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Uncle Orson Reviews Everything
August 9, 2012
First appeared in print in The Rhinoceros Times, Greensboro, NC.
How the World Works
Throughout the past half-century of decline in our ability to educate ourselves as a people, we
Americans apparently hold one thing most sacred: We must preserve our ability to lie to
ourselves about the economy.
The media do it splendidly, reporting only what serves their political ideology. Thus when the
recession of 1992 was clearly over well before the election, the media kept pounding us with
stories of how people were suffering from the Bush recession. The result was that Clinton got
credit for a recovery that already began before he was elected.
In fact, whenever a Republican is running for reelection as President, the media relentlessly
portray even good economies as bad, reminding us how much richer the rich are than the poor,
and how the Republicans keep trying to lower the taxes on the rich.
But this year, when the economy stinks but a Democrat is up for reelection, the media aren't
giving us the endless sob stories about suffering jobless people, making sure we don't forget for
a moment that the economy is bad. Instead, we are told that things are just about to get better,
and they aren't all that bad, and if they are it's really Bush's fault (the other Bush this time).
And it's all hokum.
Yet we believe what we're told (or forget what we're not reminded of) because we are deeply
ignorant about how the economy works.
We get the idea that the economy is enormously complex and therefore we can't understand it at
all.
Well, the economy is enormously complex, which is why attempts by governments to manage an
economy always, always, always fail.
It is simply impossible for a team of experts (let alone politicians) to absorb enough correct
information in order to make all the millions of decisions that make an economy work.
But just because a national economy (or, for that matter, a city's economy) is too complex to be
managed doesn't mean that the laws and principles of economics are too complex for ordinary
people to understand.
On the contrary -- the laws of economics are actually rather simple, and there aren't all that
many of them.
They have been demonstrated and proven over and over throughout human history. Even before
money existed, even before free markets existed, the laws and principles of economics existed,
and worked -- with good and bad effects.
They're clear. They're simple.
Yet economists are constantly making wrong predictions about the economy. If the laws are so
simple, why can't they do a better job? And if they do such a lousy job, why should we regular
people bother even trying to learn about economics?
Because it's like the weather. The laws governing weather are actually quite simple.
Meteorologists absolutely understand now how the weather works. Why it rains here and not
there; how dangerous storms arise, grow, fade; what conditions make it snow, or sleet, or hail.
After the fact, it's always easy for meteorologists to describe exactly what happened.
But beforehand, it's impossible to predict, consistently and accurately, what the weather will be
at any particular place at a certain time of day.
That's because there are literally trillions of variables and they can't all be known in advance,
though likelihoods can be predicted. These two air masses, one colder than the other, are
approaching. They will meet ... somewhere. Wherever and whenever it happens, there will be
violent storms. But the where and when are, quite literally, unknowable in advance.
That's the way it is in the economy. The fundamental laws are known. But because the
economy is affected by -- no, because it consists of -- the decisions of every single person who
has anything to buy or sell or trade, it is impossible for anyone to predict, in advance, exactly
how these decisions will combine on any particular day or week or month or year.
Yet we can say with certainty that when governments try to control prices by keeping them up, it
stifles the economy. When governments try to protect the jobs of people in one industry by
using tariffs or other price supports, the whole economy suffers far more than that one industry
benefits.
These are laws. The results of such decisions are known in advance. Yet governments keep
making the same stupid blunders because the benefit to the politician ("I saved your jobs!" "I
made the rich pay their fair share!" "I fought against inflation!" "I kept management from
exploiting workers!") is immediate, and by the time the cost of their disastrous mistakes comes
due, they're already out of office, or in a higher office, and because Americans are so ignorant of
the laws of economics, they can always lie to us and convince us that it's Not Their Fault.
That's why I'm telling everyone that it should be illegal to vote in the upcoming election unless
you have read Thomas Sowell's book Basic Economics: A Common Sense Guide to the
Economy.
If the economic future of a nation has ever depended on the outcome of a particular election, it's
this nation, this year.
We have a President and an administration and a Democratic senate that is either ignorant of
economics, or so ideologically driven that they don't care what happens to the economy as long
as they enact their agenda, or so cynical that they'll say whatever it takes to get voters to vote for
them.
But if the electorate had read Sowell's book and applied its principles, it would be impossible to
say idiotic things like "We will not raise taxes on the middle class -- we'll only raise taxes on
the rich." Or the even dumber, "The disparity between the top earners and the bottom earners is
widening, and that's not fair!"
If you've read Basic Economics, you'll know that income taxes barely touch the truly rich,
because their money doesn't come as "earned income." It comes as dividends and capital gains,
which are not taxed the same way.
Meanwhile, the lowest earners pay no taxes at all, and the truly poor (a tiny fraction of that
number) aren't earning any money, they're receiving welfare.
So all the payers of income taxes, from top to bottom, are the middle class. If you raise
anybody's income taxes, you're raising taxes on the middle class.
What Sowell points out is that the top and bottom earners are not "classes" at all -- they're the
same people at different stages of their lives.
Most of the people in the bottom twenty percent income bracket are in that bottom bracket only
temporarily. They consist of:
Young people getting their first jobs, which pay little because they have few skills and little
experience, and so their labor has less value.
Experienced people temporarily out of work.
People in seasonal or cyclical industries who are temporarily underemployed.
People dislocated by shifts in industry, whose old jobs are gone and who have not yet moved to
other jobs in other industries.
Students doing part-time work to pay for an education.
The vast majority of the people who are bottom earners don't stay in that category for more than
a year or two. And even while they're there, most of them aren't suffering as much as the
politicians would have us think.
The students are living in student housing; the young, low-paid workers are sharing expenses
with roommates; or they're living with their parents or other family members and pay little for
living expenses.
Meanwhile, the top earners are mostly people who have put in years of labor in their chosen
career, and are now earning the highest income they'll ever earn in their lives. They got to that
position, not by exploiting other people, but by working and learning and making good decisions
and, yes, being lucky by not losing their health or not having their business destroyed by
competitors.
But they're getting older, and without any punitive taxes they'll move out of the work force soon
enough -- death, old age, or the desire for retirement take care of that.
Statistically, there will always be a top twenty percent (or five percent, or one percent) of
earners. There will always be a bottom twenty percent, too. But they are not the same people.
The vast majority of people begin at the bottom and, over the course of their working life, move
upward.
Furthermore, where they end up is usually the product of their own decisions. Those who go
into high-paying professions will -- here's a shock -- get more income during their peak
earning years than those who chose to go into lower-paying professions.
Those who succeeded in riskier professions will receive the rewards that come from guessing
right about risk. (Those who failed are, of course, in lower income brackets.) But those who
didn't want those risks chose to follow safer careers -- and, as a result, their peak earnings will
never rise as high.
There are also the people who have chosen to devote their earning years to taking drugs or
drinking, and naturally they do not reach the same peak earnings as those who chose to control
those appetites.
But all those choices were freely made. By and large, people are where the normal vicissitudes
of life put them, or where they chose to be by their own free will.
The exceptions are, of course, people who suffered unpredictable physical traumas or health
crises, or people who were bad at their jobs, or people whose businesses lost while competitors
won. But we really do have a safety net for people physically unable to continue working. And
people whose jobs simply disappeared, or who are bad at the work they originally chose, are free
to rebound from these events or discoveries by going back to school or changing careers.
I've seen dozens of my friends do exactly that. When the typesetting industry pretty much
disappeared with the advent of computer publishing software, one typesetter I know went back
to school and became an optometrist. He did go through a period in which his income definitely
plummeted -- but shed no tears. He moved right back out of that bottom twenty percent.
Yet we still persist in acting as if it actually means something when a politician talks about
"raising taxes on the rich while leaving the middle class alone." What they are really doing is
confiscating the earnings of people who are finally getting the rewards of many years of hard
work.
Or that ever-popular lie that raising taxes on "the rich" will increase revenues.
Because it's a distinction that, in our ignorance of basic economics, we often forget: Raising tax
rates does not necessarily raise tax revenues.
Let's take a clear historical example. When the stock market collapsed in 1929, the jobless rate
soared. But the economy quickly recovered -- joblessness was back down nearly to pre-crash
levels within a year or so.
However, during the time of panic about the stock market crash and the unemployment that
resulted, the protectionists in Congress, in order to "protect American jobs," created steep tariffs
on over 20,000 different kinds of imported goods.
Tariffs are taxes on foreign goods brought into the country. Those who voted for the Smoot-Hawley tariff could say, "We are increasing government revenue and saving American jobs at
the same time."
But because the laws of economics cannot be tricked or fooled any more than gravity or the laws
of motion, the real result was the Great Depression, which was not the result of the stock market
crash -- that recession was nearly over.
As Sowell so clearly points out, if you raise tariffs on imported steel, you might very well save
5,000 jobs in the steel industry. But now all the industries that use steel have to pay higher
prices for steel, which means they cannot make their goods at a cost low enough to compete
against foreign rivals that are able to buy that cheaper foreign steel.
So saving the 5,000 jobs in the steel industry will cost 20,000 jobs in other industries. Yes, the
politicians "saved" the steel industry, but they wrecked far more jobs in the economy as a whole.
The Smoot-Hawley tariff raised the cost of living for everybody. Because Americans of the time
had to pay higher prices (as a percentage of income) for everything, they bought fewer things;
that means that businesses sold less and less, and therefore they had to lay off more and more
workers.
Laid-off workers bought even less. And more businesses failed or cut back on their labor force,
and for the next ten years America suffered the worst unemployment in its history -- largely or
entirely as a result of government actions that were supposed to save jobs.
There are those who will claim that Sowell's book is just "conservative free-market ideology."
But that's like claiming that gravity is just a matter of ideology. It's true that most people
believe fervently in gravity, whether they understand it at all.
But if we had a group that believed gravity was fundamentally unfair, that it's wrong for people
who step off cliffs or out of high windows to get mashed on the ground below, their strong
beliefs wouldn't change anything. Fairness has nothing to do with it -- it's simply how the
world works.
And if somebody writes a book refuting their anti-gravity arguments, the writer of that book is
not an "ideologue" -- because not just some but all the evidence supports his views.
That's nearly the situation with Sowell's Basic Economics: He readily agrees that the motives of
many people who have tried to "fix" the problems with various economies might have been
noble or humanitarian, but that doesn't change the way the laws of supply and demand work.
However, one thing that Sowell's book is not is "pro-business." The laws of economics are not
pro-business. In fact, businessmen hate the laws of economics because those laws don't "care"
whether any particular business has a profit or a loss. Losses benefit an economy exactly as
much as profits do.
That's because the job of markets in an economy is to allocate scarce resources that have
alternative uses. I emphasized that phrase because Sowell repeats it about two hundred times in
the book. It's the gravity of economics -- the inescapable underlying principle.
Let's say a company buys a scarce resource -- steel -- and then makes a car with it. The car
they make has to sell for $35,000 in order for them to repay all their costs and make a small
profit -- but other sellers make cars of that class that are good enough for most buyers at only
$30,000.
Maybe the more expensive car has features that make some buyers think the car is worth $35,000
to them. But there are few enough of them that the carmaker loses the economies of scale and
has to raise the price to $40,000. At that price, there are even fewer buyers ... and pretty soon the
company either cuts costs (removing features or improving methods), does a better job of
making their extras seem like necessities (advertising), or goes out of business.
For that company, it's a life-and-death matter. But for the economy as a whole, for the entire
nation, it makes no difference whatsoever whether the company goes out of business or stays in
business.
Because if they go out of business, the steel they were buying will be sold to somebody else, and
will be made into something else; or nobody will buy it, and so the cost of steel will go down for
everybody, so all the prices will fall.
What about the jobs of the people who worked for that company?
They will find other jobs, depending on the skills they have to offer. Their labor, too, is a scarce
resource that has alternative uses. Individually, they may take a real financial loss for a while --
but the economy as a whole may rise while their fortunes are, temporarily, falling.
Politicians and reporters love to concentrate on the people who are hurt by the failure -- or
relocation -- of a company or an industry, but they never grasp (or choose not to mention) that
the result of that company's or industry's collapse or relocation is lower prices for everybody
else.
It's good to be humane, and we are: Whereas in the 1800s, people caught up in such losses could
literally starve to death, we now have a safety net of welfare and unemployment benefits. In
essence, we put a tax on the whole economy to make sure that families caught up in the losses of
the free market do not actually die during the time of transition.
That's a good thing. But we mustn't forget that unemployment and welfare are a constant drain
and drag on the whole economy. That doesn't mean we shouldn't do them -- it just means that
we should recognize that just because some safety net is worth the cost we all pay doesn't mean
that more safety net will be worth its cost.
Basic Economics makes this all crystal clear. In fact, in pursuit of clarity, Sowell sometimes
becomes a bit repetitive -- the same examples pop up again and again, sometimes with almost
identical wording. But a bit of repetition doesn't hurt anybody.
The title of the book is clever and ironic -- once you've read the book. In advance, though, it
can sound like a textbook. Well, it could be a textbook -- for the very best high school or
college class you ever had.
Sowell doesn't start with the history of economics. He quotes economists all the way through
-- from Adam Smith to Karl Marx (who, it turns out, really did understand many of the laws of
economics, though his followers didn't). But he doesn't give you a history of economics until
the very end of the book.
Instead, he plunges right in with real-world examples, making the principles absolutely clear to
anyone who's paying attention. I listened to this book as a download from Audible.com. Yes, I
listened -- there were no diagrams, no charts, no statistics, no math.
Sowell is a brilliant thinker and a brilliant writer. He is perfectly capable of writing dense
scholarly books with exhaustive sourcing -- he deserves the high esteem in which real scholars
and scientists hold him, because he is rigorous, honest, and goes where the evidence leads.
With Basic Economics, however, Sowell knows he is writing, not to scholars, but to us -- the
woefully uneducated public. He knows we're being lied to all the time -- especially in election
years. He is telling us the truth so that we become politician-proof and media-proof. We'll
recognize the lies when we hear them; we'll question the sob stories and mock the fake outrage
over nonexistent "unfairness."
Does this mean that Sowell is right on every point? No -- I have a deep disagreement with one
of his fundamental value-premises. He takes the right of property as a sort of divine gift, never
to be questioned. The truth is that property is a social convention. It is an extremely useful
convention, born of the territorial imperative but extended to moveable property.
We can even call it a law: People will not spend the time and effort to do good work unless they
have a reasonable expectation that society as a whole will protect their ownership of the fruit of
their labor.
But the right of property is not absolute. When the rules of the game are set up so that certain
people are rewarded far beyond the perceived value of their work, then it's not immoral for
society to reevaluate the rules. Sowell, committed as he is to the benefits of free markets --
which are vast, make no mistake -- seems reluctant to concede that communities may decide to
put limits on the "right" to property in order to protect against the most brutal and the most
unbalanced results of free markets.
Sowell does concede the necessity for a nation to tax everyone in order to maintain a national
defense to prevent others from seizing or destroying the national economy. But he seems
skeptical of almost any other attempt by governments to infringe on the rights of property to
ameliorate the situation of all.
His skepticism is wise and right -- such attempts invariably have unintended consequences.
But there are situations -- child labor laws, basic safety regulations, protection for trade unions
-- where he is simply wrong when he asserts that markets do a better job than governments in
handling these issues.
The truth is that while government is often wrong about where it places the fence, it is not
wrong, evil, stupid, or ineffective to build fences around the free market -- for the good of the
whole.
The evil comes from the fact that once you put regulatory power in the hands of government,
those regulations will always be shifted again and again to benefit the few at the expense of the
many.
So while the economy was brutal back in the days when government intervened on the side of
business against labor unions, labor unions today are often counterproductive destroyers of the
very companies that provide their jobs.
Sowell's views are a powerful corrective to excesses in areas like child labor laws (do we really
need to ban adult-size teenagers from the job market, where they might learn a work ethic?) and
minimum wages (why should young workers who live with their parents, or immigrants who
accept lower living standards than most Americans because they're better than their home
country, be priced out of the market?) -- but we do know what happens when there are
no regulations in these areas, and that's the one area where Sowell seems to ignore or dismiss
history.
Markets don't care, just as gravity doesn't care. But communities must care. Sowell himself
eloquently explains that families don't function like markets -- we spend enormous resources on
protecting, providing for, and educating young unproductive barbarians called "children," and
then they grow up and leave, often having contributed nothing, ever, to the family economy,
except whatever value you place on their bright smiles (or rolling eyes).
Yet these families are far more important to most of us than anything we get from the economy.
Indeed, the primary motive for many or most people to put up with the risks and cruelties of the
marketplace is to benefit their very uneconomic families.
It is not wrong for us to wish our national economy to be a little more family-like and a little less
market-like. Sowell is right that we can easily go way too far in the familyish direction, so that
the economic pie shrinks drastically, to the detriment of all.
But we can also go too far in the direction of letting the markets have their way. Because the
economy also depends on the allegiance and the hope of its citizens, who are not mere producers
and consumers, but are human beings.
We must feel good about the economy as well as benefit from it. So while growth is good, and
we all benefit from it, we benefit most when we protect society's weakest members -- for only
then can we take pride and pleasure in our prosperity. Good people cannot bear an economic
system that destroys some, to the benefit of others.
That's why a safety net is worth the cost -- it allows the best people to fully commit to the
economy.
So as we watch the Mitt vs. Barack battle, and decide between them, it's too easy to think our
guy is all good, and their guy is all evil.
Right now, Obama has clearly gone too far, and intends to go farther, in the direction of killing
the economy for the sake of ineffective feel-good measures. But that does not mean Obama and
his supporters are either stupid or evil.
On the contrary, we would hate hate hate living in a nation with absolutely no fences around the
free market. I know we would, because we did live in that nation, and we hated it, and that's
why we passed those regulatory laws in the first place.
One could read Sowell and come away with the impression that there should be no fences. I
think he himself would immediately deny that he advocated any such course. But because he is
clearly arguing against socialism -- against the Left -- he sometimes overstates his case, and
leaves their case nearly unspoken.
It's about balance. It's time for the fence to be moved back -- but not torn down. We need to
elect grownups who will protect the right of property -- but also protect our sense of community
as family, where the weak are still protected.
Isn't that what Obama Care was all about? The desire not to let people suffer unfairly? The fact
is that markets do a better job of providing health care to most than any government can possibly
do, and in a market-driven health care system, we get far better care for everyone. That is true.
But it is also true that letting the market be the absolute arbiter of who gets health care and who
doesn't would be unbearable to our conscience, to our sense of ourselves as a people, as a
community.
That one reservation does not change the fact that it is impossible to make even the smallest
intelligent decision about the future course of America if we do not understand the laws and
principles of economics so clearly and effectively explained in Basic Economics.
Even if you already agree with everything Paul Ryan (the smartest man in Congress since
Patrick Moynihan died) is proposing, I urge you to read Basic Economics so that you will know
why he's right -- and you will be better able to explain it to your friends.
Of course, it will be almost impossible for you to vote for Obama or any Democrat running for
Congress if you read Basic Economics, because the Democratic Party has been wholly captured
by demagogues, who use the vocabulary of victimization and compassion for the private gain of
a few small groups, at the expense of us all.
But Republicans, as a group, are no better -- they just use different demagoguery. That's why I
urge everyone, Left and Right and Middle, to read Basic Economics -- so that as we make our
decisions as a nation, as a community, we will actually know what we're talking about.
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