BOOKS: by Jeffry Babb News Weekly
ECONOMIC FACTS AND FALLACIES, by Thomas Sowell
, October 11, 2008
Turn on the tap of common senseECONOMIC FACTS AND FALLACIES
by Thomas Sowell
(New York: Basic Books)
Hardback: 272 pages
Rec. price: AUD$52.00Economics may be capable of arriving at statements of truth, but its lessons are widely disregarded if they conflict with dominant political ideologies.
Thomas Sowell is one of America's most prominent commentators on the problems of economics and how economics affects the average person. He is a champion of free choice in economic matters and is more interested in the outcomes produced by policies than in the good intentions behind them.
As he demonstrates in this interesting and challenging book, good intentions can produce bad policy. And bad policies do more harm than good to the people they are meant to help.
Sowell is often described as a conservative. He was born in poverty. As one of America's leading black intellectuals, he plays a prominent role in debate about public policy.Counter-intuitive
As Sowell shows, many economic lessons are counter-intuitive. Economics is about the management of scarcity. There is never enough to go around. Even people who are satisfied with their lot in life would not object to a newer car or an extra $100 a week - or, if they did object, they could certainly nominate a charity that could use the extra money.
For most of the world's people, the problem is still how to get enough food to fill their bellies, not obesity. Despite what well-meaning pop stars say, you can't put half the world's population on the dole. Charity will not last forever. Only putting people to work in sustainable economic activity will produce an ongoing income capable of supporting them and their families.
The price mechanism, Sowell says, is the best way to allocate scarce resources. "After all, it would be an exercise in futility to print money if people's decisions were not influenced by it." He explains: "Money itself is not wealth - otherwise, the government could make us all rich by printing more of it - but is just an artificial device to provide incentives for economic behaviour affecting the production of real wealth."
If people make their choices independent of monetary considerations, then there has been an enormous waste in paper and ink in printing money, says Sowell. If money were wealth, then the unfortunate people of Zimbabwe would all be living in palaces, because they have millions at their disposal - but need that much to buy a loaf of bread.
And if Zimbabweans were to exchange their currency for US dollars, which seems to be the solution offered for their plight, they would quickly discover that their currency was worthless. So much for paper money if there is no discipline in creating credit and issuing currency.
Perhaps because he is a member of a minority group, Sowell is particularly concerned with the question of racial discrimination. In discussing the effects of discriminatory hiring practices, he shows that assessing job worthiness on the basis of ethnicity is an all too common approach based on sorting when other information is lacking. He cites the experience of the Irish in America as an example. In the 19th century, however, the Catholic Church encouraged and enabled the poverty-stricken Irish immigrants to assimilate, thereby preparing them to rise in American society.
"At one time, employment advertisements said 'No Irish Need Apply'. Such ads did not begin to disappear until the acculturation of Irish immigrants to the norms of American society reached the point where the benefits of sorting the Irish individually exceeded the costs of doing so."
Similarly, he shows that the so-called "discrimination" against women in their earnings is due to a rational calculation of the utility of various occupations for women. Women are likely to take out time from the paid workforce for child-rearing.
If a scientist in a fast-moving field like genetics or nuclear physics was out of the workforce for 10 years, her previous knowledge would be virtually valueless. By contrast, a librarian, social worker or primary schoolteacher could slip back into her previous occupation with little to re-learn. Thus, female domination of the latter professions is a reasonable adaptation to the economic and social reality that women are still the main nurturers and child-rearers.
Sowell does not believe life is fair - if any definition of fairness could be agreed upon. As a free-market economist, he is concerned about how the interaction of the economy and society maximises wealth.Confusion
He says: "Third parties who take on the task of deciding who 'really' deserves how much income often confuse merit with productivity, quite aside from the question whether they have the competence to judge either.
"In no society of human beings has everyone had the same probabilities of achieving the same level of productivity."
He adds " An economy is not a moral seminar authorised to hand out badges of merit to deserving people. An economy is a mechanism for generating material wealth on which the standard of living of millions of people depends."
Sowell is not afraid of controversy. Some readers will find his views confronting, but much of this book survives the severest test - that of common sense.