Thomas Sowell turns ninety

Happy 90th birthday (June 30) to Thomas Sowell, one of the greatest living economists, which begins:

One of my two all-time most favorite economists — Thomas Sowell — turns 90 tomorrow, he was born on June 30, 1930. Here is Thomas Sowell’s webpage and here is his Wikipedia entry. Milton Friedman (my other all-time favorite economist) once said, “The word ‘genius’ is thrown around so much that it’s becoming meaningless, but nevertheless I think Tom Sowell is close to being one.”

In my opinion, there is no economist alive today who has done more to eloquently, articulately, and persuasively advance the principles of economic freedom, limited government, individual liberty, and a free society than Thomas Sowell. In terms of both his quantity of work (49 books and several thousand newspaper columns) and the consistently excellent and crystal-clear quality of his writing, I don’t think any living free-market economist even comes close to matching Sowell’s prolific record of writing about economics.

And while no one else unfortunately understands how he was able to become the economist he became, let me point out that his PhD was on Say’s Law and two of his earliest books were on Say’s Law and Classical Economic Theory. Nor was that just an early part of his career, but he came back to Classical Theory again in 2006.

Sowell, Thomas (1972), Say’s Law: A Historical Analysis, Princeton University Press, ISBN 978-0-691-04166-7.

——— (1974). Classical Economics Reconsidered. Princeton University Press. ISBN 978-0691003580.

——— (2006). On Classical Economics. New Haven, CT: Yale University Press. ISBN 978-0-300-12606-8.

And on this, let me add to what Currency Lad has already written on it’s always our money, via Adam Creighton. Money is a metaphor – probably actually a synecdoche – for the word resources. If you use the word “money” you can be deceived by government spending since a government can always print more of the stuff. Resources, actual labour and capital, are much harder to come by. Here is the point made by Adam Smith in 1776:

Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands.

That, by the way, is from the chapter “On the Accumulation of Capital, or of Productive and Unproductive Labour”. There is more sense in that chapter than in the whole of a modern economics text. It is Thomas Sowell amongst a very few others who is keeping that tradition alive.

If you are looking for a modern discussion of classical economic theory, and amongst other things a discussion of productive and unproductive labour, might I recommend my own Classical Economic Theory and the Modern Economy which has just been published.

People on the left never disagree with each other

As near as I can tell, people on the left never disagree with each other. They certainly disagree with people on the right, but other than in relation to to all the things they all agree about amongst themselves, where are the internal debates so that you can find examples of one person on the left saying something that another person, still on the left, disagrees with, and yet both remain on the same side of politics.

On the left there is a single acceptable position and after that, no deviation is permitted. That they believe themselves to be critical thinkers is only because they all collectively disagree with people who disagree with any element of the common set of beliefs.

One does not have to be on the left to believe that climate change is a problem. Or that gay marriage should be legal. Or that many aspects of the market economy are unacceptable. Or that Donald Trump is not a nice person. On the right, all these are open for debate. On the left, they are fixed positions, in no sense open for discussion.

This is a depiction of conservatism as I see it, written by Irving Kristol. Titled The right stuff, it explains the difference between the conservative perspective in the US and in the UK. Being from the New World myself, and Australians fit into this pattern as well, I find myself siding here with Kristol.

Conservatism in the US today is a movement, a popular movement, not a faction within any political party. Although most conservatives vote Republican, they are not party loyalists and the party has to woo them to win their votes. The movement is issue-oriented. It will happily combine with the Republicans if the party is “right” on the issues. If not, it will walk away. This troubled relationship between the conservative movement and the Republicans is a key to the understanding of American politics today. The conservative movement is a powerful force within the party, but it does not dominate. And there is no possibility of the party ever dominating the movement.

American conservatism after the second world war begins to take shape with the American publication of Hayek’s The Road to Serfdom in 1943 and the founding in 1955 of William F Buckley’s National Review. Previously, there had been a small circle who were admirers of the Jeffersonian, quasi-anarchist, teaching of the likes of Albert Jay Nock, but no one paid much attention to them. Hayek’s polemic against socialism did strike a chord, however, especially among members of the business community. There may have been people converted from statism to anti-statism by that book, but my impression is that most admirers of the book were already pro-free market. What Hayek did was to mobilise them intellectually, and to make their views more respectable.

I will take you to the final para which seems more relevant today than when it was first written in 1996.

The US today shares all of the evils, all of the problems, to be found among the western democracies, sometimes in an exaggerated form. But it is also the only western democracy that is witnessing a serious conservative revival that is an active response to these evils and problems. The fact that it is a populist conservatism dismays the conservative elites of Britain and western Europe, who prefer a more orderly and dignified kind of conservatism. It is true that populism can be a danger to our democratic orders. But it is also true that populism can be a corrective to the defects of democratic order, defects often arising from the intellectual influence and the entrepreneurial politics, of our democratic elites. Classical political thought was wary of democracy because it saw the people as fickle, envious and inherently turbulent. They had no knowledge of democracies where the people were conservative and the educated elites that governed them were ideological, always busy provoking disorder and discontent in the name of some utopian goal. Populist conservatism is a distinctly modern phenomenon, and conservative thinking has not yet caught up with it. That is why the “exceptional” kind of conservative politics we are now witnessing in the US is so important. It could turn out to represent the “last, best hope” of contemporary conservatism.

Whether it is the best hope or not is uncertain, but that it may be the last hope is looking all to possible all the time.

“Our political class just needs to just get the hell out of the way”

This was posted first at Powerline and then at Instapundit.

APRIL 28, 2020

I, MECHANICAL PENCIL: Why a socialist economy can never work.

This followed the posting by Steve Hayward about how difficult things might be to re-start after the compulsory shutdown which is disrupting so many markets in so many novel ways: “WHAT HAPPENS IF WE BREAK THE PENCIL?”. This is the point he was making.

I don’t think our political class in Washington or the state capitols have the slightest idea of how they have disrupted the workings of our economy beyond the mere measure of the (huge) number of people filing for unemployment, which they think can be fixed simply by printing more money and sending out checks….

Contemplate the effects the shutdown is having on the millions of daily decisions made by producers and consumers alike. Maybe our political class just needs to just get the hell out of the way.

On a cost-benefit basis, the entire shutdown process has already turned out to be economic monstrosity: such a fantastically high cost – so few benefits (have there actually been any?). But if these same people start using the restarting of our economies as an excuse to add a few more of their favourite “stimulus”-type schemes, the costs will be magnified many times over.

The point of “I, Mechanical Pencil”, as well as its predecessor, “I, Pencil”, was to emphasise governments know nothing about how to direct economic activity or have the slightest idea how to choose projects that raise living standards and hasten economic growth. Seriously, would you want Scott Morrison to start funding his favourite projects? Or any of the state premiers any of theirs? More streetcars, say, or rail projects, perhaps? How bout pumping water up hill?

What is most notable to me about “I, Mechanical Pencil” is how difficult the point it makes is to understand, and how easy it is to ignore since most people never get the point. I will just say again, that if anyone actually believes an economy is driven forward by aggregate demand, they are as ignorant as the day is long about what it takes to make an economy grow.

Why isn’t it embarrassing to be a Democrat?

How to structure public spending so it actually does some good

I have an article up at the American Institute for Economic Research explaining how idiotic a “stimulus” at this time is: A Classical Economic Response to the Coronavirus Recession. It takes as read that we are going to have a massive amount of public spending, and given that as the certainty, how to do it with minimal economic damage. That we are even having a lock-down is also taken as read since others have already made that decision. This is the central point made in the article.

Let me take you back to the economics before Keynes, to when economists understood the nature of the cycle.

Recessions in those days were rightly understood as due to structural faults in the economy. A recession occurred when the bits did not properly mesh. Some parts of the economy were no longer able to run at a profit because of structural changes in the economy, sometimes on the demand side but more often on the supply side. There, therefore, needed to be some shifts in the entire apparatus of production. What turned the adjustment process into a recession occurred when the adjustment process required was too large to occur as in normal times when as one business would close down another would open.

During recessions, for whatever the reason might be, the number of businesses closing would exceed the number opening, and along with the slowing of production in total, there would be a rise in unemployment. If ever there has been a downturn that cannot in any way be explained as a fall in demand it is the forced closures that have followed the coronavirus panic. The downturn is entirely structural in nature. That is why when I hear discussions of the need for a stimulus I am even more than usual amazed at how beyond sense economic policy has become. What is needed, and what is largely being done, are measures to hold both capital and labour in place until the closures are brought to an end.

The last thing we need now is a Keynesian-type “stimulus” where government spending on wasteful junk takes over from actual productive firms.

But the policy everywhere is never let a crisis go to waste. It is not you and me the political class are thinking about, but themselves in how they can use the crisis to benefit themselves. You just have to hope against all likelihood that the damage done is kept to a minimum.

A sampler of the politics of The Atlantic

If you are interested in the politics of The Atlantic, let me present you with the final paras of this long and astonishingly inane article which I have just received: How the Pandemic Will End.

One could easily conceive of a world in which most of the nation believes that America defeated COVID-19. Despite his many lapses, Trump’s approval rating has surged. Imagine that he succeeds in diverting blame for the crisis to China, casting it as the villain and America as the resilient hero. During the second term of his presidency, the U.S. turns further inward and pulls out of NATO and other international alliances, builds actual and figurative walls, and disinvests in other nations. As Gen C grows up, foreign plagues replace communists and terrorists as the new generational threat.

One could also envisage a future in which America learns a different lesson. A communal spirit, ironically born through social distancing, causes people to turn outward, to neighbors both foreign and domestic. The election of November 2020 becomes a repudiation of “America first” politics. The nation pivots, as it did after World War II, from isolationism to international cooperation. Buoyed by steady investments and an influx of the brightest minds, the health-care workforce surges. Gen C kids write school essays about growing up to be epidemiologists. Public health becomes the centerpiece of foreign policy. The U.S. leads a new global partnership focused on solving challenges like pandemics and climate change.

In 2030, SARS-CoV-3 emerges from nowhere, and is brought to heel within a month.

It’s all politics on the left. Saving lives is the last thing on their minds.

A test of common sense, civility and courage

The harm to our economies and our way of life because of the over-reaction to the Corona Virus is discussed today by Henry Ergas in The Australian: Coronavirus: It will be unhealthy to ignore the cost of all this.

While the response of federal and state governments to the spread of COVID-19 is understandable, there must be a danger of going too far.

To say that is certainly not to recommend an attitude of benign neglect. Nor is it to ignore the fact these are decisions being taken in the depths of uncertainty, where risks are hard to measure and errors could lead to disaster.

But it is no less a fact that some 430 people die in this country every day, so that since the beginning of the year there have been almost 37,000 deaths, of which 12 are due to the coronavirus.

And it is also a fact that, every day, decision-makers around Australia take decisions that balance life and death: not merely by determining how much we should spend on public health but also by assessing whether to spend taxpayers’ funds on making roads safer, reducing the risk of fires or strengthening the emergency services.

Inevitably, those decisions involve trade-offs: they require us to assess how much we are willing to give up so as to prevent a person dying sooner than they otherwise would.

He puts his finger right on the problem, that every life matters and if we can save but one life, etc etc etc.

It is undoubtedly true that decisions that involve balancing lives and costs are far easier to take when the life at issue is not likely to be your own. It is one thing to think in terms of trade-offs when those who will be affected are anonymous draws from a large population and quite another when it is a matter of family and friends.

But that is precisely why we so often delegate these decisions to others, from the physicians who assess whether it is worth undertaking a procedure on a grievously ill patient to the institutions that select, out of the many who desperately need them, the few who will receive donated organs.

These are tragic choices, and we know that they will be better taken at a distance, dispassionately weighing the consequences.

He finishes with this:

This crisis is … a test of common sense, civility and courage: the common sense to avoid taking decisions that we may regret for decades to come; the civility, in the term’s old meaning of “civil righteousness”, to be mindful of what we owe each other and prudent before inflicting costs on people who will struggle to bear them; and most of all, the courage to calmly confront, and ultimately defeat, an enemy who, as the Treasurer put it, flies no flag and has no face.

That enemy is deadly enough. It would be a disgrace if we made the harm it wreaks even greater than it needs to be.

Whenever this panic comes to an end and we return to something like normal, this will be remembered as a very odd episode in our history, along the lines, I believe, with the Salem Witch Trials from the supposed Dark Ages of our past.

Trying to grow a flower by watering its petals instead of its roots

This is the best article on Keynesian economics I have ever come across, by David Weinberg and published in The Federalist: Why Economic ‘Stimulus’ Only Makes The Economy Worse. His summary statement captures his point perfectly:

While it remains a favorite policy prescription for politicians eager to appear as salvific heroes in times of need, it is untenable as a serious idea to stimulate anything except our national debt.

I could not recommend any article more. You should read it all, every word. There is a lot in it, but this was my favourite part:

The reality is that Keynesian policy fails for the simple reason that it targets the wrong problem. Production drives economic growth and creates an equal flow of demand. Demand is thus the consequence of production, not the other way around.

Successfully growing an economy, then, requires targeting production, not aggregate demand. Indeed, trying to grow the economy by targeting demand rather than production is like trying to grow a flower by watering its petals instead of its roots.

Here’s how his article relates to current policy.

In light of these numerous historical blunders, it is a wonder anyone takes Keynesian fiscal policy seriously anymore. Yet policymakers and politicians remain wedded to the model, as the current fury to rush through spending packages attests.

Now, lest the message here be misconstrued, this is not necessarily an argument against relief as a humanitarian measure in the midst of an economic meltdown resulting from governments around the world forcing businesses, communities, cities, states, and even entire countries to close down. This is a government-created economic disruption to deal with a public health concern.

Under these unique circumstances, there is certainly a case for providing targeted assistance. But we must not be fooled into believing that relief serves as economic “stimulus,” and nor can we ignore the fact that, beyond humanitarianism, there is no shortage of advocates calling for plain old demand-side fiscal stimulus. In that regard, there is little doubt that any Keynesian bill will blunt its drill on the same hard economic truth that stymied past demand-side exercises.

I can only hope the message spreads wider and deeper. It ought by now be obvious given the universal failures of public sector spending in the past.