Economic Fallacies -- Interview with Thomas Sowell

kpaul.mallasch — Thu, 31 Jan 2008 21:42:59 -0800

By Bill Steigerwald

Economist and syndicated columnist Thomas Sowell says he has lost track of how many books he’s written on economics, history, social policy, ethnicity and the history of ideas. His latest, “Economic Facts and Fallacies,” adds to his admirable record of using plain language to pass along some of the dismal science’s often ignored, often twisted truths and basic principles to everyday readers.

Professor Sowell, 77, is the Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution on the campus of Stanford University in Palo Alto, Calif. I talked to him by telephone on Thursday, Jan. 24.

Q: Do you have any wisdom to share with us about what the politicians should or shouldn’t be doing about our current economic troubles?

A: Well, they’re two fundamentally different questions. The first is, "Is there something that the government could do that might make things better?" The second is, "Is there anything the government is likely to do that will make things better?" The second question is much easier to answer: The answer is “No.”

Q: From what they’ve done so far, are you encouraged or frightened?

A: I think I’m stoically braced for whatever disaster they create.

Q: Why did you write this latest book and who is it written for?

A: It’s written, first of all, for the general public. It’s not written specifically for economists. Most economists know most of these things -- well, they know most of the principles; they don’t know most of the facts. It’s not meant to be a breakthrough on the frontiers of analytical knowledge. But it is meant to show how so many things that look one way are in fact diametrically the opposite when you take a closer look at them -- and especially if you look at them systematically instead of just in terms of what rhetoric sets off your emotions, which is what seems to be going on in both parties these days.

Q: What’s an example of an economic fallacy from your book?

A: One is the income gap between rich and poor. It’s maddening to me to keep hearing how the rich are getting richer and the poor are getting poorer, and so on. The fundamental difference is the difference between talking about abstract statistical categories and talking about flesh-and-blood human beings. Since the book came out, for example, there’s been a study released by the Treasury Department based on income tax returns. There, they are talking about following the same human beings over a span of years, which is wholly different from following income brackets over a span of years, because in all the brackets more than half the people change in the course of a decade. So what happens to a bracket is an abstract question; what happens to the flesh-and-blood human beings is different.

For example, for the flesh-and-blood people who were in the bottom 20 percent of taxpayers in income in 1996, their average increase of income over the next decade was 91 percent -- so they almost doubled their incomes. Meanwhile, for the people in the top 1 percent -- presumably the rich who are getting richer -- their average income declined 26 percent. That's diametrically the opposite from what we’re hearing from nearly every newspaper and practically every political platform.

Q: Where do these fallacies come from?

A: Oh, God, there are so many of them. As I say in the first chapter of the book, I can only give a sample of the fallacies. For instance, I list several beliefs -- "except for the rich, the incomes of Americans have stagnated;" "the middle class is growing smaller;" "over the years, the poor have been getting poorer;" "corporate executives are overpaid at the expense of stockholders and consumers;" and so on.

I point out that you can find statistics that seem to support every one of those propositions, but you can also find other statistics -- and sometimes the same statistics looked at differently -- which cause the whole argument to collapse like a house of cards.

Q: What fallacy does the most damage to our whole society or economy?

A: I guess the single fallacy from which so many other fallacies derive is what I call in this book “the zero-sum fallacy" -- that is, the idea that what one person gains, someone else loses ... . A classic example is rent control. When you put in rent control, the tenants gain in the short run; the landlords lose in the short run; the builders lose in the short run. But of course the builders lose the least, because the same material and skills that are used in building apartment buildings are used in building office buildings and warehouses and all kinds of other structures; they lose very little. But when the supply of housing dries up, then the tenants are really in a bad way. So places that have rent control almost invariably have housing shortages.

Q: How does a basic knowledge of economics help someone see through these fallacies?

A: That really is what they would have to read the book to find out. The point is, you can demonstrate time and time again that the things that sound plausible just on the surface -- if you do give them just a little bit of systematic thought -- can suddenly change. One of the chapters is on male-female economic differences. I must say, when I was doing the research on this I was shocked to discover that there is a very significant income difference between young male doctors and young female doctors. I forget what the number is, but it’s not 1 or 2 percent. It was only when I dug into it that I discovered that young male doctors worked 500 hours a year more than young female doctors. Well, you know, if you work 500 hours more a year, you'd expect to get paid more!

Q: Is there any rule of thumb people could use to determine if they were being confronted with a fallacy?

A: Are you telling me that I should tell people they don’t really need to buy my book? (laughs) ... There are only eight chapters in my book. But after you’ve been through them you’ll be able to derive certain principles which you will suddenly realize apply to all kinds of other things that are not discussed in the book.

There are three questions that I think would destroy the left if people could ask them:

"What are the facts?"

"What are the consequences of what you are going to do?"

And "What is the trade-off?”

People talk as if you can just save the people whose homes are at risk, and that’s it. Well, if that was the case, why not save them? But at what price? We could ratify the Kyoto Treaty, but the question is "At what price and what benefits would there be to offset that price?" That’s the question that the politicians and the ideologues don’t want to ask. They don’t want to compare. They don’t want to weigh one thing against the other.

Bill Steigerwald is a columnist at the Pittsburgh Tribune-Review. E-mail Bill at steigerwald@caglecartoons.com. ©Pittsburgh Tribune-Review, All Rights Reserved.