a few moments. Then hit “admin”, and it will launch your site's backend, where you log in with the name and password you created before. Then you will be greeted with something that looks like this:

Congratulations! You've created your first website!

Customizing Your Site

Now, what you're looking at so far is actually the backend of your website. This is where you create things like pages or posts, upload any media for your site, edit comments, etc. This is not what people will see when they visit your website. If you want to see what they'll see, click on the name of your website on the top left corner (where mine says “The Pool”).

Now, if you didn't edit anything, your website might look like an almost blank nothing:

This is because you haven't added anything to your site. What it's displaying are the default post and pages without any themes, plug-ins, or anything. So let's go over some of that stuff.

Themes

Themes are the backbone of websites. They are the graphical and interactive design portion of your site, and how other people will see it. Thus, to access the themes of your website, go back to the admin backend (click on the name of your website again at the top left), hover your cursor over “Appearance” on the lefthand menu, and click on “Themes”.

Because Wordpress has been around for so long, the number of themes that have been created number in the thousands. If you hit the “add new” button, you will be greeted with a few pre-installed themes. However, if you head over to the Wordpress.org website, and go to the “Themes” page, you'll see those thousands I was talking about.

8,026 themes as of January 7, 2021

These are only the themes hosted on the Wordpress.org website. If you want to see even more, there are third party websites that have both free and premium themes you can buy and download. On most of these theme browsers, you can filter what you're looking for, or simply look at the most popular ones.

For me, themes are both the most fun part of creating websites, and sometimes the most frustrating. It's fun because simply looking at the vast number of themes possible energizes me a lot. It's really fun just seeing how creative people are in designing websites for things like online magazines, storefronts, fashion portfolios, etc.

But it's also a bit frustrating because, at the end of the day, I know I need to make a theme work for my own personal tastes, and oftentimes, I see themes that are almost what I want, but not quite. That's why I like Wordpress so much, because you can edit any part of a theme to make it exactly how you want it to be. Much of this customization can be made through the “appearance” tab we were at earlier, though if you want to get really nitty-gritty, you can certainly edit the code underlying the entire site as well.

For third party themes, you can simply download them, and then upload it in the “themes” part of your website that we navigated to above.

Posts and Pages

Because Wordpress was originally a blogging platform, the way you manage it is very similar to one. You have posts that you can create, which are similar to “blogs” or “news items” on typical websites. Then there are pages, which are static pages that can be used for things like contact forms or support and about pages.

Posts typically are attached to categories and tags. You can make different pages host different categories of posts, but typically those are determined by the theme. Instead, pages often have different widgets and menu items (all under “Appearance”), and are there for specific things. Visitor comments typically fall under posts, though you can enable them in various pages as well, if you want.

Plugins

Plugins are, in my opinion, how Wordpress beats its competition. While most things can be done through coding HTML or Javascript, plugins allow non-programmers (like me) to get access to a vast number of things that would take a lot of development time to embed natively into your website. From spam protection to making your site into a wiki to the aforementioned Coil plugin, really, the sky is the limit to what you can get with them.

It's really easy to get caught up in reading through, and then enabling or adding a bunch of plug-ins at once. However, keep in mind that every plugin added typically also adds a bit more loading time to your website. It's not uncommon for amateur Wordpress sites to be extremely sluggish because of the amount of plugins the owner added onto it.

All-in-all, I would recommend having only plugins that you really need, or plugins that group a bunch of functions together so as to conserve resources.

That's it!

That's the end of this part of creating a website! Hopefully, this has given some inspiration for anyone who wants to start making their own website to do so!

Next time, I'll be going over more specific parts of my own website I'm creating, and go more into depth of why I'm making my own website. Then, I'll be ending this small series with how to upload your newly created site for people to see!

We have now arrived at Part V of Thomas Sowell's Basic Economics, where we will be talking in depth about “the national economy”, which is really simply applying economic principles on a larger scale rather than specific markets. In this chapter, we look at the problem of national output.

If you want to look at my previous summaries of this book, click here. Otherwise, let's get into chapter 15!

Chapter Summary

When we look at the national economy, many of the same principles of economics, such as supply and demand, can be applied. However, because we are looking at a greater whole, these applications may take more time before the results reveal reality. This is because we are dealing with a lot of different cogs in the economic machine, which are each affected by others. Thus, when we look at the national economy, we need to understand the fallacy of composition.

The Fallacy of Composition

The fallacy of composition is mistakenly assuming that what applies to something small always automatically applies to the whole. For example, in the 1990s, there was a reported loss of jobs in specific American firms and industries. However, at the same time, there was a record low amount of unemployment, and the overall number of jobs rose around the nation.

The fallacy of composition is wrong because it ignores interactions within an ecosystem. On a more negative side, we can see that when a government entity attempts to save an industry by pumping money in, it may not actually be doing good, since perhaps more jobs would be lost elsewhere in the economy. The fallacy in this example is believing that saving any jobs in one sector means saving more jobs overall.

Output and Demand

To understand a national economy, we need to understand the sum of its total output, the role of money in the economy, and how the government factors into it.

There is sometimes this idea that a national economy can produce more than people will buy. During the Great Depression in the 1930's, many prominent people (including the then President, Franklin D. Roosevelt) espoused this idea. Today, with the national output many times that amount in the 1930's, there isn't the same fear as there was during the early 20th century. Why is this?

The national output is practically the same as real income, since national output is the goods and services that money can buy. Thus, it's impossible to produce more than sold by definition. Of course, the question then becomes, what if people (for whatever reason) don't spend money to purchase real goods and services? Such a situation can certainly turn an economy for the worse, as people no longer spend or invest at full capacity. But the effect is that production and employment will slowly cope with this lack of spending. Thus, output and real income are the same.

Measuring National Output

A country's total wealth is different from the national output, since total wealth includes past accumulation, while output is simply what is current. The most typical way to measure output is Gross Domestic Product, or GDP, which is the total of everything produced inside of a nation. GNP, or Gross National Product, on the other hand, is the total of goods and services produced by a nation's people (even if they aren't inside the country). These two measure aren't typically very different from one another.

The reason it's important to understand wealth versus national output is that a country can go beyond its national output by using its wealth accumulated from the past. This happened in the United States during World War 2, when production for things like cars and refrigerators was halted to produce tanks and other military paraphernalia. Then, after the war, there was an uptick in return to producing civilian needs. This set a massive rate of growth in the economy, thus helped by past accumulated wealth.

In order to measure national wealth, serious studies are long-term and take into account changes in prices over time. It's not just about money and paper assets, but real goods and services that have real costs, depending on many circumstances.

The Changing Composition of Output

Of course, prices are just one of the things that change about goods and services over time. In reality, everything changes, including the very existence of products. This makes it difficult to measure national output, since not all changes are comparable. How do you compare GDP of a nation from the year 2000 to 1900 when that same nation probably sold completely different things during those two years?

Thus, a lot of political claims become moot. It's often in the news that the real wages of Americans have been on the decline. But oftentimes, higher prices reflect an increase in quality. This makes the consumer price index bias upward, which makes wages bias downward, thus not really reflecting a decline in wages, but rather in product quality. In reality, while declining real wages is advertised, the average consumption for Americans and net worth actually doubled. And this doesn't even factor in the real effects of inflation.

International Comparisons

A similar problem happens when comparing nations. As Sowell says,

This is not just comparing apples and oranges, it may be comparing cars and sugar.

This is, of course, a literal problem, as different countries have vastly different outputs. But there's other differences as well. For example, it may be that the very people within these nations are statistically different. For example, the median ages in countries such as Nigeria and Tanzania are below twenty, while the same for Japan and Italy are over forty. Or geographically, countries have a difference in climate, with some in tropical climates not needing to run up as much heating bills as those who are not.

There's also the problem of countries having different denominated currencies with which they measure their output. For example, statistical based on official exchange rates of the dollar and the Japanese yen have shown that Japan has a higher per capita income than the United States. But in reality, “the average American's annual income could buy everything the average Japanese annual income buys and still have thousands of dollars left over”. And this doesn't even touch the problem that some countries are more market-based, while others rely on government-provided goods and services.

All these problems show that, while GDP and GNP are our best measures of an economy, they are not meant to be exact or precise in what they say about a certain country. For example, in 2009, the GDP of China was second in the world (behind the United States), but if we were to measure per capita, it would fall incredibly far behind, since it had the world's largest population at that point. In fact, none of the top 5 GDP countries would still be there if measured per capita. But no one would say Bermuda, which has a higher per capita GDP than the United States, has a higher standard of living than the US.

Statistical Trends

Much of current news, no matter which side of the aisle you're on, uses statistical trends to back up their claims. The problem, of course, is in the choosing of which start date or time span to begin from. And thus, how great or horrible a current administration is doing depends often on which year is selected to look at. This doesn't only apply to GDP measures, but crime rates, income inequality, and even things like the S&P 500 rates of return.

In some countries, especially Third World ones, a lot of economic activity is not recorded as part of the national output. Things like cooking food for a family, cleaning a home, and raising children are all uncounted. In more modern societies, where women tend to be in the workforce more, some of this is taken up by daycare centers or home cleaning services. While one can say that the modern societies are better at economically counting such things, it still doesn't account for those countries in which many of these 'jobs' are economically invisible.

It's even possible that some of the poorer countries may be statistically stagnant, but in reality be beginning to prosper. For example, generally, when a Third World country begins to rise economically, its child mortality rate generally decreases. This often means that the impoverished of that country are beginning to survive more, but it also means that the number of poor people in such a country is increasing, thereby averaging the country's real income lower.

Such is the problem of statistics.

My Thoughts

This chapter was a fascinating look at why the statistics often quoted to us or used to push us in a certain direction politically are regularly either wrong or strongly biased. In fact, an appropriate “tl;dr” for this chapter would probably be: statistical analyses must always be taken with a grain of salt. And of course, that statistical analyses are only part of the picture of what's going on.

I think it's appropriate that Sowell has such a disdain for the idea of being able to see economies on a macro scale. After all, the majority of the book so far looks at economics as millions of cogs in an organism rather than a uniform machine. It goes well with the understanding that socialist or authoritarian governments, which seek to control economies from the top down, because they are unable to see the little cogs necessary to make an economy work, will ultimately fail.

In fact, this understanding of how unable GDP and GNP and other measures are in understanding an economy gives us a firm grasp on why such socialist governments don't work. If even the numbers can't give us an accurate representation of what's going on, how on earth can any human government or entity?

If anything, this book is one of the greatest arguments there is against any form of top-down government. And along with a few others that I have read and reviewed so far, it gives us a pretty good glimpse at the necessity of decentralization as humanity grows into the future.