Sowell on Economics: A Book Report

Memo to: James Atticus Bowden
From: Peter Galuszka

Re: Reading Assignment

Okay, I got my copy of Thomas Sowell’s “Basic Economics,” have skimmed through it and am ready to make some points. I know your views are generally the polar opposite of mine, but I think I deserve at least a Gentleman’s C” for my efforts.

Sowell has written a very good, clear primer on economics. I wish I had this book when I took Economics 101 back in 1971. Those were the days when every college intro econ. course had you get the umpteenth printing of Paul Samuelson’s classic textbook. I went to a liberal, northeastern school for which I make no apologies, but I will admit that the mindset was very Keynesian and all the teaching assistants who drilled us on Samuelson really liked government spending. It didn’t matter if the government didn’t have the money, we were told.

Milton Friedman and the Chicago School existed but hadn’t penetrated the Northeastern elites yet. Free market principles, such as those of the Chicago School or at the Hoover Institution which is Sowell’s home, wouldn’t become really fashionable until Margaret Thatcher took power, and of course, Ronald Reagan gained the White House even though he turned out to be the biggest Keynesian of all.

Sowell’s approach favors a free market view, which does have its merits. He is right about issues such as productivity, letting the market make choices and limiting government regulation and interference. Sowell gives the standard Ricardo line that “all boats rise” with free trade and that we are a lot better off with deals like NAFTA than not. Rule of law is critical for unleashing the laws of economics. Communism doesn’t work (like Duh) and he even quotes some Soviet economists and critics such as Nikolai Smelev whom I interviewed as a Business Week correspondent in Moscow back in the late 1980s. Good choice on Sowell’s part.

My criticisms of Sowell’s work are ones of ideology and omissions.

On ideology, he’s very anti-labor and though he’s right that unions are greatly diminished and now represent mostly government workers. However, they still play a needed role especially since corporate loyalty is a thing of the past and management is becoming more bloodless and ruthless. A counterweight is needed and unions can help provide it.

Sowell’s arguments against “rent control” are over the top. He says that rent control in New York and San Francisco has kept apartment prices artificially high. I know about San Francisco but I have lived in New York City and rent controlled-apartments started to become rare about 20 years ago. The reason rents are high is that real estate in specific areas is very desirable and lots of rich executives and creative elites compete for it. This really doesn’t have much to do with rent control.

Sowell doesn’t really tell us much about how executive compensation got way out of whack over the past 15 years or so and has led to plenty of CEO arrogance, hubris, stupidity and criminality. The pay given to CEOs if many times greater than it is for average workers than it was before. Are the today’s CEOs suddenly worth that much more than yesterday’s?

Sowell skimps on the impacts of free trade. Sure it tends to be an overall win-win but try telling that the textile workers in Danville or in Kannapolis, N.C. where 6,000 lost their jobs in one afternoon.

Sowell doesn’t even the topic of dysfunctional living patterns or mass overconsumption that are dear to the hearts of some Baconauts.

On foreign ownership and investment, Sowell rightly points out that this is nothing new. Foreigners held significant shares in U.S. railroads at the end if the 1800s, for example. But what you are seeing is the emergence of “stateless” corporations that are new-fangled entities answerable to no specific country. Major U.S. construction firms linked to the Bush Administration end up headquartered in Dubai. How can you hold these firms accountable to shareholders, the true owners? Global securities regulation is only starting to take hold. Sowell doesn’t talk much about it. Yet decisions made by these companies can kill or create thousands of jobs overnight in Virginia or elsewhere.

I really don’t see any specific application to Virginia any more than to anywhere else. Still, a good book.

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  1. Jim Bacon Avatar
    Jim Bacon

    Peter, thanks for the dispassionate analysis — especially for pointing out that a free market economist like Sowell, who loves to write about the efficiency of capital markets and labor markets, does not discuss economic efficiency in the market for land.

    There seems to be common unspoken assumption that markets in land are efficient, which, as all Bacon’s Rebellion readers know, they certainly are not. It strikes me that one of the great unspoken tasks of economists generally — and free marketeers specifically — is to apply their conceptual tools to understanding the dynamics of human settlement patterns.

  2. Anonymous Avatar

    Even if you don’t agree with Sowell, you have to admire the way he makes his arguments.


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