Economic Facts and Fallacies by Thomas Sowell

ECONOMIC FACTS AND FALLACIES
ECONOMIC FACTS AND FALLACIES

In Economic Facts and Fallacies, Thomas Sowell exposes some of the most popular fallacies about economic issues in a lively manner that does not require any prior knowledge of economics. These fallacies include many beliefs widely disseminated in the media and by politicians, such as fallacies about urban problems, income differences, male-female economic differences, as well as economic fallacies about academia, about race, and about Third World countries.

Sowell shows that fallacies are not simply crazy ideas but in fact have a certain plausibility that gives them their staying power–and makes careful examination of their flaws both necessary and important.

“Some things are believed because they are demonstrably true,” Sowell tells us at the outset of his book. Other things, however, are believed simply because they fit with certain preconceptions. Economic policies based on fallacies instead of facts can have devastating impacts on the lives of millions of people, especially the most vulnerable. Seeing through those fallacies is of crucial importance for anyone who wants to move beyond good intentions and actually help their fellow human beings.

In his introductory chapter, Sowell sketches out four common, general fallacies that crop up again and again in a variety of contexts. First is the zero-sum fallacy, in which one person’s gain is thought to entail another person’s loss. This is belied by the hundreds of millions, if not billions, of voluntary exchanges that take place on this planet every day, with each party to each exchange benefiting. Why else would they voluntarily participate? Second is the fallacy of composition, in which what is true of a part is thought to be true of the whole. If subsidizing one person helps that person, then subsidizing everyone will help everyone, right? Third is the chess-pieces fallacy, in which social planners imagine they can arrange human beings like pawns on a game board. Human beings, of course, have their own designs, which can conflict with the plans of social experimenters—and the uncertainty caused by constant social experimentation can lead to many unintended consequences. Fourth is the open-ended fallacy, where desirable things are advocated without regard for the fact that, at any given time, resources are limited, and that there are always tradeoffs to be made between desirable alternatives. Safety is great, for instance, but safety at all costs would make air travel (and car travel, for that matter) grind to a halt.

The chapters that follow provide many examples of these and other fallacies, testing them against the hard evidence of history and economics. Many of the common but erroneous assumptions discussed are not only examples of group think, but are related to how we think about certain groups of people, whether delineated by gender, class, or race. Just as a sample of the many counter-intuitive findings contained in the three chapters devoted to these groups, we learn, for instance, that even before affirmative action kicked in, single women in the United States “who had worked continuously since high school were in 1971 earning slightly more than men of the same description.” It is largely the choices women tend to make—to work less or to interrupt their work in order to support their husbands’ careers, and to bear and rear children—that account for the lower pay they receive on average.

With regards to the persistence of class differences, Sowell points out how misleading it is, for instance, to point to the fact that household incomes are stagnating when the number of people per household is falling—a fact which is itself a mark of rising living standards. Also very important when thinking about the “haves” and the “have nots” of the developed world (which Sowell quips would today more accurately be labelled the “haves” and the “have lots”) is the great social mobility that exists even in an imperfectly capitalist society. In a study that followed tens of thousands of individuals for many years, Sowell tells us, “Among individuals who are actively in the labor force, only 5 percent of those who were in the bottom 20 percent in income in 1975 were still there in 1991.” This is all the more significant when compared with the 29 percent of those in the bottom 20 percent in 1975 who had risen to the top 20 percent by 1991.

 

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Economic Facts and Fallacies by Thomas Sowell
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