Montreal, June 15, 2008 • No 257




Bradley Doucet is a writer living in Montreal. He has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also is QL's English Editor.




by Bradley Doucet

          I won't keep you in suspense about my verdict: everyone should read this book. I only hope it can find a fraction of the readership of a blockbuster like Freakonomics or even a mere bestseller like The Undercover Economist. Like both of those books, Thomas Sowell's latest offering seeks to demystify economics for the educated layperson, digging beneath the surface to uncover deeper truths about the world in which we live. Economics, like physics, is often counterintuitive. Sowell helps us separate out, as the title of his book announces, facts from fallacies.


          What his book lacks in sex appeal (and with a plain black and white cover and unimaginative chapter titles, it is a lot less glitzy than the other two books mentioned above) it more than makes up for in pertinent information. I really do not want to knock those other successful, enjoyable, and informative books—the more people learn about economics, the better—but whereas Levitt and Dubner devote significant pages to minutia like baby names, sumo wrestlers, and game show contestants, and Harford delves into the intricacies of coffee prices and auctions, Sowell gives us six lean, meaty chapters on cities, gender, academia, income, race, and the Third World. Freakonomics and The Undercover Economist may be better starter books, designed to entice the truly uninitiated to begin thinking about economics, and they do address some weightier issues along with the lighter fare. But Economic Facts and Fallacies takes on some of the most fundamental issues of our time and tackles them head on. In the process, Sowell not only provides a clear and convincing case for the importance of economic thinking; drawing on history and logic, he also makes a powerful case for the superiority of free markets.

Group Think

          "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.


Economic Facts and Fallacies
by Thomas Sowell
Basic Books (2008)

          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.

"Buy this book. Buy it for yourself, and buy another copy for that friend of yours who is not quite convinced about the benefits of free markets."

          As for race, Sowell points out that gross comparisons between racial groups are terribly misleading because they ignore significant differences between the groups such as age. He informs us that "[t]he median age of black Americans is five years younger than the median age (35) of the American population as a whole." Since age is one of the strongest determinants of income, with younger people earning less, not controlling for age paints a strongly distorted picture of relative income between blacks and other Americans, reinforcing the stereotype of continuing and pervasive racial discrimination.

Colleges, Cities, and Countries

          The three other main chapters in Sowell's book deal with places rather than with groups of people. With regards to colleges, Sowell points out the ways in which such largely non-profit institutions lack the incentives to act in the best interests of their students or in the best interests of the institutions themselves. He notes that "non-profit organizations like colleges receive much money from people whose desires do not count—not only taxpayers, but also deceased donors." Instead, it is the interests of decision-makers like "professors, administrators, trustees, athletic coaches and others" that compete for attention, and all manner of inefficiencies abound.

          In the chapter on cities, Sowell challenges the idea that businesses moving to the suburbs caused the economic breakdown of inner cities, which in turn led to widespread riots in the 1960s. In fact, the riots preceded the hollowing out of the inner cities, and were in fact one cause of that hollowing out. Sowell also points out that the felt need for governments to provide affordable housing is in fact brought about by prior government restrictions on land use.

          Finally, in his chapter on the Third World, Sowell takes on the notion that countries are poor because of exploitation. Instead, Sowell finds explanations for income and wealth disparities between countries in geography (Africa's lack of navigable waterways and beasts of burden); history (the disastrous decision of 17th century Japanese leaders to isolate their people from the rest of the world); institutions (law and order itself being harder to establish in areas that are difficult to patrol, like the mountains of Afghanistan); and yes, culture (having positive dispositions toward things like hard work, saving, and earning interest). The stunning success of the Marshall Plan to rebuild Western Europe following World War II and the equally stunning failures of much foreign aid since then point to the importance of these kinds of factors.

Why It's So Hard to Change Minds

          Sowell spends some time in his introduction and here and there throughout his book discussing why fallacies endure, even when they fly in the face of mountains of hard evidence. He writes that elected officials "cannot readily admit that some policy or program that they advocated, perhaps with great fanfare, has turned out badly, without risking their whole careers." He continues,

          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.

          This is convincing as far as it goes, but one thing Sowell does not do is address why people become attached to these particular kinds of fallacies in the first place, fallacies that trade on belief in widespread racial and sexual discrimination, and on widespread exploitation. Why are so many people so ready to believe the worst in others, and to reach for top-down, command-and-control "solutions" that only make things worse? Because somewhere along the line, many people absorb a negative view of human nature. And for a further exploration of this topic, I refer you to this month's instalment of my ongoing Illiberal Ideas series: "Everyone is selfish—and that's bad."

          In the meantime, buy this book. Buy it for yourself, and buy another copy for that friend of yours who is not quite convinced about the benefits of free markets. You could even volunteer to read whatever book your friend wants you to read in order to get him or her to read this book. Let's win this battle of ideas, one mind at a time.