Monday, September 26, 2011

Economic Facts and Fallacies by Thomas Sowell

Economic Facts and Fallacies by Thomas Sowell largely summarizes his book, Basic Economics. The difference being that this book is shorter, and more concisely deals with the fallacies addressed in that seminal work.

He begins by addressing the power of fallacies and lists some of the most common right up front: The Zero-Sum Fallacy, The Post Hoc, Ergo Propter Hoc Fallacy (after this, therefore because of this), The Chess Piece Fallacy, and the Open-ended Fallacy. Many of these fallacies enter the mainstream and stay there because vested interests arise and continue to propagate them. Despite the resulting "untended consequences," many continue to hold to a fallacy rather than discard it and be labeled "wrong."

By definition, a fallacy is a false understanding of basic underlying reality and therefore, usually finds a home in the reality-denying, utopia-promoting left. Although the fallacies are described as "Economic" they manage to work their way into many areas of life.

The first set of fallacies Sowell dives into are Urban Fallacies. Here he tackles such things as overcrowded cities, sprawl, mass transportation, and city planning. It's interesting how the left can decry overcrowding as well as urban sprawl. The fact is, Americans do have a lot of living space in urban settings and because of lowering costs of automobile transportation, can afford to move to suburbs as well. To fight these economic realities of people acting in their own best interests (staying the city for the benefits it affords or moving to the suburbs to escape the crowds), the left will often fall into the aforementioned Chess Piece Fallacy. They believe people can be moved about like chess pieces on a board. Therefore "public space" is created, driving up the cost of housing, public transportation is heavily subsidized, rent control is implemented. All have differing and possibly conflicting goals, and all result in boosting costs and therefore lowing the standard of living. Often these policies come from third-party observers who simply wish to impose their own particular vision of what life should look like on others and bear little risk of being harmed by the adverse consequences of their policies.

Unafraid to wade into dangerous waters, Thomas Sowell dissects Male/Female Fallacies. Noting the long-held belief that women make significantly less than men, he dives into the data and how it is collected. Often these kind of fallacies are a result of comparing unlike things. In this particular case, all women were compared to all men, with no regard for education level, number of hours worked, or seniority. Time and again, when like to like are compared, the numbers become much more equitable. Even so, disparities exist. Rather than go straight to the standard "sexist" explanation, he mines the data. Often, men are generally much more likely to work longer, study harder, eschew career interrupting breaks, take on more risky, therefore better paying, positions, and make career more of their focus than women. These differences in work-related behaviors usually account for differentials in pay, rather than sexism. Besides, sexism is hardly the best way to manage a for-profit business. If profit is the goal, a business will strive to hire the best people at the lowest cost. Even a sexist, if he is striving hard enough for personal gain or the competitiveness of his business, will hire a woman if that makes the most economic sense. When looking at the non-profit sector, it is there that sexism (and racism) is more likely to rear its ugly head.

Next, Sowell moves very close to home and battles Academic Fallacies. Here he discusses why college costs so much, what accreditation means, what actually goes on at college, and the problem of tenure. College costs are driven up by government subsidies, the desire to compete with other institutions, and prestige considerations. Many colleges have huge endowments. Rather than dip into these, they will solicit government funds and subsidies. Accreditation is often at the whim of the accreditor. They might make demands that increase the cost of education while conferring no educational benefits. These may include better health insurance for employees. Many colleges focus on research and the publications of papers in little-read journals. Although neither may have any impact on the quality of education or the educator, these practices continue to drive up costs. Finally tenure may require keeping an educator on the payroll long past his ability to produce educated students. Conversely, good educators may not be given time to prove themselves and may be let go rather than given a risky tenure proposal. Sowell knows education better than most and his opinions hold great weight.

Income fallacies abound and Sowell convincingly debunks many of them. A favorite politicians trot out is the fallacy of the rich vs. poor. While it is common sense, what is usually lost in the debate is the fact that the "rich" and "poor" are not static groups. Most people will move between several quintiles throughout their lifetime, some even moving from the bottom to the top and back again. Few people remain in one particular quintile for life. Most people start out at the bottom as poor students or newly married adults, move into their prime earning years after dedicating their lives to their career, then retire and find themselves back in the bottom group. To treat the poor and rich as static groups is to attack a problem that may not have a basis in reality.

Once more, unafraid to wade into controversial topics, Sowell takes on that most touchy of all subjects, Race. Although racial discrimination has a long history thoughout human existence, it can be difficult to use stats to prove a racial bias in America. Often, like Male/Female disparities, like and like are not being compared. He points to unstable family groups, crime, lack of good educational opportunities, and the obvious ability to tie all these disadvantages to a particular, easily noticed, skin color. While it is not fair to judge a person by a generality, employers make risky investments in employees. Unfortunately, some in the black community have handicapped other members by their actions. Once again, when like to like are compared, the "racism" seems to disappear.

When discussing Third World Fallacies, Sowell demonstrates the fallacies that crop up in this area. Like the income fallacy, rich and poor countries are often compared as if they were static entities. In fact, just as individuals move among income groups, countries move up and down the scale of wealth. Often policies designed to alleviate this notion of static poverty actually hurt wealth creation. Foreign aid will prop up a ruinous dictator and allow the corruption to continue. Also, as the aid given is considered "free" it will often be used in ways that are unproductive or inefficient, thereby continuing the harm to a nation. Property rights are the single biggest way to help an undeveloped nation achieve its potential, yet money is usually the proffered solution.

Another great book by Thomas Sowell. Read this if you don't want to tackle his voluminous Basic Economics.

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