Hoover Digest

The Economist

Saturday, October 30, 2004

When I came to Washington, in 1975, the first wave of the so-called energy crisis was under way. I was at an advantage compared to most people because I knew what caused it: price controls. A year earlier I had interviewed Governor Edwin Edwards of Louisiana, who told me that customers for natural gas sold across state lines were required by law to pay about one-third of what they paid within the state. So Louisiana wouldn’t be sending the natural gas across state lines. It took him about that many words to explain it.

They say Edwards was a crook, but I don’t care. He was good at explaining these things. In Washington I repeated this to anyone who would listen. But hardly anyone would. It was all the fault of the oil companies. It was “greed.” I should interview David Freeman of the Ford Foundation. He was the man to quote on energy.

In the late 1970s the problem flared up again. By then, price controls had been dropped on everything except oil. So we had to wait in line at the gas pumps. Jimmy Carter talked about “malaise” and wore a sweater in the White House. We didn’t have a national energy policy—that was it. There was no Department of Energy. I’m sure no one told Carter what the real problem was. Ronald Reagan knew, however, and the first thing he did as president, with one signature, was to abolish the price controls on oil.

It was a formative experience for me. How could knowledge so fundamental to the operation of society be so scarce, so thoroughly rejected by otherwise intelligent people, including economists with PhD’s? One day I went to the Brookings Institution and interviewed Barry Bosworth, who worked for Jimmy Carter. He said something I never forgot. If the free market idea is right, he said, there is no need for economists. Those who advocate free markets talk themselves out of a job. It was a great insight and one that would have amused Dr. Thomas Sowell.

Sowell writes about the basics of economics in language that is as straightforward as any I have ever seen, which is worth mentioning because he is one of the few trained economists who make the effort. Anyone interested in understanding plain-language economics should read two books by Sowell. The first is Basic Economics, which came out a few years ago and is now in paperback. I highly recommend it. If you don’t understand fractional reserve banking, you will after you read his lucid pages. Equally important is its companion volume, Applied Economics.

Few economists bother to write plainly. Sometimes, I suspect, it’s an actual hostility to markets—which have no alternative in economics. This forces leftists to conceal their views in obscurity and algebra. A famous editor of the Financial Times in the 1960s refused to hire economics graduates. He had learned the hard way that they could never explain things clearly. Writing plainly looks easy, but it takes energy. Once you have learned the technical jargon in any field, it’s easy to use and substitutes for thought. All educated people should learn economic fundamentals. If you don’t understand the price mechanism at the level that Governor Edwards explained it to me, and you are unaware of the social havoc that can be wrought by politicians who ignore it, you might as well not bother to read the newspapers at all.

Rent control in New York, which has endured for more than 60 years, has driven most large company headquarters out of the city. Try to find an apartment there. The effects of rent control have been so bad that even the New York Times now editorializes against it. Here is Tom Sowell on price controls:

Free market prices are not mere arbitrary obstacles to getting what people want. Prices are symptoms of an underlying reality that is not nearly as susceptible to political manipulation as the prices are. Prices are like thermometer readings—and a patient with a fever is not going to be helped by plunging the thermometer into ice water to lower the reading. On the contrary, if we were to take the new readings seriously and imagine that the patient’s fever was over, the dangers would be even greater, now that the underlying reality was being ignored.

All this might seem obvious, and yet a never-ending stream of political schemes have been designed to escape the realities being conveyed by prices—whether through direct price controls or by making this or that “affordable” with subsidies or by having the government itself supply various goods and services as a “right.”

In Applied Economics, just out from Basic Books, Sowell applies the underlying economic principles to the real world—medical care, the economics of housing, racial and ethnic discrimination, the economic development of foreign countries. He brilliantly illuminates the key difference between a political and an economic analysis of policy. The latter takes all costs into account, the former only those that will be incurred before the next election. “In short,” he concludes, “killing the goose that lays the golden egg is a viable political strategy, so long as the goose does not die before the next election.”

Today a senior fellow at the Hoover Institution, Sowell taught economics at several universities, including Cornell, UCLA, and Howard University in Washington, D.C. He is surely one of the most prolific authors in the country, having written more books than I can easily count and a newspaper column that is published three times a week. Milton Friedman was Sowell’s thesis adviser at the University of Chicago. (He, too, took the trouble to write plainly.)

Sowell, born in North Carolina in 1930, was “lucky in many ways,” he says. He “happened to come along right after the worst of the old discrimination was no longer there to impede me, and just before racial quotas made the achievements of blacks look suspect.” When he was nine his family moved to New York, and he went to public schools in Harlem that were “far better than they would be for black children of a later era,” he writes. Years later his niece told him she had gone to the same Harlem school he had attended. He said no, she had gone to the same building.

What has happened to government education in his lifetime is a shameful and disgraceful thing, and no one is better placed to know this than Tom Sowell. To me, it raises the question of whether liberals care about education at all. Perhaps they only pretend to. More likely they want an obedient proletariat at their disposal—one that will respond to their slogans but not think independently. (Fill in the blank: “The rich get richer and the poor get _____.”)

Not surprisingly, Sowell is scathing about the “anointed” intellectuals who have done so much to undermine public life in this country. As to their nostrums and remedies: “Virtually everything that was supposed to make things better made things worse,” he says. He expects no improvement in education. “With a government monopoly ensuring them a supply of customers, with iron-clad tenure protecting their jobs, and with seniority rather than performance determining their salaries, why should the education establishment worry about anything as irrelevant as reality?”

As an expositor of economic principles and their application to the policies of our day, Sowell has no rival. But his greatness as a commentator on the American scene is somehow more than that. When we consider the tyrannies that have been overcome in the twentieth century, he says, “our task is infinitely easier, our dangers nothing worse than unpopularity.” But it takes courage not to be discouraged, to endure and to keep on telling the truth when you can see with your own eyes how little headway you are making, on the surface at least. If there are seeds of improvement growing beneath the surface, Tom Sowell will have done much to prepare the ground.