Thomas Sowell recently released the fifth edition of his classic book, Basic Economics: A Common Sense Guide to the Economy. Along with Free To Choose, Economics in One Lesson, and The Road Serfdom, it offers perhaps the best distillation of free-market economic ideas. In the new edition, at least twice the size of the first, Sowell writes a new chapter on global inequality (think of it as a response to Thomas Piketty) and touches on a number of other contemporary political issues with his refreshingly clear style.
Sowell talked to The Federalist about today’s conservative reform efforts, the politicization of economics, his disagreement with mentor Milton Friedman, the complexities of immigration policy, and some of the government’s most destructive economic intrusions in everyday life.
The Federalist: The first edition of Basic Economics came out around 15 years ago. Do you sense that the public’s understanding of economics, generally speaking, has improved since then?
Thomas Sowell: Well, I would hope that the ones who read the book now have a better idea. People indicate that they do. Sales of the book, and the many translations, also indicate that there are people more interested in learning about economics. But in general, I don’t really think so. So, I guess, I’m not sure it’s worse than it was 30 or 40 years ago, but I’ve seen no visible improvement.
The Federalist: As policy becomes more complex, do you believe that economic ignorance is more likely to translate into bad politics?
Sowell: People in the political world have every incentive to say things that lead voters away from a clear economic understanding of issues. What has happened more and more is that organized groups have more and more reasons to say things that don’t make any economic sense. I am always appalled at people who come out, for example, and say: we need to have higher minimum wages so that the poor can have higher incomes. Well, of course, that just ignores the fact that increasing the minimum wage increases the level of unemployment among lower-income people. Among blacks for example, 16 or 17 year old blacks back in 1948 had an unemployment rate just under 10 percent. It has never been under 20 percent in last 50 years. And that’s simply because in 1948, the minimum was in effect repealed by inflation. And once you started escalating the minimum-wage level to keep up with that inflation, you priced more people out of the market. And now we have gotten used to black teenagers having an unemployment rate of 30 percent in good times and maybe 40 percent in bad times.
The Federalist: When I first began writing about politics—and maybe this is just my perception—there seemed to be more consensus among economists. And one thing most of them agreed on was that minimum wages end up killing jobs. Now, all it takes is a partisan think tank to conduct a single study and the entire dynamics of a debate change. Has economics become more ideological?
You mention a very good source of confusion: People have a vested interest in promoting one set of polices rather than finding out what the truth is. In fact, in Basic Economics I go into why some of the studies of minimum wage tend to suggest that it really doesn’t reduce unemployment. One way of doing this, for example, is surveying a group of employers in a given industry before the minimum wage goes up and then, at a later time, after it has gone up and you survey them again and you find out that there hasn’t been any noticeable change. One of many problems with survey research in general is that you can only survey the survivors. In other words, if you were to do a survey of people who were known to have played Russian Roulette and you sent out the questions before the time they were going to play and then you come back six months after they played Russian Roulette, you would probably discover that among the people who did come back there was no harm done.
The Federalist: Even if studies unanimously found that the minimum wage was a bad idea, voters might still feel comfortable being charitable with other people’s money. It allows us to feel like we’ve done something moral. What’s the worst well-meaning economic policy we support?
Sowell: Oh my, I would say certainly the subsidizing of teenage girls who get pregnant. First of all, let’s just think about a teenage girl who has straight As in school and is planning to go to MIT or Harvard. She has a lot to lose by getting pregnant. Then think of a kid in another community; a kid who has either hardly gotten through school or has not paid any attention education so she finally drops out of school. She has every incentive to get pregnant. You not only hurt society as a whole but you especially hurt the kid, because you are going to load down that generation with kids raised by a teenage dropout mother that often has no father.
The Federalist: So how exactly does government subsidize that behavior?
Sowell: Oh heavens, very simply … for example, my sister was often kidded by her daughter that ‘you taught me never to get pregnant before I got married.’ But, she said, ‘My classmates who did get pregnant have the government paying for two-bedroom apartments and all I can afford is a studio. You know, so I’m worse off than they are.’ Government encourages that behavior. And it’s deadly, especially with the community that’s involved. Years ago it was pointed out that among black military personnel who failed the military mental tests the majority came from families with four or our more children. Now among successful blacks, as well as among successful whites, you seldom see families of more than four children. Teenage girls are having four or more kids. Those kids are her meal ticket. You’re not going to find many people in high professions having four children. And now what you’re doing is loading down the black community with more children than they would have had in the absence of this government policy.
The Federalist: What about the idea of a universal basic income instead of the welfare system we know have? Would that change incentives?
Sowell: Well, Milton Friedman was an advocate of the negative income tax. It’s one of the few things he said that I have real questions about. First of all, as a practical political matter you’re not going to be able to substitute it for welfare. You are going to add it on to welfare. You will not have solved any of the problems that welfare creates. You will simply have made it even less likely that people on welfare will return to a productive life.
The Federalist: Many reform movement conservatives would like to expand the child-tax credit rather than eliminating the payroll tax. Should we incentivize people to have more children?
Sowell: Well, I guess if you’re going to have an allowance for cost of raising children in your tax code, it is better for it to be a realistic allowance than one that is really not going to allow you to raise the kid decently. On the other hand, I tend to be very skeptical of any earmarked exceptions to the tax code. I think one of the terrible things about the tax code as it is that politicians have every incentive to release this group or that group from the coverage. And all this does is just distort incentives. I mean, it’s difficult to explain exactly why this is problematic in the allocation of resources. At best, nothing should be specially taxed and nothing should be specially subsidized.
The Federalist: So that goes for children as well? No tax breaks for parents?
Sowell: In a perfect tax system you would not have that. If people would want to have children they would take into account the full cost of raising those children. Just as if people want to live in some remote mountain village they would take into account the extra cost of doing that. They would have to consider the cost of delivering their mail. The cost of receiving electricity and dealing with sewage and water, and so forth. All of which is astronomically higher when you have run lines out to remote areas where very few people live. Compare that, to say, running one line into a 20-story apartment building in New York where there are thousands of people living.
The Federalist: You blame many of the problems of poverty in minority communities on Great Society programs. Is there any realistic or practical way to reform programs that are now generational?
Sowell: Of course you can, but that doesn’t mean you will. Remember it was during the Clinton administration that a work requirement was added to welfare. And it had the opposite effect that people said it would—you know, that it would cause great suffering and so forth among the poor. Child poverty in the United States declined after the work requirement was put in there. People realized that they had to work and people went out and worked and they got off welfare.
I recently learned about a man who has a secretary who asked him if she could work four days instead of five. And the reason she gave was: she has all kinds of government benefits, and that fifth day put her above the income level that would cause her to lose those benefits. So he let her work four days. And, eventually, she quit completely. Under the laws that are evolving she was getting less from the hours she was working than she would from government. Another way of saying the same thing is: if people who get on welfare—even if they are legitimately there for something they have no control over, like they have a terrible disease or they lost their job—going back to work would, initially, at least, mean losing money.
The Federalist: Turning to a broader question, what is your take on quantitative easing? Has it worked? Are American fears of inflation overdone?
Sowell: The short answer is that we’ve tried it for years and it doesn’t work. And the dyed-in-the-wool Keynesians will always say it wasn’t tried enough. Well great, that’s one of those heads-I-win-tails-you-lose situations. No matter how much you bankrupt the country you can still say it wasn’t tried enough. The track record of that approach is extremely poor. Fortunately there is a recent book that came out about the 1921 depression. When Warren Harding took over the unemployment rate was 12 percent. Warren Harding did nothing. The next year it was 6 percent. Warren Harding still did nothing. The year after that it was down around 4 percent. So the idea that the government has to intervene to get the economy to recover is wrong. The economy of United States recovered from depressions for 150 years without the federal government intervening. The first time the government had to intervene was in 1930, during the Hoover administration that set into motion some of the ideas that were later expanded during the Roosevelt administration. That led to the worst depression in American history. There have been scholarly studies in more recent years have found that the government policies during the Great Depression prolonged that depression by years.
The Federalist: Do you believe the slow recovery was predominately driven by the interference rather than the economic conditions?
Sowell: Yes, absolutely.
The Federalist: So then if you were leading the Senate and House what sort of policies would you send to the president’s desk? And I assume all of them would be vetoed.
Sowell: Indeed. A complete repeal of Obamacare. A drastic cutback in the powers of the regulatory agencies. A reduction in the tax rates on businesses. People don’t understand that tax rates do not bring in income. Tax rates may bring in votes for people who enjoy class warfare, but high tax rates beyond a certain point tend to bring in less revenue than lower tax rates. This is true especially nowadays when we have an international economy. So you jack up the costs on a business, they can either move to Canada or move billions overseas. So in the end they often collect less money under high rates. And at the same time workers lose jobs because workers can’t go overseas as fast as money can be transferred electronically overseas.
The Federalist: What about immigration policy? Let’s discount how Obama went about changing law, but do you generally share the libertarian view of an open immigration policy?
Sowell: No, I don’t. I don’t believe we’re going to have any effective immigration policy until we first control the borders. If you don’t control the borders, it doesn’t matter what immigration laws you have. I mean, they don’t mean anything but words on paper. You may desire a certain kind of immigration policy, but that’s not what’s going to cross the border.
The other thing I hate hearing are immigrants being discussed in the abstract. There are no abstract immigrants any more than there are any other abstract people. There are groups from some countries where virtually no one goes on welfare when they get here and there are groups from other countries where a major part of their population is on welfare. So if we want to select who wants to come in we have to control the border. I mean, 100 years ago when they were discussing immigration there was a major multi-volume study about how the children of various immigration groups do in this country. How many people end up on welfare from different immigrant groups? They found out what the crime rates are from different immigrant groups. We don’t talk about any of that nowadays. We talk about them as if they are all just one big blob and if you’ve seen one immigrant you’ve seen them all.
Sowell: Of course. The very people Obama, and people who think like him, want in here are exactly the people who are more likely to go on welfare, or to have low incomes so they can be client of the welfare state.
The Federalist: My parents were immigrants from Eastern Europe. At some point in the process they had to sign a paper promising not to ask the government for help. I assume that’s not the case anymore.
Sowell: It exists on paper. That was the general method under which the vast majority of European immigrants came to this country. And it wasn’t just a matter of saying so, he had to offer some evidence that he had a job or that someone would vouch that they would take care of the immigrant and so on. Yes, if you work immigration like that, you are going to get a different mix of people than if you let anyone just walk across the border and sign up for welfare. In Mexico, the government is telling people how they can get on welfare in the United States.
The Federalist: In Basic Economics you’ve written a new chapter on global inequality, an issue the Left has spent a lot of time talking about recently. Do we have inequality problem in this country? Even if everyone is doing better, does a big gap between rich and poor hurt society as a whole?
Sowell: Many people believe in eliminating gaps and eliminating poverty. They don’t realize that in some sense those two things are antithetical. If you were to double everyone’s income, or if everyone’s income were doubled naturally over the course of time, then you would reduce poverty significantly but you would have also increased the gap. Now, I think the guy who is having trouble feeding his family and paying the rent is not going to complain if his income doubles over time, even though that means he is further below the Rockefellers than he was before. When my life was saved by a surgeon a couple of years ago, I did not worry myself about how much money he was making.