Thomas Sowell on Economic Facts and Fallacies 02/25/2008

[Music] [Applause] [Music] welcome to econ talk part of the library of economics and liberty I'm your host Russ Roberts of George Mason University and Stanford University's Hoover Institution our website is econ talk org where you can subscribe find other episodes comment on this podcast and find links and other information related to today's conversation our email address is mail a deacon talk org we'd love to hear from you my guest today is Thomas Sol the rose and Milton Friedman senior fellow at Stanford University's Hoover Institution he's the author of numerous books including basic economics knowledge and decisions and a conflict of visions his latest book and our topic for today is economic facts and fallacies dr. Saul welcome to econ talk oh thank you now your latest book economic facts and fallacies is full of interesting data and arguments refuting some of the most common fallacies we hear all too often I'd like to talk about a few of them today the first is the area of what is called income distribution or standard a living in a more benign description a lot of people believe that the standard of living of the average American is no higher than it was say 35 years ago true or false false why well if you if you look just at the consumption figures that's the easiest way that the consumption is going up by a very substantial amount over the whole period I don't know how you can say that the standard of living is the same as the consumption has gone up there are a lot of reasons why people are able to claim that the standard of living hasn't gone up one of the most common is that they use statistics on household incomes and the problem with that is that households have been declining in size over time households also differ from one group to another from one income bracket to another so on personally I'm just I find it maddening that people insist on that on using house all statistics when if household means very different numbers of people whereas individual income always means one person Zeneca and if your example over a period of about thirty years the average household income in the United States only rose by about six percent but over that very same through the time the per capita income rose by fifty one percent so that the per capita income really gives you a more a more meaningful figure than the household income well one of your themes throughout the book is the failure to compare apples to apples it's often used in these statistical analyses in the case of the household income it's not just that say people might have fewer children today than they had thirty years ago it's that the divorce rate rose very steeply in the early 70s and a lot of single person households were created and as you point out the bottom 20% of the household distribution has twice as many people as the top twenty percent which seems impossible surely the bottom fifth and the top fifth she had the same number of people okay yeah no I think it's the other way around that is the top twenty percent of households sorry correct we're sorry I said that wrong correct thank you yeah the this the latest figures I saw out there were 39 million people in the bottom 20% of household and 64 billion people if I recall in the top which means that there is no 25 million people and what I supposed to be equal percentages of households which are equal percentage of households but not equal percentages of people one of the problems is that they live the tendency to look at statistical categories as if you're talking about flesh-and-blood human beings in terms of flesh and blood human beings these quintiles that they do I love the site don't contain the same number of people and so it's misleading to compare say the standard of living in one group to the other obviously we don't have perfect integral we don't have perfect equality but you also talk about the role of prices in that comparison over time and having to deflate nominal income variables so measured income in one period is higher but of course there's been inflation but if inflation in accurately measured you're not going to get an equal load the correct measuring stick that's right and there's a big problem there is that what seems quite reasonable that you would take a list of common commodities and track their prices all the time the problem with that is that as new commodities come online they're typically extremely expensive at first and then as time goes on and there's mass production and people learn new technologies then the price comes down and so now you only include those commodities after the prices have come down and so you've never counted them as the as the prices were coming down the classic example I think would be video cassette recorders which I think debuted at about 30,000 dollars a piece and now you can get them for a couple hundred now the critics of your viewpoint and it's a viewpoint I share by the way that the channel livings dramatically higher the critics of that viewpoint often will say the following well sure incomes are higher people have more consumption but they struggle to get by and and they just I just can't seem to make ends meet and and I've actually seen semi-serious people at least people that get quoted the newspaper saying the problem is is that our incomes just aren't high enough to meet our needs so I feel like I need a digital Hasselblad which costs about thirty thousand dollars and my income is just not big enough to meet that need without some real sacrifices the question is whether that means the taxpayer should be forced to buy me a digital Hasselblad or not I hear this talk about how people can't make ends meet that's why for example where there have to be two people working in the same family and so on well it depends upon where the ends were supposed to meet I mean if people of a generation or two ago we're living as high on the hog as people are today you would not only have to have the father and mother both working you'd have to have the children out there working and in order to pay for all that so it's it's trying to treat as a an objective fact well what is nothing more than a personal choice you see that in colleges and universities where they say you know we have to raise the tuition because costs arisen well by cost they mean they have chosen to spend more money yeah on dorms or faculty salaries or whatever they having to choose the other argument you hear sometimes is that true we have more stuff but that's because we were all in debt any truth to that not that I know of course eventually we have to pay off the debts Laura or else people will stop giving us credit yeah they kind of forget about that and then of course down and then people do overextend themselves but I think you made the point in basic economics that we always want more than we have that's human nature our neat our desires not our needs we don't have any needs really but our desires are always greater than what we can afford and so by our human nature we tend to struggle to get by but as you point out we could certainly work at our current levels of productivity we could work about 2/3 as hard as we work now and live as well as we did fifty years ago but people evidently don't want to live that well they want to live a lot better that's right I mean I I find it amazing I hear complaints about the difficulty of getting Peter delivers in some neighborhoods I think you know when I was growing up the very thought that you have somebody cook your food for you and delivered to you at home would never have occurred to 90% of the people in the country maybe the rich would have caterers or something like that but it's amazing how long people got by without without that particular service I really enjoy the care with which you use language both as a writer and a thinker and one of the phrases that you criticize related to our current topic is the phrase distribution of income it's afraid you hear all the time and I confess I use it myself down then reading your book reminds me to try to cut that phrase out of my vocabulary but you don't like that phrase why is that what do you find misleading and deceptive about well well first of all in most income isn't distributed in the first place but what it does it allows people to act as if society quote-unquote is in the act of distributing income and that if you don't like the way the distribution turns out now we should just simply have society distribute it differently well first of all there is nobody named society second second of all there is no centralized decision as to how much each person ought it yet that's decided by the person to whom you perform or for whom you perform some service like you or produce some product and that person I think is far better qualified to say how much that is worth to that person than anybody else that would be and certainly there's nobody wise enough or even knowledgeable enough to be able to decide for all a minute 300 million people in this country how much each person ought to get by some arbitrary rule right but the I think what people have in mind and it is a fallacy is that the system and that's a vague word that covers a lot of territory the system is designed which isn't true but it has pieces that are tinkered with by policymakers and therefore because there's tinkering the outcomes must be intended by someone but of course that is not true and it leads people to then ask I think incorrectly well we have to re tinker with it to make it fairer more equitable whatever is the the goal that that person wants that's right what this acting it they're doing is acting as if there's a current set of central decisions that we don't like it we all have a different set of central decisions the more fundamental problem is we do not have a set of central decisions that how much I'm paid is determined by how many people buy my books how many people read my columns and so forth I knew an end to argue that there ought to be some politicians in Washington deciding how much everybody in the country is really worth whatever that means it's a change to a radically different system and if people want that radically different system I think they ought to come out openly and explain why that way of determining income would be better than what we do now instead of acting as if society is doing this and society ought to do that of course you are underpaid your books I'm not we all yeah your books are not well well-read enough I don't think are appreciated sufficiently and obviously something ought to be done about that that's my small contribution here we hope so you're not as worried in the book at least and I think in this conversation about say the high levels of of CEO pay that can't draw a lot of political attention I am far more worried about the political attention that I am about to CEOs pay why I'm well one is I've never paid it CEO so I have no way of knowing I must be the last person in the country who doesn't know what CEOs ought to be paid but more than that the other inconsistency of that argument is amazing some numbers I saw a while back said that the average CEO of a company is big enough to be in Standard and Poor's 500 was a little over eight million dollars a year that's about one-third less than one one-third rather of what Alex Rodriguez gets for playing third base for the Aggies it's something like my gosh 180th of what Oprah Winfrey gets I don't know why there's not such an uproar about Alex Rodriguez or Oprah Winfrey as there is about CEOs it's wholly arbitrary like so many things that are supposed to be a matter of principle and the other the other thing is that the people who do know what what what the CEOs value to the company is all the ones who pay them and it's their money and they have every incentive not to pay more than they have to or sometimes not their money the you know the compensation committee of a Board of Directors may not have the accountability that it would be in a in a different rule that's true but as a general as a general explanation though the problem with that is that if you divide corporation under those where decisions are made by some boards for other people for third parties they're spending other people's money essentially and you compare that with the pay of CEOs and companies where a few large financial institutions own the company I think Hertz is one of those or Avis I forget which it is the pay of CEOs is the highest in those places where small numbers of financial institutions are deciding what to pay and are spending their own money because they understand that you know there's no point being Pennywise and pound-foolish when you've gotten billions of dollars at stake well I like the Alex Rodriguez point although I'm a Red Sox fan I can look at him somewhat dispassionately and and I actually believe he's an extraordinarily productive baseball player and I think it's wonderful that many Yankee fans don't appreciate him and complain about him all the time but I you know you could go either way with your observation you could be encouraging people to complain about his salary some people do of course but why do you think it is that we idolized the Oprah Winfrey's and and great athletes at least who have better press than than Alex Rodriguez why do we idolize those folks we don't resent movie stars salaries we don't reset that they make a lot of money in fact it kind of adds to the excitement of following around taking their picture you had CEOs become disdained and and ingredie what what's what's the story there you have any thoughts on that oh I suspect that it has a lot to do with the fact that corporate CEOs are among those was it corporations in general or among those who stand in the way of people who think that they are to be deciding what society as a whole is doing the the movie stars and the athletes don't really represent that kind of competing elite and so therefore they don't care how many millions these are these uh athletes and entertainers get but it's a what they really want us to get at these corporate people who as long as there are private corporations uh the left is never going to be able to have the kind of economy that they want run according to the way they think economies ought to be run and I think part of it is the fallacy point out early on in the book which runs throughout and in a couple various different places which is the zero-sum fallacy that anybody getting ahead must be coming at someone's expense I think tragically a lot of people look at corporate profits as much as exploitation of consumers and similarly they have this weird idea that the corporate pay CEO pay comes at someone's expense that the shareholders that the workers the consumers but as you point out no one says that about pilots salaries no says the pilot of the airplane is somehow exposing exploiting the the passengers by by drawing a salary it's a great point well again pilot just Co are really no threat to the vision that people have all of a society in which some elites intellectuals or whatever activists are able to do things the way they want them done let's turn to inequality more generally you have some wonderful observations about race and sex inequalities differences between black and white economic outcomes and male and female economic outcomes you particularly are particularly eloquent when you say what reason was there to expect these groups to be the same in the first place so we have all these comparisons that we see in the in the media typically about so on this groups income being a fraction of that group's income why are those group comparisons so misleading because the groups of cells but mainly what you already quoted that there was never any reason to expect the groups to be the same in the first place one of the simplest differences among groups age group groups and the United States and in other countries around the world often differ from each other by up by a whole decade in age and income varies enormously by age people who are 40 years old I usually make a lot more money people who are twenty years old I mean a lot of people who 40 years old have 20 years of experience nobody who's 20 years old has 20 years of experience you know so again something just very mundane and yet that those differences are very important if you look at cultures and I have a trilogy on racing culture but coaches are all very different they're different even across racial lines that is it was when I look for long long before people concerned about black-white differences that white Southerners and white northerners had very large differences in things like literacy violence rates of illegitimately at century all the things which today people point out differences between blacks and whites nationwide were pointed out before the Civil War as differences between blacks white southerners and white northerners now blacks were in the culture of other southern whites and you can see many of the things that are now pointed out its peculiar blacks including what is called Black English was already there in the South among the whites and moreover it was in those people and their ancestors as far back as in Britons and centuries earlier so there's no an oh group is without a culture and there's no reason in the world that all these cultures should be the same and lots of reason why they have to be different and education of course is different oh absolutely and we measure education so crudely usually in our statistical analyses as economists it's just years of education as if that somebody went to school say to college for two years is the same as everyone else who went to school for two years regardless of what they studied yes well they did it right probably didn't it yeah separate problem I forgot about that one what are some of the other important differences in the in the in the differences between male and female earnings you make some very pointed observations about the differences and experience oh one thing a woman of a given age tend to have fewer years of a consecutive employment than men of the same age I mean the most obvious difference between men and women is that women have babies and men don't and that's not a small thing and it's not a small importance otherwise the human race would die out it's one of the rare empirical observations I think is pretty aren't cloud it's hard to argue with that one yes but it's very different from understanding this particular fact and understanding the implications of the fact someone pointed out you know and Newton wasn't the first man who saw it Apple fall he was just the first man who understood the implications of it it's great plane so in the case of women right what I like is that you you don't just make that observation that women have different experience patterns you show that the gaps between male and female earnings are are much smaller when women are quote more like men in their experience patterns correct oh absolutely in fact there's really very little income difference today between men and women who are comparable and across the law the whole range of things that matter for example education meaning not only the number of years but also the fields of specialization years of consecutive employment and many women take out some years when they after they have children before they return full time to the labor force well that has an impact the the choice of fields of matters also because with women know that they're going to have to stay stay out of the labor force for a few years then it matters whether you're in an occupation where you can stay out a few years come back and resume or you're in an occupation where the occupation itself is changing so profoundly and so fast that when you come back five years later or you're at a huge disadvantage where there's been for example technological change or in the law where the where the laws on taxes or whatever whatever have changed tremendously since the last time you practice law and I'm going to keep on changing and so now you've got to step in catch up with everything going to happen during those five years and then still keep up with the new chain that are going on military technology computer technology and so forth all those things make it rational for women to pick an entirely different mix of occupations and those that men pick my wife took time off from work to be at home with our four kids and as they've gotten older there she's starting to get back into the labor force and she is a math teacher and geometry and algebra haven't changed much that's right in the last eight to ten years although there are fads in how they're taught I have to say which she's gonna have to reacquaint yourself with I suspect as she gets more more involved but presumably women who choose fields that are more dynamic such as medicine or the technological fields you mentioned presumably they spend they choose to spend less time out of the labor force when they do have children or they choose not to have children that's right that's right but the point you're making which i think is the profound one is that what we observe as some something that looks like occupational segregation which has a pejorative sound to it need not be majority of it could merely be the choices that people make freely there's also the question of hours of work as well and the predictability of the work as I mentioned in the book a lawyers for example if you're if you're an attorney for some major on national or international law firm and this suddenly a multi-billion dollar lawsuit springing up and one of the branches you know 5,000 miles away and you're the expert on that field then you're just gonna have to go 5,000 miles away on short notice and stay there until such time as that lawsuit gets settled if you're an attorney who's defending someone who is about to be executed a week from now you know and and the judges allows you to have a last-ditch meeting in three days to say why he should stay the execution I mean you you can't go home at five o'clock and you know it take the kids out playing soccer on a weekend you got to start suddenly spending 16 hours a day or whatever putting together the best case you possibly can so your client doesn't get executed and those are those are very tough things to do for a for for a mother who has children I have some personal experience of all these lines and that I was a single parent between marriages and you know the longest period between two of my books occurred during that period I knew was five years between books because I had other things to do I hope it was a good investment anyway I didn't get you closer to that Hasselblad I can see them know I'd have a Hasselblad today except to that what about discrimination a lot of people look at the disparate outcomes for different groups men and women blacks and whites other comparisons and they concluded discrimination is there anything to that oh there is discrimination is one of a number of factors which which can explain differences in a particular case but of course the case that has to be the analysis has to be for that particular case you can't just make a blanket assumption that that's what it is my gosh one of the things that really annoys me considerably and then these black/white comparisons and sometimes black white Hispanic comparisons is that so often by I would say most of the ones that I've seen they leave out asian-americans even when there are data on asian-americans and we're from wherever they're citing that data on blacks and whites and and and if you included the data on asian-americans would really make the case collapsed like a house of cards in a lot of cases for example or there's been a lot of talk about how blacks don't get approved for conventional mortgage loans as often as white blocks have to resort to subprime loans more often than whites blacks get more likely to be laid off during a downturn than white now that sounds very persuasive until you so in the data on asian-americans White's get turned out to conventional loans more often than asian-americans whites have to resort to subprime loans more offer than asian-americans whites get it laid off during a downturn more often than asian-americans now if you took seriously the argument that these racial disparities show discrimination you would end up with the absurd conclusion that the white employers and the white lenders are all discriminating against white workers and white consumers but you can't just pick and choose when you're going to consider evidence seriously and when you're not going to consider it seriously a lot of people attribute the progress of black Americans and and women as well to various anti-discrimination laws I is that is that a good idea is that true well it doesn't fit either the history or the economics if you if you trace with women are the periods of which they were doing well I would say we're not doing well most people are unaware that women in the first couple of decades of the 20th century were doing much better relative to men than they were say and in the middle of the 20th century and and it is there's no great mystery as to how that came about that as women's age of marriage began coming down and they started having children at earlier and earlier ages particularly the baby boom being the climax of that obviously they weren't able to get postgraduate education or college education in many cases and therefore they were not eligible for the higher level jobs but they had held in earlier times so if you compare a number of fields including economics what percentage of the people were women say in 1930 is compared to 1950 it was more in 1930 interesting law other fields and but but as the age of marriage came down as he had more children they declined now the people who are the other way avoid all that by the simple practice of starting their discussion in the 1960s as if the world were created in 1960s and then they show that women well actually women started rising around the middle of the 1950s because the age of marriage started rising again around that time and you can just plot this on a graph and you can see the almost mirror images when you compare Claire the age of first marriage and the level of women in professional occupations and so as women now began to arrive by route 1972 and certain the professional feels they got back to where they had been in 1932 and then as the age of marriage grows to just unprecedented levels and what women didn't get married at all then you began to see women rise in these areas but it has very little correlation with affirmative action or with anti-discrimination laws why should H a marriage be so important oh because the age of marriage usually also ties in with the age at which women start having children I my first thought would be I'd be better to have your children young and then you could have an uninterrupted period of investment human capital but is that not the case well the does the different women make different decisions on this but the point is the theory that the marriage and the child bearing age have a profound effect on if you look at those women who would never marry that's that's where it's that's one effect about yeah you see the veil and the academic world they were doing better than men oh gosh almost 30 years ago and what about for the racial differences a lot of people attribute the progress of black Americans to civil rights act other anti-discrimination law etc well you could make that case when it comes to elected officials that after the Voting Rights Act of 1965 the number of black elected officials just skyrocketed but when you move into other things incomes of occupations to purport the percentage of blacks who were in poverty declined from 87 percent back in 1942 thirty to a forty seven percent in 1960 and that was before they were civil rights laws of any consequence the literally long-term trend of blacks in poverty was down I continued through the 60s it wasn't accelerated at all and after about nineteen seven by 1970 it wasn't accelerated even worth talking about so none of those things really is correlated with with how blacks of either come out of poverty or risen into professional occupations and so on yeah I think that that flattening of the poverty rate which had been falling for really cuts across all groups and it's overwhelmingly driven by a family structure all groups actually if you if you look across all races poverty rates fall through the 70s and 80s and 90s if you hold family structure constants if you only look at a particular kind of family a parent to parent families it starts very low the poverty rate but it continues to fall all through that there's 30 years 70 to 80 to the 90s if you look at single women it continues to fall if you look at single one with children it continues to fall the problem is is that the proportion of all families that are single women with kids explodes over that period and as a result the overall poverty rate basically stays flat even though every single type of family is getting less poor it's very it's a paradox statistically for people but I suspect that's part of what's going on in the black numbers yes the the the figure that struck me in doing the research was that the poverty rate for black married couples was it has been in single digits since 1994 yeah and so the argument that the pot black poverty is due to racism really falls apart because the people don't change their race when they get married and yet if you look at blacks in the ghetto there was a single mother and all of that the poverty rate is just huge yeah that's a big handicap any thoughts on why equality is so appealing to human beings the idea of it especially the the measured equality that we often use to assess the fairness of capitalism say or particular economic system people look at measured outcomes as you point out with all of these flaws where we wouldn't expect equality and yet they judge it accordingly what any thoughts on why that is I think the sweet amount of that is artificial in the sense that intellectuals have been terribly preoccupied with this for a very long time and insofar as they influence through the media and through educational institutions how other people think about it they they keep pushing this via even many of the advocates of equality I think of our age 20 and the 30s lamented that the general public didn't seem to be nearly as concerned about this as they do as they are and then so the real question is why intellectuals focus right about this any thoughts on that I think that again it ties in with their notion that they ought to be deciding what society is like and the things that they don't understand shouldn't be allowed to do to remain it's like the argument about the corporate CEOs many many intellectuals have said you know I don't see why i acquire a corporate executive should be making so much money well I don't see how anybody should be making the money they do I mean well why in the world would you imagine that you should be aware of why corporate executives make that kind of money or why it should be any of your business yeah I think it was I think it was Hayek who said and I want to come back and ask you about Hayek later but just as an aside I think it was Hayek who explained his explanation for why intellectuals were more likely to be socialists than capitalists was a purely self-interested one you know for for those of us who are who are in favor of more decentralized decision making rather than centralized decision-making we have this embarrassment that it seems like the people with the high IQ tend to be the the Communists the Socialists the so-called Social Democrats that people want more government and I exercise ratios well ago they'd have more power in those systems so of course they're in favor of it so that was a early public choice argument which I've always found comforting yes I think it will be true let's move on to a set of global shoes that you talked about in the book a lot of people blame European colonialism for exploiting poor nations leaving them poor and use that as an indictment of typically what's called the West in looking at the causes of world poverty poor particularly poor nations topic we've talked about recently on on the show what do you what's your assessment of that colonialism argument it's really uh it's a triumph I think of ideology over facts that it almost any factual assessment of situation would make this argument collapse like a house of cards it's typically the the poorest places in the world typically been the places where the West has says has paid a little or no attention to them ever well I think learning is imperialism was absolutely a masterpiece and the art of propaganda because he managed to convinced highly educated people all around the world of something for which he had no speck of evidence and and which all the evidence that was available pointed the other way what was he arguing well if the argument was that the was essentially that they was at the West are the industrialized countries maintain their prosperity by exploiting the poor countries and and he has he has one of the great meretricious diagrams in economics to show this he's only able though to make this seem plausible by using huge heterogeneous categories like the entire Western Hemisphere that Europe invest in the Western Hemisphere from which we're supposed to conclude that they are investing you know and the underdeveloped nations of the Western Hemisphere so or well if you broke that down you see no they're investing in the United States of America at the height of the British Empire they invested more in the United States and they invested in the whole British Empire and even to this day of the United States is still the country in which most people most foreigners invest their money but by having this very heterogeneous category of the Western Hemisphere and it's on all this talk as if they're investing in Guatemala or Brazil or something he's able to maintain this but what would it also says how desperately people want to believe something like this well it's convenient it gives people a scapegoat for either their own failings or lets them blame someone that I'd like to put some blame on I guess and the other thing is that well did it and this is course it's more than just an intellectual problem and you see that by the end of the 20th century these kinds of theories like such as that of Lenin or dependency theory in Latin America have faded away because more and more people became notice the obvious fact that once very poor places like Hong Kong and Singapore South Korea suddenly have become very prosperous and they did it by opening up to investment from the West which supposedly is what impoverishes people and the tragedy if you look at a place like sub-saharan Africa the United States has practically nothing invested in South seven sub-saharan Africa compared to what it's invested in Canada much less Western Europe well just think think how rich can and what Canada would be if we left him alone yeah I guess that's the that's the argument there too but it is a strange argument and it's you're right when I was in high school in the late 60s early 70s the evil American corporation United Fruit Company or other exploiting company went down to these these poor countries and just took stuff is the implication they're just thieves and today we have a similar version of that it you can't say that anymore you're right that that argument kind of died out instead what it is is that you know Nike goes into Indonesia and builds a shoe factory and pays low wages and that makes these people as if the low wages they pay is what makes them poor that's right that if in fact there were higher wages available in these countries these people would never take these jobs with Nike in point of fact of data show that the multinational operations tend to pay about twice what the local wage rate happens to be now there's still a lot less than it is in the United States or in Western Europe but they had definitely not impoverishing these people I saw a piece in The New York Times a few couple of years ago about some poor lady and I think it was Cambodia yes who was working and some some garbage dump but she was a scavenger you know terrible conditions and how lower pay was in there and then the writer said you know it was considered a dream to be able to go work for a multinational corporation for $2 a day and then the people in these countries in point of fact often pay a month salary to somebody on the inside who can get them a job because the jobs are that desirable given their alternatives I think one of the tragic things is there's so many people who are on these the moralistic fruit-ice Crusades never think in terms of the alternatives I mean I've piece recently about child labor in India I'm not happy that kids are working on making this stuff up in India strange but the question is what are their alternatives I also think too that one of the said effects of our own child labor laws is that we have a lot of kids out there selling dope in the street because who would be able to have legitimate jobs in a free market if we didn't have these child labor laws on the minimum wage laws the child labor laws when they were passed we're trying to stop kids from being used in coal mines and places like that but today we have strapping teenagers who are not allowed to work in air-conditioned offices on a computer because of the child labor laws yeah they're there we want them in those very those wonderful public schools that teach them so well get them so prepared ha ha yeah but as you point out I think somebody told me a former student of yours I and I can't can I apologize for not remember who it was or at least heard this from you that the essence of economics is asking and then what yeah if something sounds good at the beginning like higher wages for workers either through a minimum wage or some campaign to pressure an international corporation to pay more and and those have good effects to some extent other people who keep their jobs in those settings or their lives are improved but you have to ask and then what what comes what comes next and what alternatives are people forced into as you point out oh yeah I think that at least half the rhetoric of politicians especially in late an election year would have to disappear into thin air people started asking what will be the actual consequence of this well it's an interesting thing as to why people don't ask it more part of it's a lack of understanding market forces and the you know the the consequences that are that economists see fairly easily or sometimes hard to see for people are not trained in economics but part of is I think you're referring to earlier is it it's just not it's more pleasant not to think of them that's right that I mean I I've been recently reading John Dewey you know a renowned philosopher and yet he's talking about how on the capitalism there's this artificial scarcity and and he had never occurred and how we need to change the institutions just need to deal with that you never asked the questions where do you find in this the real world you know we women that have a greater abundance than you do in capitalist countries yeah what did he have in mind there you think oh I think he had mine socialism all right worker's paradise that's it very we're talking on the day after Castro appears to have stepped down from leading the worker's paradise just south of Key West Florida called Cuba and it's his 50 or so your experiment has not turned out to be much of a paradise but they never judge these things by their factual outcomes even as they is the Soviet Union and after that after that and even after they found out some of the terrible things were going on these are always called these are the growing pains of a new society but you know when when when Pinochet took over and chill they they didn't say that the things that went wrong in Chile with us the growing pains of a new society yeah you have to make an omelet you have to crack eggs but it only only counts in certain kinds of omelets I guess oh yes but it is it is an incredible phenomenon in Appelbaum writes about it in her book on the gulag where she talks about why how strange it is that it's it's not polite to walk around in civil society wearing nazi regalia but you're allowed to wear communist memorabilia is considered hip and I don't know if she refers to it but a lot of people were Che Guevara oh yeah and he's a murderer and so it's just interesting how motive washes away a lot of sins for people yes I'm currently doing something I've been threatening to do for years which is read a book about intellectuals and it is a puzzle as to how they really have an enormous virtuosity and the use of words and I think it's a fatal talent because it can keep you from facing realities you can always find some clever way to wish the reality away that's going to be a many large multi volume series there's a lot of pages that I'm hoping to start a lot of inquiry I'll leave it to someone a lot younger to finish it up I at one point you talked about overpopulation something that many people consider a source of world poverty and they consider a both here in the United States it's considered a source of overcrowding and and and and problems in the cities and worldwide it's considered a source of poverty but you reject that why because the facts won't support it and again the fundamental problem is that people don't even look at the facts they say this and that's the end of it I I think the most illusion population series is one of the wonders of the world because it wasn't even true in Moses's time and so and Malta's was in fact forced into all kinds of redefinitions and so on in order to maintain the similar of its being correct but I just a quickest way to answer these people is to ask them name me a country whose prosperity was greater when their population was half of what it is today I don't think they can name a country anywhere in the world which that's true thank you right a related error that people make and it's a topic that we've been talking about recently here is the role of natural resources a lot of people like to say that well the United States got rich say between 1776 and today because well it's a rich country it has lots of raw materials and that that's the road to wealth for a nation and and it fits in with the colonialism story right because it says that the reason some of these countries were poor is because the West stripped them of their their wealthy resources but you show that doesn't meet the facts very well either no in fact if you look if you look at countries like Venezuela and Uruguay the natural resources per capita there is higher than in Japan or Switzerland and yet the per capita income in Japan is Switzerland is some multiple of what it is at work why and Venezuela if you look at a place like Saudi Arabia for heaven's sake with the world's leading oil producer the air per capita income is roughly half of that in Singapore which is so lacking in natural resources that they have to import their drinking water from Malaysia so it's not it's people it's not natural resources right I was shocked by that Saudi Arabia number because I sort of had the impression that they were we I think of Saudi Arabia as a wealthy country I know it's a very unequal distribution of income I know a small group at the top gets a lot of the goodies oh yeah it's a small country as a lot of sand there it's not a big population country's a big physical space but so I figured that well the the per capita income would still be high but it's not oh and as you I think point out and I checked this also Israel standard of living higher than Kuwait's Israel has no oil Kuwait has oil to my surprise looking at recent data on the web getting ready for this talk the number one oil producer in the world is Saudi Arabia the number two right now it varies is the United States although the data weren't broken out easily to assess whether the United States was 2 or 3 that shocked me by the way too as well but the former USSR the former Soviet Union at least in December of 2007 produced a lot more oil than Saudi Arabia and they are not doing well so we're not going to say there's an argument which I'm sympathetic to that actually actually having natural resources isn't just neutral it's bad for your number of people have pointed that out Nigeria has a fair amount of oil but you know if you're spending your time shooting each other you and especially for oil it's not gonna do you a lot of good right and if you have a big prize like a natural resource that you can funnel to your friends you tend to get bad government and as you point out bad government is it's a major factor in whether nations rich or poor not whether it has natural resources or not yeah the other the other thing that people don't realize too I think is that what we call a natural resource is not some objectively given thing it's what it's what people know how to use I mean a uranium was not a natural resource a thousand years ago of course they they they they weren't that many uses Ward waterfalls were not a natural resource before people had mills and later on the hydroelectric dams they were hazard all right well as my colleague Don Boudreaux likes to point out crude oil is just a stinky gross substance until you figure out how to refine him well it went one time before oil became what it is today uh shysters would foist off land on the peep onto unsuspecting people when they knew that the land had oil on it because they knew that that that would reduce the value of the land and of course once the the uses were found some people who in fact that snookered found themselves very wealthy yeah it's a great great example well I wanted I want to change gears a little bit we got it we got a few minutes left and I want to read two quotes from the book that I particularly enjoyed and tie them into another work of yours the first it goes like this what is called planning in political rhetoric is the government suppression of other people's plans by superimposing on them a collective plan created by third parties armed with the power of government and exempted from paying the cost that those that these collective plans impose on others you were talking about urban planning that's a beautiful beautiful quote and then later on in discussing the complaints about CEO pay you wrote quote perhaps the most fallacious assumption of all is that third parties with neither experience or expertise can make better decisions on the basis of their emotional reactions than the decisions of those who have both experience and expertise as well as a stake in the results now you devoted an entire book knowledge of decisions to the challenge of making decisions that draw on knowledge expertise and experience it's scattered in the heads of numerous individuals that still gets used somehow without central planning tell our listeners a little bit about that book because it's really a wonderful book well thank you uh I think one of the many fallacies of intellectuals is the assumption that they have more knowledge than other people there's a suite of specialized kind of knowledge of which that's true but the but the knowledge that is consequential does not consist just of that kind of knowledge it consists of welcome just just knowing what a particular location is like can be worth millions of dollars big companies like all McDonald's is one a and P during its heyday and I suspect Walmart today they picked the location of their stores very carefully and invest a lot of time and money and making their choices but that's just a very mundane kind of thing and most people would not think of that as knowledge but it has tremendous consequences many other kinds of knowledge that have all kinds of consequences even though it's not the kind of knowledge that his lecture will specialize that that book knowledge and decisions draws heavily as you mentioned in the preface on on Hayek yes how did you get interested in Hayek who what did you read that got you interested or what which professor well you know there was uh it's ironic because I first read a little Milton Friedman's course in price theories graduate course in price theory had is it's one of his first assignments a little essay by Hayek called the use of knowledge in society Puritan American Economic Review ages ago 1845 and I'm the first time I read it I saw no significance in it and and and I the first time I was forced to think back on it was when I first started teaching and I was forced to teach a course on the Soviet economy they assumed because I had written about Karl Marx that made me an authority on the Soviet economy of which I knew nothing ironic yeah but as I now making a huge effort to study this before time to teach the course I'm struck by all kinds of strange things that happened in the Soviet economy that then immediately caused me to think back to what Hayek had said and I realized they were trying to run an economy by people who didn't have as much knowledge as the people whose decisions they were superseding and that this ruthless explained a very large percentage of the problems of the Soviet Union and so from that sort of germ over the years I began to think about how is now is used in society and so I think of knowledge and decision is sort of a 400-page expansion of high x twenty page article yeah I in an earlier podcast with Fernand Smith I made the same confession that I was assigned that book not by Milton but by I forget who it is either McCluskey or harbor's probably McCloskey and I read at night I didn't think much of it to be honest and now now I've read it I think Vernon also can confess he didn't get much out of it but he did confess that he's read it many many times since with profit each time it is a deceptively simple on deep idea and it also shows the the fallacy of trying to gets to teach do these things that they will find irrelevant vices are no relevance in that book of that and that article when I first read it it's only after years later and and and some experience that now suddenly become of enormous ly relevant yeah other other than Hayek what are some of the other economists that have influenced your thinking well Joyce Tegeler I guess but particularly on the history of economic thought and in fact I went to Chicago specifically to study under Joyce Taylor in fact I went to Columbia the year before to study under Joyce pigman when I got here and discovered that he'd going to Chicago that I went to Chicago the very next year hmm very interesting now you're not a big fan of those third party planners in the quote I read you wrote about them very eloquently in another book which I want our listeners to be aware of a conflict of visions yeah what's the conflict of visions it's it's the conflict ideological conflict between those who think that the world is one in which you can make all kinds of decisions by third parties and a world in which you see the the enormous difficulty of trying to do any such thing and the great danger that you'll make things worse when you're trying to make things better any other thoughts on that say so give us some more well I think that if you believe that the knowledge is concentrated in a handful of people relative handful of people then of course there are all kinds of projects that make sense up to and including socialism but if you think that the vast majority of the knowledge is scattered among hundreds of millions of people then if you transfer a decision-making from the people from the ordinary person to these elites you're transferring the knowledge you transferring the decision from where there's more knowledge to where there's less knowledge but more presumption why do you think those utopian visions of the intellectuals are so seductive let me ask it a different way why is economics the lessons that you teach in your books why are they so difficult for people to absorb we know one argument is is that well economists just hard it's it's it's a little bit complicated the way it's taught at the graduate and even undergraduate level today is quite a bit harder I think that it needs to be with mathematics but you could argue it's just difficult but I sense in your writing it's more than it's just difficult it's we don't want to really learn those lessons do you think that's true yes uh economist a constantly saying there's no free lunch but politicians keep getting elected by promising free lunch I mean I think Hillary Clinton's uh ad showing her with you with health care and things like that under the Christmas tree felicity is playing essentially the role of Santa Claus that's what people want it's easier it's more satisfying I think I think I think the economic explanations are unsatisfying I think of FDR when he came in during the Great Depression and you know he blamed it on the economic Royalists well that made that may sound quite silly to an economist but it's more emotionally satisfying you don't want to find out that the Great Depression had to do with the monetary aggregates a tariff policy and Federal Reserve actions I mean that's I mean whatever even if you understood it easily and so forth it's not very emotionally satisfying but when you say that someone has done something wrong and that he's going to come in and rescue from those evil people that's the kind of stuff that that self politically I think we've done a very bad job as both economists and defenders of Liberty and couching our arguments and appealing to the deeper urges that people inevitably have and I think that's a agenda for the future we could we could do well to to try to improve yeah I want to close with a topic that's um I think surprise some of your fans you have fans across a fairly wide part of the political spectrum but some of them agree and very vehemently with you and disagree with you vehemently on the issue of immigration I was surprised at your writing on this topic and I'm curious I'd like to hear you you know what I'm reading typically are 750 words in a in a newspaper mm-hmm which you do brilliantly obviously but I'm curious whether it's the illegality of immigration that worries you or the impact of the immigrants so are you are you worried about the increase in immigration that we've seen in the last save 10-15 years or is that the nature of it that you're disturbed about both I think I'm also disturbed by the fact that people discuss immigration in general when there is no such thing as an immigrant in general there are some immigrants who come to this country who have been worth their weight in gold I think of the people who came here during the Second World War as a result of fleeing from the Nazis and who had played a major role in treating the creating the atomic bomb which undoubtedly saved the lives of a hundred thousand Americans so there's no such thing as an immigrant in general it's really or another version of what I said about women and minorities that the then they're not homogeneous immigrants are not homogeneous and insofar as the ilegally Galla t means that we don't choose who's going to come here people people themselves decide whether they want to come here and we have nothing to say about it and of course that means we don't get the kind of immigrants who would necessarily be best for the United States but immigrants who are looking out for themselves that people tend to do you talked about in one piece I saw you talked about gatecrashers versus invited guests that's right and I guess my thought is is that for immigrants who work which is a substantial number they are invited guests by the people who employ them so I would make a distinction at a minimum between people who come here without working and people who work I mean most immigrants that I know of and I think it's true in the more general sense of the data across all groups of immigrants work very hard not only have to have workers it have to have citizens and I think that because the economists in particular attendance in to think in terms of the purely economic factor they're willing to let in people who in fact may be may it may be hostile to whole society and culture of the country and of course Europe has gotten itself into an enormous mess with the guest workers that they have who many of many of whom are precisely that saw it agree with that I think Europe has a problem because their political system is is not sufficiently robust to absorb those those attitudes ours used to be we've absorbed people from all over the world for 250 years yeah who became Americans and we had a constitution that limited the ability of groups to use political power in destructive ways voting blocs to be destructive in various ways and people assimilated mostly not totally of course and wouldn't want them to myself I love the cultural mix that is America so is part of your concern the worry that the Constitution is been sufficiently watered down and there's lots of evidence for that of course some of it in this book especially in the area of urban planning property rights but their Constitution been sufficiently watered down that that large influxes of people with different attitudes could be destructive oh yes but more than that I think that these are the views of Americans and particularly of the intellectuals it's such that there's no thought that you have to protect the culture that exists here because as we multi calculus tell us all cultures are equal I don't know why people why they think people are immigrating it's a huge amount if all cultures are equal but that's the dog blood yeah my hope is that well our culture is American culture is truly multicultural not the way the multicultural is think of it which is this culture and that culture but rather a melding and mix and stew of of different ideas and different food different music and different art and creativity a lot of the of the Internet's great success has come from immigrants Andy Grove and Serge a brain or two that come to mind so I know I don't I just I'd like I wonder if I'm more optimistic than you are that we're going to keep that culture or that's so vibrant intact or you're afraid it's going to go off in the wrong direction there are there are too many forces pushing it off in the wrong direction I mean we have people who think that when someone commits a crime according to American law which would not be a crime where they come from that we should somehow make allowances for that yeah and of course what that means is that we're going to give up American law and the flip side of that is this strange idea that if if we have something that's legal here but illegal overseas we shouldn't do it which is the this idea that international law is somehow better oh that's another stereo notion well we're out of time my guest today has been Thomas Sol the rosid Milton Friedman senior fellow at Stanford University's Hoover Institution dr. Sol thanks for joining us thank you for having me [Music] [Applause] this is econ talk part of the library of economics and liberty for more econ talk Cody can talk org where you can also comment on today's podcast and find links and readings related to today's conversation the sound engineer for econ talk is rich go yet I'm your host Robert thanks for listening talk to you on Monday you you

Channel: EconTalk

Views: 4,537

Rating: 4.8857141 out of 5

Keywords: Thomas Sowell, Stanford University, Hoover Institution, Russ Roberts, CEO pay, income inequality, immigration, public policy

Id: TSXWIrlqIMU

Length: 66min 40sec (4000 seconds)

Published: Wed Sep 11 2019