Sowell's Economics

I finished Thomas Sowell's Basic Economics last week. I know the title sounds boring, but the book is very readible, loaded with examples rather than graphs and charts. In my humble opinion, far too few citizens -- and especially politicians -- understand basic economic principles.

First a definition: Economics is the study of the use of scarce resources which have alternative uses. Every society does it somehow; the more efficiently done, the more prosperous the society.

Here are a few of the interesting points Sowell makes:

• Prices are not just ways of transferring money. Their primary role is to provide incentives to affect behavior in the use of resources and their resulting products. Shortages and surpluses are indications of prices that are too low or too high. When people project that there will be a shortage of engineers or teachers or food in the years ahead, they usually either ignore prices or implicitly assume that there will be a shortage at today's prices. Consequently, price controls and subsidies tend to create shortages and surpluses. Their cost to the society as a whole comes from the misallocation of resources.
• Economic policies need to be analyzed in terms of the incentives they create, rather than the hopes that inspired them. Good intentions don't count in economics. Economics is about cause and effect.
• "Costs" to society are the foregone opportunities to use the same resources. Prices and costs often get confused.
• The more efficient the economy, the more prosperous; i.e., the further the scarce resources go.
• Profits are not the product of greed; rather they are the price paid for efficiency. Most profitable enterprises have become so by lowering the price of a product to the consumer.
• Business Week in October 2003 reported an estimate that Wal-Mart saved its U.S. customers $20 billion in 2002.
• Profits are a minor item in the economy as a whole -- about 10%. But the prospect of a profit is critical to the efficient production of the other 90%. The prospect of a loss is also critical to an efficient economy.
• Wages are merely prices paid for human resources.
• The "rich" and the "poor" are often the same people at different times in their life. Three-quarters of those Americans who were in the bottom 20% in income in 1975 were in the top 40% at some point over the next 16 years.
• Comparing "household" income is misleading. Census data show that there were 39 million people in the bottom 20% of households but 64 million in the top 20%. There were more heads of households working full-time in the top 5% of households than in the bottom 20% . Household income only rose 6% between 1969 and 1996, but per capita income rose 51%.
• 80% of American millionaires have earned their own fortunes, having inherited nothing.
• If we define "rich" as having a net worth of over $1 million, and "poor" as remaining in the bottom 20% over a period of years, then only 3.5% are genuinely rich and only 3% genuinely poor. These add up to less than 10% of the population. (So much for a society of "haves" and "have nots.")
• While the average American earned more than four times that of the average in the bottom 20%, the average American only consumed one-third more.
• Discrimination? As far back as 1971, American women who worked continuously from high school through their thirties earned slightly more than men of the same description. Gross statistics show large income differences among American racial and ethnic groups. However, black, white and Hispanic males of the same age (29) and IQ (100) all had essentially the same annual incomes.
• Minimum wage and job security laws result in higher unemployment. The unemployed are made idle by wage rates artificially set above the level of their productivity. Before minimum wage laws were instituted in the '30s, the black unemployment rate was slightlly lower than that of whites.
• Exploitation? Multination companies typically pay about double the local wage rate in Third World countries.
• How much of a given natural resource is known to exist (think oil) depends on how much it costs to know. Exploration is costly, so there is no point in seeking resources too far in advance of the anticipated need. At the end of the 20th century, the known oil reserves were 10 times larger than they were in the middle of the century.

I've gone on too long. I highly recommend the book.

Saturday Hike

Our youth are going to be doing a handcart trek in June and needed to do a couple of hikes before then so that they would be ready. So, the youth leaders asked me to take them over the hill to the back of Waipio. It was foggy and a little rainy (and, of course, wet and muddy!), but nevertheless beautiful.

Took John Roth -- a young attorney that I will probably hire -- and his friend Thomas with us.

From the ledge below the overlook

Across to the other side

The Ultimate Gift

A few weeks ago, the Hawaii Community foundation sponsored a showing for a few of us of the movie, "The Ultimate Gift." It stars James Garner and a couple of other familiar faces. It was on the big screen for only a few months before coming out on DVD -- won't win any Oscars. But it had a wonderful and powerful message about the things that are important in life. I heartily recommend it.

More on black leadership

Anna suggests that perception is reality. I agree to this extent: I believe there is wisdom in the statement: "Whether you believe that you can or that you can't, you are probably right."

A real leader seeks to inspire, to encourage, to challenge his followers to be better than they are, to raise their sights, to rise above what they see as possible. (Isn't that what we were told from the Conference Center all day yesterday and today?) One can become popular by telling people what they want to hear -- especially by telling them that their problems are not their own fault. Telling people that they are largely responsible for their own circumstances probably won't win many votes; but it is the truth. And it is the only way to help the downtrodden extract themselves from their current plight. Wallowing in self-pity and whining won't do it. A real leader will seek to change the perception. And a real leader can succeed in motivating some people to change.

There was a black mother on Good Morning America a couple of days ago whose 8-year old son had had the chance to ask Obama a question at a recent campaign event. The boy had told his mother that he wanted to be a gangster when he grew up, because gangsters made a lot of money. His mother showed him a picture of Obama and told him that the president makes a lot more money than a gangster. So now the boy says he wants to be president when he grows up. A little encouragement at a young age may work miracles.

Blacks in a ghetto (or Hawaiian activists, for that matter) aren't likely to listen to you or me tell them they can pull themselves out of their surroundings and accomplish whatever they really want. But they might listen to an Obama say that. There are a number of black writers that make that point, but they are drowned out by the activists who call them "Oreos" or "Uncle Toms."

My friend Larry Elder quoted black Harvard sociologist Orlando Patterson: "The sociological truths are that America, while still flawed in its race relations ... is now the least racist white-majority society in the world; has a better record of legal protection of minorities than any other society, white or black; offers more opportunities to a greater number of black persons than any other society, including all those of Africa." Yet activists heap mountains of verbal abuse on Larry for speaking out against what he calls the "victicrats." One of his recent columns contains a sampling.

The Rev. Wrights, Louis Farrakhans and Jesse Jacksons in America are making too much money and have amassed too much power from Black victimization to want to acknowledge that white racism in the U.S. is largely a thing of the past. Back in 1911, Booker T. Washington said, "There is [a] class of colored people who make a business of keeping the troubles, the wrongs, and the hardships of the Negro race before the public. Having learned they are able to make a living out of their troubles, they have grown into the settled habit of advertising their wrongs -- partly because they want sympathy and partly because it pays. Some of these people do not want the Negro to lose his grievances, because they do not want to lose their jobs. ... There is a certain class of race-problem solvers who don't want the patient to get well, because as long as the disease holds out they have not only an easy means of making a living, but also an easy medium through which to make themselves prominent before the public." (Quoted in Elder's book, Showdown.) He thought it true then; it is ever so much more true today.

Take Rev. Wright. I see no useful purpose in standing at the pulpit and condemning outsiders -- it does nothing to encourage the congregants to be better, only emboldens them to blame others for their problems. What if, instead, he condemned illegitimacy, drug-dealing, prostitution, crime, men abandoning their responsibilities as fathers and husbands. What if he challenged his congregants to be different from the stereotypes they so strongly condemn -- challenged the youth to stay in school, to learn to work, to become self-sufficient -- and established programs to help them change. He might then make a real and positive difference. In the final analysis, we each only have the power to change one person -- ourselves; and that's the change, I believe, upon which a preacher (or a leader) ought to focus.

What I wish Obama had said

I want to say a few words to the black Americans in the audience. For too long, some have told us that we cannot succeed in America, that the problems with the black communities are the fault of "whitey" and a legacy of slavery. If so, it is an amazing thing that I have succeeded in becoming a serious contender for the highest office in the land. It is also amazing that two of the most successful media personalities are black -- Oprah Winfrey and Bill Cosby. In fact, it ought to make us question those who proclaim that we continue to be oppressed and disadvantaged. Of course, there remains some racial discrimination in the United States. In fact, we, too, are occasionally guilty of discrimination.

Nevertheless, we should thank our lucky stars that our forefathers were brought to this country. Their misfortune turned into our good fortune. Had they not been brought to America, we today would likely be living in Africa.

While we do not understand how slavery was accepted in the United States, we should understand that it was not unique to America. In fact, slavery still exists in some parts of the world. We should also recognize that it was in the United States that slavery was first abolished. The ancestors of most Americans came to America seeking refuge. Ours were brought here involuntarily. But in no other country in the world today do blacks have greater opportunity and freedom than in the United States.

Our communities suffer mightily from the worst social pathologies in America. Crime, unwed mothers, drugs, school dropouts, unemployment, welfare dependency. It has not always been so. In the '40s and '50s, despite the existence of real and often legal discrimination, the rate of intact two-parent families in the black community was as high as in the white community. The crime rate in Harlem was no higher than any where else in New York City. Black families attended church on Sunday at a higher rate than did whites. So it is hard to blame our current problems on "a legacy of slavery."

I believe that many of our current problems are the result, instead, of too many of us buying in to the victim mentality sold to us in the name of civil rights. The down-trodden from all over the world still look to America as the land of opportunity. Many seek to come here; some even at the risk of their very lives. We are here already. The opportunities are here for the taking. We can achieve success with the same formula that every other people have achieved success in America -- through hard work. Let's do it!

Charles Kong Died

Charles Kong passed away a few weeks ago -- 70-something, I believe. I'd known him for 10 years or so -- met with him occasionally in his car, initially, then at his home. His lower body was paralyzed when I met him; he was bed-bound the last few years.

I didn't know his story until I met with his girl friend after his death. When he was 14, Charles dove a bit short at Nuuanu Falls at a graduation party -- broke his neck. That was before mandates for assistance for the handicapped, so the school had nothing for him. He was self-taught thereafter -- math through calculus, etc. He had a great speaking voice and worked at a Honolulu TV station, he wrote for Honolulu magazines, tutored students and did other odd jobs -- saving and investing in real estate along the way. By the time I met him, he had acquired several properties in Honolulu and Hilo and a home in Ahualoa.

Rather than wallowing in self-pity, he was always thinking and planning. One of his dreams was to turn his Ahualoa property into a botanical garden, but he never figured out who would be able to pull if off without him. He lived frugally, supported his wife in a care home and his caregiving girl friend of over 25 years, and paid for the additional care required with his declining health. He also looked after an aging aunt in LA.

I don't think I've known anyone who overcame so much with shear will and effort. In this age when so many seem helpless to overcome much smaller obstacles, I was impressed and reassured to know that this still is a land of opportunity for those willing to work and strive -- even from a wheelchair.

My Life

No wonder I can't seem to get caught up!