David Fettig - Editor
Published September 1, 2001 | September 2001 issue
In his memoir, A Personal Odyssey, the economist and writer
Thomas Sowell answers those who mistake his writings on public policy
issues as self-help guides for the less fortunate. "I am not
Dear Abby,"he says. Rather, his public policy work is directed
toward the public or toward policymakers; he weighs policies against
one another and tries to show where one policy might improve upon
another. "My hope was obviously that better policies would
reduce those misfortunes."
This Dear Abby problem is one that often confuses the public, and is familiar to economists, and it addresses an underlying theme of Sowell's prolific career: Economic literacythat is, knowledge about the way an economy worksmatters. "Economics is not about the material well-being of individuals. It is about the material well-being of society as a whole," Sowell writes in his "citizen's guide to the economy," Basic Economics.
The following interview makes clear Sowell's passion for economic literacy, and his conviction that such literacy makes for better policy. Electricity markets, rent control, property rights, affordable housing, open spaces and many other issues are elucidated in the following conversation, wherein Sowell also describes the writing habits that have produced such a huge body of work, and that has inspired the Washington Post to call him "our most valuable public intellectual."
What makes it possible for politicians to do so many things that are economically counter-productive is that neither the public nor the media know enough of the basics to understand what's wrong with what they're saying.
[Economic literacy] would limit what politicians could get away with. For example, rent control is enormously popular out here [in California] and many other places. If people understood something about the factual history of rent control, quite aside from the theory of it, they would be appalled.
I understand there's a program back East that helps judges understand economics. I think if every judge really understood Economics 101, a great number of antitrust and other cases would be thrown right out of court.
Yes, the economy will work fine without the people understanding itif they leave it alone. But in order to leave it alone they often need to understand a little bit, at least, about why messing with it causes so many counterproductive results.
REGION: Your recent book, Basic Economics, is a discussion of economics for the general public, meaningamong other thingsthat there are no charts or graphs; it's sort of an Everyman's econ text. You have been writing for the general public for years and have taught many economics students.
What is your estimation of the level of economic literacy among the American public, and why is such literacy important?
SOWELL: Oh, my. My heavens. Extremely low. I would say not only among the general public but also in the media and, in large part, in politics. Now in politics it's harder to be sure because the things they do may not result from ignorance but from the fact that it's politically expedient. But what makes it possible for politicians to do so many things that are economically counterproductive is that neither the public nor the media know enough of the basics to understand what's wrong with what they're saying.
Let me give you one example. The current electricity crisis in California is classic. [This interview was conducted in June 2001.] The whole emphasis has been shifted from electricity, which is the only thing that will prevent blackouts, to prices; because now, when you're no longer talking about electricity and you talk about prices, you can blame all sorts of people and make all kinds of claims and the public has no idea.
What people don't understand is that there is no such thing as the cost of electricity. The cost of running a dishwasher can vary 100-fold between one time and another. If you're running a dishwasher on a hot summer afternoon when everybody has their air conditioning on, the price is astronomical because they're operating at the top capacity and may have to resort to standby equipment, which is more expensive. On the other hand, if you turn on your dishwasher at midnight when everybody is asleep, it's a minute fraction of the cost of doing the very same thing. So the idea that you can base the price of electricity on cost when the costs themselves vary so enormously is ridiculous, unless of course you have a setup where the cost varies from hour to hour, moment to moment, really. I understand that's been tried in New York so that people will then have an incentive not to turn on their dishwasher in the middle of a hot summer afternoon but to turn it on before they go to bed at night.
REGION: You mentioned three key groups in the question of economic literacy: the general public, the media and the politicians. Most economic literacy efforts focus on the general public, so let's begin there. If we could raise economic literacy of the general public, what effect might that have?
SOWELL: It would limit what politicians could get away with. For example, rent control is enormously popular out here [in California] and many other places. If people understood something about the factual history of rent control, quite aside from the theory of it, they would be appalled. One of the things again, if I can refer to the current electricity crisis, people are saying is that the opposition to price caps is based on ideology. Well, in point of fact, I know of nothing outside the hard sciences that has been demonstrated so often, over so many centuries, in so many parts of the world, as the fact that when you artificially lower the price you reduce the supply and you increase the demand. Now this goes all the way back to the days of the Roman Empire, it goes to the French Revolution, everywhere you look it's been there. Now if the public understood that, then politicians wouldn't get away with saying oh, it's just a matter of ideology, we really have to have price caps.
REGION: Let's focus on the media now. Here at the Minneapolis Fed, as at all other Federal Reserve banks, we work to educate the general public about the economy, especially about the role of the Federal Reserve in monetary policy. Recently, this bank has partnered with the University of Minnesota to establish an economics workshop for journalists ...
SOWELL: Bless you. [laughs]
REGION: ... and the notion is that if journalists better understand the workings of the economy, so will their readers. What is your estimation of the media's role in this process?
SOWELL: Well, they spread the crazy ideas of the politicians because, first of all, what the politicians say is more exciting. They find villains, they find conflict and so forth. There's not that kind of punch to explaining cause and effect in very dry, logical terms. I think not only the journalists, but there are judges who could also benefit from an economics workshop. I understand there's a program back East that helps judges understand economics. I think if every judge really understood Economics 101, a great number of antitrust and other cases would be thrown right out of court.
REGION: Adam Smith suggested that one of the peculiarities of the Invisible Hand was that it would work just fine even if people didn't understand its machinations. The American economy seems to perform well despite the apparent low levels of economic literacy.
SOWELL: Yes, the economy will work fine without people understanding itif they leave it alone. But in order to leave it alone they often need to understand a little bit, at least, about why messing with it causes so many counterproductive results.
REGION: In Basic Economics you describe economic fallacies and misconceptions and state that misconceptions are more than mere intellectual problems. You've mentioned the debate about electricity; what are some other fallacies or misconceptions that are affecting current policy debate, and what are their ramifications?
SOWELL: Rent control would be another. In California, for example, there are two things that almost every person who wants to be thought decent and humane believes in: He believes in open space and he believes in affordable housing. Now if they understood just the most elementary economics, they would know that if you take two-thirds of the land in a given county off the market, then the price of the remaining one-third is going to go up, and the price of everything built on that one-third is going to go up. But I think most people who believe in open space and affordable housing see absolutely no conflict between them.
They also see no connection between height restriction, which is very prominent in Californiayou don't see a lot of 20-story buildings out here, especially apartment buildings. They don't understand that if you have height restrictions people will have to spread out more, and when they spread out more they have to spend more time on the highway and therefore there will be more highway deaths. So people who say you can't build an apartment more than eight stories tall, which is I think the tallest in Palo Alto, they don't understand how that translates into costs, which includes deaths of people on the highway.
REGION: There's been much said of late about how cities and/or states can best position themselves for economic growth, with much of this discussion revolving around the use of public funds for private development, for everything from retail services to sports stadiums. Where do you fall in this debate?
SOWELL: I'm against the use of public funds. I believe in private property, and that it stay private and that taxpayers should not have to subsidize it. There's a tendency to think that if something is good we ought to subsidize it. And in fact, frankly, nothing is good categorically. It is good within some range and at some price and so on, and the way to find out how good it is, is precisely not to subsidize it and to let the market decide how good it is. Because if you're going to subsidize it, you may do many things that make no sense.
California is a classic example with the water situation. We have federally subsidized water, with the end result of people growing crops out in the desert, which should be grown in places where they have monsoons, because they're only paying a fraction of the real cost of delivering that water to them. When I was young, I saw bananas grown in the Bronx. I'm sure it cost a lot more than bananas that were grown in the Caribbean.
REGION: Your book, A Conflict of Visions, describes two divergent views of how best to achieve desired social or policy results, a debate that originatedfor the sake of this argumentwith Enlightenment-era thinkers. I know this is difficult to summarize, but please describe this essential conflict.
SOWELL: You're right, that is tough to summarize, but I'll try. I guess the biggest difference is that one view sees the constraints of the world as being the first thing you have to ask about, which is to say, when you look at a policy you don't ask what are the goals of this policy, you ask: What incentive does this policy create? What constraints does it introduce and what are the likely consequences of those incentives and that constraint? You also then tend to think in terms of trade-offs rather than of solutions. So you don't say we must get rid of greenhouse gases, you ask: What does it cost to get rid of greenhouse gases? How much will it cost if we don't get rid of them? How much does it cost at each level of greenhouse gases and what are the consequences of not reducing it and so forth?
The other view really is more of a crusading view, that is, it's an unconstrained vision. This is something that ought to be done, and therefore we pursue it as if it were the Holy Grail and we don't have time to stop and muddle over a cost-benefit analysis.
REGION: This debate, old as it is, as you describe it, seems a fairly clear description of current debate.
SOWELL: Oh, absolutely. One of things that is really amazing is how the same debate can go on over different issues for centuries on end without either side really giving in, in the sense of disappearing. I'm thinking of the comparison of Thomas Kuhn's notion of a paradigm in science, where you have the Phlogiston theory and you have the oxygen theory, but after a certain amount of data had been collected, one of them had to fall by the wayside. Well, that's not true in the case of social and political visions.
REGION: In the previous issue of The Region we interviewed Hernando de Soto, the Peruvian economist, about his work to establish property rights as a foundation for economic growth and the abolition of poverty in lesser-developed countries. You have written a great deal about economic development and related issues. What is your view of de Soto's work, and what is your take on the current debate about Third World economic development?
SOWELL: I think de Soto's book [The Mystery of Capital] is really a landmark and it ought to be read by precisely the people who are never going to read it, because I think there's a great deal of confusion about property rights. People, particularly on the left, tend to think of property rights as a set of rights for the benefit of people who own property. But they never think of freedom of the press as a special privilege for journalists, because they understand that freedom of the press plays a crucial role in the whole political system. That is, most of the rights we have would be worthless if the government could censor the newspapers from telling the people that they violated those rights. So it's not for the sake of the journalists, it's for the sake of the political system that we have freedom of the press. In the case of property rights, people don't understand how that plays a role in the whole economy.
One of the things de Soto brings out is the vast amounts of wealth that exist in Third World countries, which cannot function fully as wealth does in, say, the United States or some other industrial nations because there are no formal property rights to this wealth. For example, lots of businesses are started by some guy taking a second mortgage out on his home in order to get some money to start a little business and then it grows and grows over the years.
Someone who owns a home in a place like Egypt or Peru has much less chance to do that because he's much less likely to have legal title to that property. Similarly, in the Soviet Union, just recently, they voted to not have private property in farmland. Again, the implications are momentous. Not only can the farmer not use that property to, for example, borrow money to buy modern machinery for his farm, it's also true that there's nobody with the incentive to take care of the farm and the produce the way someone who actually has property rights to it would have.
REGION: So how does this idea fit within the current debateand it's a huge debate, I understandregarding economic development in lesser-developed countries?
SOWELL: The idea has long been that these countries are in a vicious cycle of poverty, and it's only by giving money from the industrialized world to these countries that they have any chance of advancing. This ignores the fact that the whole world was once the Third World. And the people obviously did break out of these cycles of poverty. And what de Soto's book brings out is that there are already, at this very moment, vast aggregations of wealth far in excess of what these countries are ever likely to receive in foreign aid, for example, but which are stagnant in the sense that they cannot be used as collateral to get financing for further advances among most of the people. Because most of the people cannot afford to spend the years of time and the vast sums of money, including bribes, necessary to get their property registered and on the books.
REGION: The word culture is much used when discussing economic development around the world. De Soto takes a dimmer view of the influence of culture, suggesting that if you change the rules and allow for more personal freedom, people in all cultures will respond accordingly. David Landes, economic historian and author of The Wealth and Poverty of Nations, says culture is significant in explaining cross-country differentials. How should economists and policymakers think about culture when building their models and making their plans?
SOWELL: Culture has its effect just as property rights has its effect. One of the ways of discovering just how much effect culture has is by instituting property rights in different countries and finding out if people really do obtain secure property rightsin some place like Russia, for example, and then see whether their agriculture would be much improved, as I strongly suspect it would be. In my book I mention how there is this vast area of extraordinarily fertile land in Russia, which is where the people are barely able to feed themselves because the property rights are not secure. The property rights, in this case, don't include rights to the produce of the land, so that they can't ship it freely wherever they can get a market for it because of local restrictions. And if you turn them loose, I strongly suspect that they would do very well. Now, whether they would do as well as Germans or Canadians, I don't know. But I think there's merit in both positions.
REGION: I'd like to address one of your books againKnowledge and Decisions. In this book you provide a framework for thinking about how the structure, or mechanics, of decision-making in a society can ultimately shape that society. Again, it's unfair to ask you to summarize an entire book in this case, but I'm going to ask you anyway. It's a complicated book ...
SOWELL: Four hundred forty-eight pages of that.
REGION: Yes, I know. But I think there's an important idea there, a kernel, and if you could please give us an overview of the discussion ...
SOWELL: One of the most important issues to be dealt with in any economy is the issue of knowledge. And it's one of those things that's not obvious on the surface, but once you've looked just a little bit below the surface, there it is. I think of the Soviet economy as a classic example. Central planners have to plan all these products, and, when you stop and think about it, what mortal human beings could possibly plan 24 million prices, for example. And of course as supply and demand are changing, all 24 million ought to be changing. Now, who can possibly have that kind of knowledge? This is really the Achilles heel of socialism. And while Hayek and von Mises brought this out theoretically many years ago, it was only when you put socialism into practice that these practical issues come up. And you ask: Who can possibly know how to run such a system? And the Soviet Union spent more than half a century finding out the hard way that nobody does.
So one of the ways of looking at economies is the extent to which they make use of the existing knowledge in the society, which, as Hayek and others have pointed out, is scattered in tiny fragments among millions and millions of people. And when you have pricing systems, then those people coordinate their activities. Nobody can keep track of 24 million prices. If you have 100 million people and each one keeps track of a handful of prices that are relevant to what he is doing, then it's manageable.
One of the other things that became clear to me when I did research for Basic Economics, is that knowing knowledge with insight, knowing what the knowledge means, how to apply it, that varies enormously. And in a market economy whoever has that insightif he's rightit really doesn't matter that the other side may be better organized or even financially better off.
I think a classic example was the creation of chains of department stores in the 1920s, that Sears and Montgomery Ward had been going on for decades as purely mail-order houses, and they were the biggest retailers in the world and very successful. But as the society becomes more urbanized, the point is reached where more people are living in the cities than in the country, and therefore it's cheaper to deliver to those people through department stores than through mail-order houses. Now neither Sears nor Montgomery Ward wanted to believe this. Along comes some guy from a little town in Wyoming, named J.C. Penney, and he believes it. It doesn't matter that he's a nobody and these people are the leaders of the world. He starts putting this into practice. And by 1920 he has 300 stores, and Sears and Montgomery Ward suddenly find themselves with millions of dollars of red ink. And as the years go by, they are finally forced against their will to start opening department stores, otherwise they're about to go under.
And think of someone like Henry Ford, as I mention in the book, who was so poor that he had to walk eight miles to Detroit to look for a job. But when he had the idea of mass production and got it under way, it didn't matter that he was nobody. What mattered was he could produce cars cheaper than anybody. But when you have a system that is socialist or run by any kind of centralized group, maybe a political party or royalty, whatever, then the only insights that really matter are the insights of that small in-group at the top. And they are necessarily very limited, as any similarly sized group of people would be. But in the market, whoever has the bright ideait takes off.
REGION: We've discussed a number of your books in this interview, but there are many moreabout two dozen by my count, plus six collections of essays, along with many articles, reviews and, of course, your syndicated columns. In The Paris Review, when they interview such a prolific writer, they always ask a lot of questions about how the work gets doneprofessional curiosity, I suppose. So if you would, please describe how you go about writing so much. Do you have a secret? Do your ideas for one book flow into one another. Do you have a word quota per day?
SOWELL: As a matter of fact, there are all kinds of ways writers work. And the most rational way is not the way I use. The rational way used by Paul Johnson in earlier times, or the writer, oh I can't think who the writer was, wrote the Barchester stories ...
REGION: Anthony Trollope.
SOWELL: Trollope, yes. But in any case, there are those who simply sit down at a certain time of day, and they write a certain amount and that's it and they discipline themselves to it. Now I do it the opposite. I write when I feel I have something to say. And I also have a number of things going at one time. So I'm writing about, I don't know, late-talking children and there's material piling up about that, and when I've said what I want to say for the time being, I let it sit there. Basic Economics, for example, sat there for a decade. I would see something in the paper that would rile me up, and I would write something to show what idiocy this is, and then I would let it sit there. And frankly, for much of that decade I never really believed the book would be finished. However, I had several other books going at the same time. I had a book on Marxism, a book on this and that, and each time I would just work when I felt like it. And sometimes I would get really hot on it and work days and days or around the clock and so on, and then other times just let it go.
With the newspaper column I'm somewhat constrained, since they expect a column every week. But there I try to keep a column or two ahead, so if I have a week where I really don't have anything to say I pull one out of the inventory and send it in on some issue that's really not tied to a particular time. And as the years go by, I'm often very surprised at how the books turn out. I'm very surprised in the case of Basic Economics that I got it finished because I suddenly discovered after maybe eight or nine years that I really had quite a lot of stuff there, I just needed to organize it.
In the case of my two favorite books of mine, A Conflict of Visions and Knowledge and Decisions, things turned out totally differently. With Knowledge and Decisions, I'm planning a book of about 150 pages that will just get across these simple ideas. Well, as I get into it I discover I have to explain these ideas more than I thought, I have to get empirical examples, and before I know it I'm up to a 400-page book.
With Conflict of Visions, it was just the opposite. I'm planning a 400-page book, I had an enormous amount of research, and one of the things I do is index the whole literature. So, for example, for A Conflict of Visions I prepare a master index which covers the Federalist Papers, Crime in America by Ramsey Clark, Law and Legislation and Liberty by Hayek, the whole list of books, you see. And I put it all into one master index and so when I writeyouth vs. age, for example, would be one of my categoriesI'll show how Burke thought about that, how Hayek thought about that, how this, and so forth, and this just goes on for years.
And so finally I'm ready to write the book. I've indexed all those things that are most important. And I sit down to write the book and at the end of about a couple of hundred pages, no it's not even a couple of hundred I don't believe, about 150 or so pages, I realize that I've said what I wanted to say. And I stop. So it's just my way of working on it. Now that's not a very practical way if you're an assistant professor on a three-year contract and you've got to publish before you perish. The cultural trilogy that I wrote, Race and Culture, Migrations and Cultures, and Conquests and Cultures, that's 15 years. Now if you're in a think tank where they have a lot of patience with you, you can do that.
REGION: Well, it works. Whatever you do, it works. How about your reading habits? Who do you like to read, what do you like to read?
SOWELL: That also varies with what just happens to catch my interest. Recently, I've been reading this report from the National Academy of Sciences on global warming. There is nothing that produces more cynicism than going back to the original sources. I remember years ago my mentor, George Stigler, said that someday you should spend a day in the library tracking down original sources of things that were said.
And so the first time I did this, 20 years ago, I'm reading a labor economics textbook and it says that workers' productivity per hour declines after 40 hours. And one of the implications of this was that you needed legislation to provide a 40-hour week because somehow the marketplace hasn't established a 40-hour weekmarket failure, etc. So, fine; they list six sources for this conclusion and I then go to the library, I check out all six books. And then as I go through the six books, I realize that all six of them are citing the same other study. There's really only one source. And now I go and get that study and that study says it's a study of pieceworkers, not hourly workers. Moreover, there's a subsequent study by the same authors, which shows that the situation is entirely different for hourly workers.
In another case, there was a report that said (1) blacks have less prenatal care than whites, and (2) blacks have higher infant mortality rates than whites. Immediately there's a press campaign, and you see the fact that American society may not provide enough prenatal care to blacks, it's responsible for this, it's racism, etc. So I get the original report, and I look this up and on the very same page where it shows that blacks have less prenatal care and higher infant mortality rates than whites, it shows that Mexican-Americans have even less prenatal care than blacks and yet their infant mortality rate is no higher than among whites. Now, if you're adventurous and thumb through for a few more pages, you discover there are three other ethnic groups, all of whom have less prenatal care rates than whites and all three of whom have lower infant mortality rates than whites. So the conclusion is that the prenatal care is not where it's at; it's just one of many factors.
One of the things I dislike about many of the racial comparisons is they confine it to blacks and whites. Whereas if you would just extend it, let's say to Asian-Americans, you would often get a radically different view. For example, a couple of years ago there was this study about how blacks were turned down for mortgage loans more so than whites. And that's racism. Well, when you look at the data you find that whites are turned down more often than Asian-Americans. Is that racism? That's quite aside from the fine points, like the blacks who are applying for a loan and have different incomes, credit histories, etc., from the whites.
Since then, there's been a book on this which points out that you could eliminate all of the apparent discrimination in the study by dropping one bank from the study. And the question is, why is this one bank racist, you see. And the one bank is owned by blacks. Apparently they don't feel any need to prove that they're not discriminating, so they just make their decisions as they see fit.
REGION: You mentioned George Stigler as an influence on your career. Any others?
SOWELL: Oh heavens, great numbers of others. Too many to name. Milton Friedman, obviously. I think with Stigler it was by example. I can't think, off hand, of any great phrase of Stigler's that is going into the language. You know, like Galbraith with "conventional wisdom" and "countervailing power" and stuff like that. He played it straight, and I think that's enormously important. It doesn't always get you on the best-seller list, but that's what you have to have.
REGION: Speaking of bestseller lists, what can we expect from you in the future?
SOWELL: Actually, my next book is called The Einstein Syndrome. One of the beauties of being at a think tank is I don't have to write just in the field in which I have my appointment. And this is about a special kind of children who are at the same time very precocious in the ability to analyze and very slow in the ability to talk. And the classic case is Einstein himself, of course. He was late in talking. So was Edward Teller. So was Gary Becker, by the way. In fact, there's a whole long list of such people. And it's something I stumbled into again, because of the way I write.
When my son graduated from college I wrote a newspaper column about him, and I mentioned that he was almost 4 years old before he talked, but he had a prodigious memory and amazing mathematical abilities. And I describe other things. From around the country, letters come pouring in from parents saying, my God, this is the only child I have heard of that's like mine. And there are these kids everywhere. Now there's a man at Vanderbilt who's doing research on this and he has 600 families scattered from Malaysia to Saudi Arabia with kids with these special characteristics.
I chose the title The Einstein Syndrome just for the fact that you have very brilliant people who are very slow at talking. But as I began to do research into Einstein's childhood, his similarities to these kids are truly amazing and I'm worried now, for example, because there's a big push from the National Institutes of Health to have early intervention with children with autism. And kids who talk late are prime suspects for having autism. Many kids who are brilliant have been put into these programs, which have done them enormous damage. Again, it shows what a high price you pay for jumping to conclusions. I'll finish with this: I was being interviewed on the radio once and I mentioned some kid who had been put in a class with retarded children for two years before it occurred to someone to give him an IQ test. His IQ was 140. So this program's over, and as I'm leaving the studio the producer comes out of her office and she says the same thing happened to her son, and his IQ is 160.
REGION: On that note, we'll end. Thank you for your time,
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