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Tuesday, March 3, 2009

Mindless Government distortions – Thomas Sowell and 'Economic Fallacies'

In a mindless age of Prophet Obamed et al. a Black economist has some prescient warnings.

by StFerdIII



Thomas Sowell is a black American treasure. The former Marxist is a professor at Stanford, author of over 40 books, a valuable political philosopher and a black who is tired of the failed black sub-culture. In the black pantheon of achievers this conservative, pro-market, pro-individual and proud American is an icon. But because his views don't comport with mainstream socialism Sowell is largely ignored and marginalised. If blacks spent more time with Sowell and less with Obama, they would be far better off.

In the business of writing and teaching for over 50 years, Sowell is perhaps the best and clearest exponent of what he calls 'fallacies'. In his book 'Economic Facts and Fallacies' Sowell lays out the various forms of government distortion and extortion. These 'unintended consequences' of government intervention based on various fallacies of irrationality, are legion and powerfully negative. Anyone who believes that big government is your friend, and guarantor would do well to read this book.

Fallacies as Sowell states always begin with wonderful sounding ideas. Equality, justice, love.....but the words are abstract and become distorted by arbitary government power: 'social justice, equality, and other undefined terms that can mean wholly different things to different individuals and groups.....whom can be mobilised in support of policies that use such appealing words.' You want political popularity or an increase in government budget – just use the magic words. Love, justice, equality, 'values', and 'fairness' are the most common and the most dangerous abstractions which justify fallacies and fallacious thinking.

In 'Economic Facts and Fallacies' Sowell focuses on 4 economic theories which he describes as distortions or fallacies: the zero-sum fallcy; the fallacy of composition; the chess-pieces fallacy; and the open-ended fallacy. These four concepts are economic aberrations invented by government and power seekers to convince ordinary people that more state power is needed to correct inequality or unjustice. They are worth identifying.

Zero-sum fallacy: Basically in this marxist inspired theory, there is a finite amount of wealth. One person's gain is thus another's loss. The rich get richer because they plunder the poor. The successful succeed becaues they steal from the more honest. The owners of capital consolidate power because the unfortunate many must pay them high rents. And so on.

As Sowell relates this marxist fantasy is found all through government and political programs. One simple example is the failure of rent control. Any city where government has reduced land for development; enacted punitive tax and regulations on development; and managed prices, now has a severe housing problem. The problems are two-fold -- high prices, and limited supply especially for those who can least afford reasonable housing.

So what does government do when state housing restrictions lead to higher prices? They impose rent price controls of course. This ensures that new buildings for all income levels are not built; jobs are lost; and maintenance on older structures are ignored. Governments zeal to redistribute resources to certain groups [the poor, the working class etc.] now results in a general housing malaise and far higher prices than a normal market would set.

Such bizarre thinking permeates many government programs. Welfare, pensions, and unemployment insurance are other examples. The vast panoply of laws regulating employment is one clear example of market distortions caused by zealous state interference. As Sowell relates, 'Unemployment rates tend to be chronically higher, and the periods of unemployment chronically longer, in countries like France or Germany, where minimum wage laws and government policies requiring employers to provide benefits to their employees to provide benefits.....As in the case of tenants under rent control, those on the inside looking out benefit at the expense of those on the outside looking in.'

All government programs are thus created. They reward certain groups and punish others. They are political tools to gain support and appeal. They are usually highly irrational.

The fallacy of Composition: This is the strange belief that what is true of the part is true of the whole. So in order for example, to 'save' society or 'guarantee' jobs for our children's future, government MUST subsidize, bail out, or help certain industries, companies, or businesses. These special interests receive government support whilst others do not. None of these transactions is based on supply and demand and as Sowell states, '...policies imposed by government are not voluntary transactions, like those of the marketplace, zero-sum and negative-sum operations can continue indefinitely.'

Zero-sum transactions destroy wealth. This fallacy operates when governments favor one interest group over another and enter into non-market transactions. One example might be when governments move billions of dollars into GM to 'save' jobs they are merely taking society's wealth, redistributing it and destroying it. GM is a powerful special interest group which aids politicians and government in achieving state goals regarding employment, education support, and campaign-fund-raising support. But it is destroyed money since the transfer to GM is done by government coercion not by private lenders in the market place. If a car company needs money it should raise private capital.

The chess-piece fallacy: This is a post-modern, intellectual and technocratic view of the world. In this world-view people, resources, assets, and opportunities are mere pieces to be moved about on a chess board at whim by an all-knowing technocrat. Sadly for the master planners humans are not automatonic pieces. Each as Sowell states, 'has their own individual preferences, values, plans, and wills, all of which can conflict with and even thwart the goals of social experiments.'

Nazism, Communism and Islam are impoverished cults because they treat or treated people as witless chess pieces designed to be moved around but devoid of talent, thinking or self-ambition. Such ideas of course are morally and intellectually corrupt and evil. State power is thus mistakenly construed upon this idea that resources can be finely managed and that individual will and preference does not exist. The unintended consequences of such government meddling are always vast – witness the 1977 US law mandating banks to lend to those with low incomes and no proof of income to buy homes. 30 years later we have a mortgage problem.

The open-ended fallacy: Resources are limited and have different benefits for different uses. Government however views resources and options as 'open ended' or without end. Some simple examples Sowell highlights are; health, safety, and open spaces. As Sowell says, 'No matter how much is done to promote health, more could be done. No matter how safe things have been made, they could be made safer....'

In other words, the busy little minds of government are never done. Health care today is when compared historically at a very high level – except it is distorted by government incompetence and socialisation with governments controlling from 50% of all spend [US] to 80% [Denmark]. But yet even this is just not enough. More government aid, control, resource funding and 'help' must be given so that we can achieve some mythically perfect system of perfect health. The problem with such lofty ideals is that resources must be used to pursue the utopian. These resources have costs. They could be used more profitably and wisely somewhere else – outside of governmental control.

As Sowell asks, 'Health is certainly something desirable and most people are happy to see billions of dollars devoted to cancer research. But would anyone want to devote half the national income to wiping out skin rashes?' Some indeed would. But the point is clear. Resources must be apportioned and the more government eats up these revenues the worse off we all are.

Sowell's books are full of facts and figures and common sense. This is why the media focuses on say Obama and Oprah and not Sowell. O and O are feel good charlatans and populists saying nothing intelligent but making you feel oh so very emotional and complete. They are distorters and fallacy makers. Sowell is not. He understands the myths and dangers of the liberal-socialist toothy elite jet set class. He understands that civilisation was built from billions of decisions by billions of humans over 2 million years and that government, and their elitist friends, whatever charms they may hold for some people, is usually the great benefactor of fallacious thinking and distortive program making – not the common person.

Long before anyone should listen or imbibe Oprah and Obama, they would do well to read Sowell and contemplate one black American's intellectual greatness.