BOOK REVIEW NUMBER ONE

Austin Lucas
February 26, 2017
 Authors James D. Gwartney, Richard L. Stroup, Dwight R. Lee, Tawni H. Ferrarini, and

Joseph P. Calhoun, in their book Common Sense Economics, introduce basic principles of

economics and put these principles to work, by demonstrating their ability to explain reality

(Gwartney 2016, vii). The authors separate the book into four different parts: Twelve Key

Elements of Economics, Seven Major Sources of Economic Progress, Ten Key Elements of

Economic Thinking About the Role of Government, and a section on Personal Finance. This

paper will address all but the latter.

This paper is organized into three parts: 1.) A summary of Common Sense Economics; 2.)

An evaluation of the book using economic thinking and Christian ethical principles; and, 3.)

Apply the books economic approach to an Executive Order to decrease regulations.

SUMMARY OF COMMON SENSE ECONOMICS

Common Sense Economics explains the basics of economics and its application to the real

world. The authors begin their explanation by recognizing the importance of incentives. They

state: We must understand some basic principles about how people choose, what motivates their

actions, and how their actions influence their personal welfare and that of others (Ibid., 5).

Analyzing how people choose and why they choose is the key to understanding the foundation of

economics. Stressing the importance of economic understanding, the authors call their readers to

understand the incentives and motivations of individuals to not only predict future real world

events but also to analyze the immediate and long-term costs and benefits of economic policies

which have led to political and even market failure.

After analyzing the basic economic principles of self-interest, opportunity costs,

decisions at the margin, and Adam Smiths theory of the invisible hand, to name a few, the

authors shift their focus from discussing the foundations of economics to explaining how these

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economic principles, if followed and unhampered by government, can be choreographed into a

successful market. Applying these principles to achieve economic growth is the subject of Part II.

For a market to be successful, it needs to grow. That is because economic growth has

elevated living standards and improved both the length and quality of life (Ibid., 49). Therefore,

it is in the societys best interest to produce more goods and services and, more importantly, for

the government to provide a market environment which promotes economic progress. The

authors argue that the best environment the government can provide establishes and protects

property rights within the framework of the rule of law (Ibid., 59). Moreover, they stress that

this environment should allow competition because it gives firms a strong incentive to develop

better products and discover lower-cost methods of production (Ibid., 60). And, therefore,

benefit the society by supplying cheaper and higher quality goods and services. It is important

that governments avoid substituting political authority, by decree, for the rule of law and freedom

of contract because they will be a roadblock to gains from trade (Ibid., 65).

Therefore, the authors argue that the government should never step into the market and

assume control over sections of the economy because the government is not all knowing and it

can not provide growth like an unrestrained market (Ibid., 74). The authors illustrate this by

listing many examples of failed central planned socialist-economies and their restraints on the

growth of an economy (Ibid., 74-78, 81, 87-88, 92, 97-98, 100-103). After providing a historical

analysis of government successes and failures, the authors discuss the economic thinking about

the role of government in Part III.

Given [the governments] size and scope, understanding how political allocation works is

vitally important (Ibid., 109). The study of this topic in economics is called public choice.

Moreover, the authors stress that the government should not be influenced by political

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considerations (Ibid., 113). That is because the political process is an alternative form of

economic organization (Ibid., 121). And the political process, as illustrated through examples

throughout the book, does not tend to promote economic growth. The authors wrap up their pitch

by explaining Government failure, the special-interest effect, logrolling, pork-barrel legislation,

the shortsightedness effect, and the importance of avoiding rent-seeking behavior (Ibid., 125,

127, 134, 140).

EVALUATION USING ECONOMIC THOUGHT AND CHRISTIAN ETHIC PRINCIPLES

Paul wrote in 2 Thessalonians 3:10 that: For even when we were with you, we would

give you this command: If anyone is not willing to work, let him not eat. Paul was not ashamed

to discourage laziness because his perspective was Biblical. He who gathers in the summer is a

prudent son, but he who sleeps in harvest is a son who brings shame (Proverbs 10:5). If the

government applied Pauls policy and did not purport transfer programs to provide welfare for

the needy some will shout: This is wrong! The poor need assistance and the government should

provide for them. However, this is the wrong response, as the authors suggest, good

[government] intentions do not guarantee the desired outcome.

The War on Poverty promoted the idea that poverty in the United States could be

eliminated if only Americans were willing to transfer a little more income to the less fortunate

members of society (Gwartney 2016, 146). The programs did not achieve their intended goals.

In fact, poverty was declining before the programs were instated, the share of families in

poverty declined from 32 percent in 1947 to 13.9 percent in 1965 (Ibid., 147). However, since

the 1970s, the poverty rate has remained between 10 and 12 percent (Ibid.). The authors suggest

that the War on Povertys lack of success is startling (Ibid.). It is important to note that

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government transfer programs, like the War on Poverty, fail to address the incentives of

individuals.

On the contrary, the Christian message understands individual incentives because it is in

the business of lifting the weak and broken hearted out of physical and spiritual poverty. It does

this by providing an understanding of what is right and wrong. It provides an environment which

encourages human capital and economic growth. As noted above, the individual should not be

lazy; they must have an incentive to produce goods and services for the good of society.

Government transfers do not provide this environment, nor the Biblical incentive for the poor

and needy to work. Welfare programs reduce the incentive of low-income individuals to earn,

move up in the economic ladder, and escape poverty (Ibid., 148). Why is this the case? Because

when government assistance forces recipients to meet criteria, the recipients suffer costs. State

criteria require that the poor keep their incomes below a designated income level. Thus, if

individuals want to continue receiving benefits, as the government rules dictate, they must

remain poor.

Therefore, it is best for the government to avoid assistance of the poor because it has a

track record of reducing incentives. The best a government can do to provide for the poor is to

create an environment which allows for human capital investment of the poor. This environment

should provide the poor with belief. It was not monetary assistance that Peter provided to the

poor, disabled man at the temple gate called Beautiful which caused the man to walk again; it

was the inducement of belief. This environment of hope, the ability for individual growth and

production, can and should be provided by the government. Transfer programs do not decrease

poverty, inducing belief in the poor that they can grow and will climb out from the miry clay is

what reduces poverty.

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 APPLICATION OF BOOK READINGS TO EXECUTIVE ORDER ON REDUCING

REGULATION AND CONTROLLING REGULATORY COSTS

President Donald Trump ordered an executive order in January 2017, which aims to

decrease government regulation. Section two of the order states that whenever an executive

department agency publicly proposes for notice and comment or otherwise promulgates a new

regulation, it shall identify at least two existing regulations to be repealed (WhiteHouse 2017).

Reducing government regulation is sound economics according to the authors. Government

regulation hinders the market because they limit exchange and reduce the competitiveness of

markets (Gwartney 2016, 64-65).

Governments which force entrepreneurs to acquire a license, fill out forms, get

permission from different bureaus, show that you are qualified, indicate that you have sufficient

financing, and meet various other regulatory tests have been proven to hinder business. For

example, legally opening a business would take 97 days in Haiti, 119 days in Brazil, and 144

days in Venezuela (Ibid., 65). Instead of producing goods and services, entrepreneurs in these

countries, and in the United States, must sit around and wait while the society suffers losses.

Trumps proposal could help the United States avoid the problems of over-regulation in countries

like Haiti, Brazil, and Venezuela by limiting the governments ability to increase the volume of

regulation altogether.

Therefore, Trumps policy to deregulate the United States is economically poised for

success. By eliminating regulation, the cost of time to business men and women will be

decreased, thereby increasing market growth.

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 BIBLIOGRAPHY

Gwartney, James D., Richard L. Stroup, Dwight R. Lee, Tawni H. Ferrarini, and Joseph P.
Calhoun. Common Sense Economics. New York: St. Martins Press, 2016.

White House. 2017. Presidential Executive Order on Reducing Regulation and Controlling
Regulatory Costs. The White House: Office of the Press Secretary, January 30. Accessed
February 22, 2017. https://www.whitehouse.gov/the-press-
office/2017/01/30/presidential-executive-order-reducing-regulation-and-controlling.