_(/sites/default/files/uploads/2015/01/01.jpg)The 1st_ edition of Thomas Sowell’s Basic Economics_, published back in 2000, came in at 366 pages. The book has proven so popular that the 5th_ edition, released late last year, has ballooned to 689 pages. Sowell recently sat down for a lengthy interview, and in part three he talks about the new topics in his book, including inequality, human capital, imperialism and non-profits. Click the following for part one and part two of the interview.
David Hogberg: In the newest edition of Basic Economics, you include a chapter on international disparities on wealth, and right off the bat you ask in that chapter, “A more fundamental question might be: Was there ever any realistic chance that the nations of the word would have had similar prospects of economic development?” Can you expand on that?
Thomas Sowell: For starters, different races originated in different geographic settings. Those settings were never the same. There was never any reason then that the people who developed in those different places would be the same. When you look at the inhabited continents, you find rivers, plains and mountains on all of them. But those are radically different rivers, radically different mountains and radically different plains. Just one example: The Zaire River in Africa has more water and is longer than the Mississippi. But in a stretch of 150 miles on the Zaire River, there are more than 30 cataracts that result in a decline of 1,000 feet of altitude. And in the rest of the Zaire River’s course to the sea, it has to come down more thousands of feet. And this is typical of rivers all over Africa. By contrast, the Mississippi declines by a rate of four inches per mile. These are not equally navigable rivers.
And it’s not just that people in Africa can’t get to the coast of Africa. It’s that the people inside sub-Saharan Africa can’t communicate with each other. So what the rivers do is fragment the people. What I found elsewhere in research for the book is that wherever you find isolated people, you find people who are way behind everybody else. Isolated places like mountain villages, that’s not where you’re going to get the next high-tech breakthrough.
Something like ten to twelve percent of the world’s population lives in mountains. That may not sound like much, but that’s larger than the population of the United States. In fact, it’s larger than the population of any of the nations of the world except India and China. And you would be hard pressed to find any breakthrough in science, art or technology that came out of the mountains.
DH: Now, let me go back to President Obama’s speech on race for a minute. In it he states, “[W]e do need to remind ourselves that so many of the disparities that exist in the African-American community today can be directly traced to inequalities passed on from an earlier generation that suffered under the brutal legacy of slavery and Jim Crow.” Do you agree with that?
TS: They’re always talking about a legacy of “slavery,” and they use that as an excuse for crime and broken families and so on. Yet in the first half of the 20th century, you’d have a hard time finding five ghetto riots like that of Ferguson. In the second half of the 20th century, you can choose from at least 100. If that is a legacy of anything, it is the legacy of something that came along in the second half of the 20th century. It is the legacy of a liberal-left vision of the world and the policies based on it, both as regards law enforcement and welfare. Welfare alone has had an enormous impact. And it’s not just the welfare itself, the material goods that are provided. In a democracy you can’t have a welfare system unless you first have a welfare-state ideology that triumphs. And that ideology is non-judgmental, it makes excuses for things that are wrong, and it subsidizes things that are wrong.
People have no idea that the black community in the first half of the 20th century was from the point of view of common decency miles ahead of the ghettos of today, especially places like Ferguson. Harlem in the 1920s was a place where many whites, including many white celebrities, frequented. And it was not only for the entertainment places like the Cotton Club and so on, but places where they met with the black elite of that time. Back then, no one worried about being mugged. I was a grocery delivery boy in that area. On Saturday nights I’d work until midnight and then I’d walk home. I weighed about 100 pounds soaking wet, yet no one ever bothered me, no policeman ever stopped me. This notion that you have to be afraid of the cops, they’re out to get you and so forth, there was nothing of that sort.
The blacks in first half of the 20th century had a decency that is long since gone, but they had that at a time when they were even closer to the legacy of slavery and Jim Crow than are blacks today.
DH: You talk of the importance of culture in explaining international disparities of wealth. In it, you stress the importance of human capital. What is that, and what role does it play?
TS: Human capital consists not only in the knowledge and skills people have, but also their orientations. What strikes me about people who try to explain income disparities is they tend to break into two camps: Those who say it is due to ability differences and those who think there are difference in barriers that hold some people back. And I think they both overlook the fact that orientations matter. I haven’t done any study on it, but I’d be awfully surprised if any of the guys from the Harlem neighborhood I grew up in became either a violinist or a ballet dancer. I don’t think it was because they lacked the ability, and I don’t think it’s because there were barriers against blacks becoming violinists or ballet dancers. They didn’t want to become ballet dancers, and so they didn’t become ballet dancers.
My classic example is professional football players who punt and kick field goals. I have been watching professional football for decades. I must have seen a thousand black players score a touchdown. I have never seen a black player kick an extra point. Now, if you want to attribute that to racism, you have to contend that the fans don’t mind a black man scoring a touchdown, but it really bothers them to see one kick an extra point.
DH: You also have a section there on imperialism. To what degree does conquest lead to disparities in wealth?
TS: It can, certainly. The question is, does it in each specific case? When it comes to depredations, the Spanish Empire can hold its own with anybody. The Spaniards conquered everything from the southern tip of South America up to the San Francisco Bay. And they took untold sums of gold and silver out of these areas, in the process destroying viable civilizations. So here you have all that, but the bottom line is, how much did this benefit Spain? That is, how much of this imperialism can explain disparities regarding Spain? Well, in Western Europe, Spain is one of the poorest countries. Switzerland I don’t think ever had an empire of any sort. They are way ahead of Spain.
If you compare, say, Argentina to Barbados, the gross domestic product in Barbados is forty percent higher than Argentina. Yet the population of Barbados traces back to slaves brought over from Africa while much of the population of Argentina traces back to conquerors from Spain.
One of the bad things about politics and particularly ideological politics is the tendency to mesh together causal arguments and moral arguments. It was a major, moral depredation for Spain to have done what it did. But that does not explain the economic level of Spain.
DH: Does conquest ever bring benefits to the conquered?
TS: Oh, yes. One of the arguments I make is that the descendants of people of Western Europe benefitted considerably because of the conquest of the Romans. The people who were actually there for the Roman Conquest would no doubt have passed it up if they could. But Romans brought written languages, which was a huge advance. Even Churchill, the great British patriot, said we owe London to Rome.
DH: Let’s move on to the next chapter, “Myths about Markets.” Let’s start with the phrase “dictates of the market.” What’s wrong with that phrase?
TS: The market is in no position to dictate. You can write a whole book on the misuse of the word “power” as it regards markets. The left likes to say Wal-Mart is a powerful force. There are people who have never set foot in Wal-Mart, who never will set foot in Wal-Mart, and there isn’t a thing Wal-Mart can do about it. Insofar as there are voluntary transactions, there are no dictates. People who use that phrase often want to create a situation whereby they, through the government, can dictate to the market.
DH: Let’s talk next about prices. You write about the concept of reasonable or affordable prices, and, here’s a direct quote, “It is completely unreasonable to expect reasonable prices.” Explain.
TS: Reasonable prices are prices that adjust to our budget. Prices, of course, are determined in part by what it costs to produce things and get them distributed and so on, and so there is no reason whatsoever to expect reasonable prices. There is no reason in the world to expect costs to conform to what you are willing to pay. There is no reason to expect the Hope Diamond to be affordable.
DH: How about “brand names”? You say it is commonly thought that brand names are believed to be just a way to charge higher prices by fooling people into thinking there is a quality difference between the brand name and a similar, non-brand-name product. You say that’s false. Why?
TS: A couple of things. First, for the consumer, the brand name saves on the cost of knowledge. If, say, you’re looking at hotels, all you have to know is that it is the Ritz Carlton to know that the hotel probably doesn’t have bed bugs. I use as my example in the book of the Soviet Union where they didn’t have brands, the consumers essentially created brands by learning how to read bar codes so they would know which item had been produced where in the Soviet Union. Thus, they could distinguish among the products and know which ones came from a place that produced higher quality. So, in effect, the consumers created brands in the Soviet Union where there were no brands.
The other thing is there is a belief that advertising, which is used to create a brand name, is not only false but adds to the price of the product. But with advertising you are able to sell a whole lot more of the product, which leads to economies of scale in its production, which in turn brings the price down. In any given case it is not a foregone conclusion that a product would be cheaper if there was no advertising. If no one had ever advertised the Chevrolet, there would have been a lot fewer Chevrolets built. With the fixed overhead of the machinery to produce a Chevrolet, if you spread that over fewer consumers, then the price will be higher.
DH: I think most people hear the term “non-profit” and think of a group that is selfless, works for the public good and not private gain, and embodies just about everything that is good about human nature. You don’t quite see it that way. You write, “What are called ‘non-profit organizations’ can be better understood when they are seen as institutions which are insulated, to varying degrees, from a need to respond to feedback from those who use their goods and services, or those whose money enabled them to be founded and continue operating.” Can you expand on that?
TS: The difference is that a profit-seeking organization has to please simultaneously the customers and the investors. A non-profit organization doesn’t have to do that with either one—particularly if it is a long-lived organization. Many of the people who have invested in it are already dead. Among those that are still alive it is very hard for them to monitor what is going on inside the organization.
There is overlap in the things that for-profit and non-profit organizations do, like publishing magazines and stuff like that. And so they compete. Over time, if it was true that non-profits didn’t have the problem of generating profits and had better people, the non-profits would be taking away market share from the profit sector. In point of fact, just the opposite happens. For example, it is very common for college bookstores to be taken over by a Barnes & Noble or cafeterias to be taken over by profit-seeking companies. The test of market share is usually won by the profit-seekers.
DH: Final question. The Hoover Institution is a non-profit, correct? So, can you apply what you just said to it?
TS: Actually, you have asked the one person who has the least knowledge of the Hoover Institution. From time to time I get letters from people asking how to apply to the Hoover Institution and I can’t even tell them who to write to. To give you some idea, a while back I was out on the Stanford campus going to the administration building, and the vice president of the Hoover Institution happened to be passing by, and he said, “No, no, Tom. The Hoover Institution is over here.”
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