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No one disputes the fact that economics is an important social science. Unfortunately, many people lack a basic understanding of it because of fallacies disseminated by politicians and the media. Thomas Sowell has separated truth from myth in a highly readable, non-polemical look at some common assumptions in economics today. Economic Facts and Fallacies is a tour de force of incisive reasoning. Sowell’s preliminary discussion deals with the nature of fallacy. "Fallacies are not simply crazy ideas. They are usually plausible…but with something missing. Their plausibility gains them political support." Certain types of urban planning illustrate the third and fourth fallacies. The government is supposed to compensate those whose property it takes, but typically it compensates for the value of what it takes rather than the value of what the property owner has lost. A property owner loses much more than a building: he also loses his clientele. The government extends this lack of respect for property rights when it seizes tracts of open space and declares them unavailable for new buildings. As a result, housing prices rise sharply. Sowell then turns to fallacies about men and women. Women usually earn less money than men, but this disparity is not based on employer discrimination. Rather, the demands of marriage and child-rearing—stemming from both innate biological differences and widespread patterns of behavior—make women more likely to work part-time and choose jobs with more regular hours that do not pay as well. When the incomes of unmarried men and women of similar education, work experience and occupation are compared, there is no difference. Different economic incentives also affect universities: because most are nonprofit organizations, they do not have to deal with the same constraints as businesses and consequently engage in more abuses. A business must provide what its customers want, but a university like Harvard, which gets 85% of its income from endowment rather than tuition, can spend that extra money any way it likes. Moreover, the tenure system protects professors from accountability to students. Economic Facts and Fallacies details many other ways monetary incentives affect people’s decisions and pierces through confused thinking about race, income and Third World countries. The greatest fallacy in our time, Sowell contends, is to assume that people should be the same when there is no reason to expect sameness. Anyone interested in the long march of conservatism over the last half-century will find this book indispensable and very hard to put down. (Basic Books, 2008, 262pp, $26) |
Sowell details four kinds of general economic fallacies: first, that what is gained by someone is lost by someone else; second, that what is true of a part is true of a whole; third, that individuals can be treated like chess pieces by social experimenters; and fourth, that if a thing is desirable, we should try to get it without regard to its cost. These errors have spawned a host of mistaken government policies.
