Economic Facts and Fallacies (Basic Books; 2008)
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Economie Facts and Thomas Sowell Author of Basic Economics $26.00 US / $31.50 CAN w economic Facts and Fallacies is designed for m T people who want to understand economic issues M # without getting bogged down in economic jargon, graphs, or political rhetoric. 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. Economic Facts and Fallacies 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 (and sometimes humorous). Written in the easy to follow style of the author's Basic Economicsy this latest book is able to go into greater depth, with real world examples, on specific issues. Thomas Sowell has taught economics at Cornell, UCLA, Amherst, and other academic institu tions, and his Basic Economics has been translated into six languages. He has written books and articles on a wide range of other social issues as well. During his career Dr. Sowell has been an economist in government, in private industry, and in independent research organizations ("think tanks"). The honors he has received include the National Humanities Medal, the Bradley Foundation Prize, and honorary degrees from various academic insti tutions. He is currently a scholar-in-residence at the Hoover Institution, Stanford University. 12/07 ECONOMICS PRAISE FOR Economic Facts and Fallacies "Simply on the basis of the byline, I read everything Thomas Sowell writes. And it keeps me busy because he writes a lot. But I'm always richly rewarded, as I was once again when I picked up Economic Facts and Fallacies. Sowell is fearless and invariably so far ahead of the curve in discussing economics or politics or pretty much anything that the rest of us are left with eating his intellectual dust. I cant think of a higher compliment than that." — FRED BARNES, Executive Editor of the Weekly Standard and co-host of The Beltway Boys on Fox News Channel uEconomic Facts and Fallacies is the kind of book lesser lights would have labored for years to produce. Full of pithy and useful data, and imbued with the wisdom of a lifetime of eco nomic analysis, this is another home run for the sage of Palo Alto." — MONA CHAREN, nationally syndicated columnist $26.00 US/$31.50 CAN ISBN-13: T76-0-HbS-0D3MT-S ISBN-10: 0-HtS-0D3MT-M 5 2 6 0 0 A Member of the Perseus Books Group www.basicbooks.com 9ll780465llQQ3495l Economie Facts and Fallacies ECONOMIC FACTS AND FALLACIES THOMAS SOWELL BBASIC BOOKS A Member of the Perseus Books Group New York Copyright © 2008 by Thomas Sowell Published by Basic Books, A Member of the Perseus Books Group All rights reserved. Printed in the United States of America. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. For information, address Basic Books, 387 Park Avenue South, New York, NY 10016-8810. Books published by Basic Books are available at special discounts for bulk purchases in the United States by corporations, institutions, and other organizations. For more information, please contact the Special Markets Department at the Perseus Books Group, 11 Cambridge Center, Cambridge MA 02142, or call (617) 252-5298 or (800) 255-1514, or e-mail [email protected]. Library of Congress Cataloging-in-Publication Data Sowell, Thomas, 1930- Economic facts and fallacies / Thomas Sowell. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-465-00349-5 (alk. paper) ISBN-10: 0-465-00349-4 (alk. paper) 1. Economics. I. Title. HB171.S7133 2008 330—dc22 2007041653 10 9876543 Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence. John Adams Hi CONTENTS Preface vit 1. The Power of Fallacies 1 2. Urban Facts and Fallacies 12 3. Male-Female Facts and Fallacies 55 4. Academic Facts and Fallacies 87 5. Income Facts and Fallacies 124 6. Racial Facts and Fallacies 153 7. Third World Facts and Fallacies 188 8. Parting Thoughts 217 Notes 223 Index 249 V Preface Some things are believed because they are demonstrably true. But many other things are believed because they are consistent with a widely held vision of the world— and this vision is accepted as a substitute for facts. Subjecting beliefs to the test of hard facts is especially important when it comes to economic beliefs because economic realities are inescapable limitations on millions of people's lives, so that policies based on fallacies can be devastating in their impacts. Conversely, seeing through those fallacies can open up many unsuspected opportunities for a better life for millions of people. This book, like others of mine, owes much to my two extraordinary research assistants, Na Liu and Elizabeth Costa. They not only found much material that I asked for, they often brought to my attention valuable material that I had not asked for. In addition, Ms. Costa did the copy editing and Ms. Liu created the computer files from which this book was printed. vu Chapter 1 The Power of Fallacies Never underestimate the difficulty of changing false beliefs by facts. Henry Rosovsky1 allacies are not simply crazy ideas. They are usually both plausible and Flogical— but with something missing. Their plausibility gains them political support. Only after that political support is strong enough to cause fallacious ideas to become government policies and programs are the missing or ignored factors likely to lead to "unintended consequences," a phrase often heard in the wake of economic or social policy disasters. Another phrase often heard in the wake of these disasters is, "It seemed like a good idea at the time." That is why it pays to look deeper into things that look good on the surface at the moment. Sometimes what is missing in a fallacy is simply a definition. Undefined words have a special power in politics, particularly when they invoke some principle that engages people's emotions. "Fair" is one of those undefined words which have attracted political support for policies ranging from Fair Trade laws to the Fair Labor Standards Act. While the fact that the word is undefined is an intellectual handicap, it is a huge political advantage. People with very different views on substantive issues can be unified and mobilized behind a word that papers over their differing, and sometimes even mutually contradictory, ideas. Who, after all, is in favor of unfairness? Similarly with "social justice," "equality," and other undefined terms that can mean wholly different things to different individuals and groups— all of 2 Economie Facts and Fallacies whom can be mobilized in support of policies that use such appealing words. Fallacies abound in economic policies affecting everything from housing to international trade. Where the unintended consequences of these policies take years to unfold, the effects may not be traced back to their causes by many people. Even when the bad consequences follow closely after a given policy, many people may not connect the dots, and advocates of policies that backfire often attribute these bad consequences to something else. Sometimes they claim that the bad situation would have been even worse if it had not been for the wonderful policies they advocated. There are many reasons why fallacies have staying power, even in the face of hard evidence against them. Elected officiais, for example, cannot readily admit that some policy or program that they advocated, perhaps with great fanfare, has turned out badly, without risking their whole careers. Similarly for leaders of various causes and movements. Even intellectuals or academics with tenure stand to lose prestige and suffer embarrassment when their notions turn out to be counterproductive. Others who think of themselves as supporters of things that will help the less fortunate would find it painful to confront evidence that they have in fact made the less fortunate worse off than before. In other words, evidence is too dangerous— politically, financially and psychologically— for some people to allow it to become a threat to their interests or to their own sense of themselves. No one likes to admit being wrong. However, in many kinds of endeavors, the costs of not admitting to being wrong are too high to ignore. These costs force people to face reality, however painful that might be. A student who misunderstands mathematics has little choice but to correct that misunderstanding before the next examination and someone in business cannot continue losing money indefinitely by persisting in mistaken beliefs about the market or about the way to run a business. In short, there are practical as well as intellectual imperatives to see through fallacies. The difference between sound and fallacious economic policies by a government can affect the standard of living of millions. That is what The Power of Fallacies 3 makes the study of economics important— and the exposure of fallacies more than an intellectual exercise. There are far too many fallacies to list them all. However, we can sketch four widespread kinds of economic fallacies here and investigate more specific fallacies in detail in the chapters that follow. These four widespread kinds of fallacies may be called the zero-sum fallacy, the fallacy of composition, the chess-pieces fallacy, and the open-ended fallacy.