Monday, May 05, 2008

Thomas Sowell Defends the so-called "free market"


Thomas Sowell Defends the “Free Market” from “Elites.”

When I appeared on VOX POP last September, one caller said he was a fan of the economist, Thomas Sowell. I responded that every time I read a Sowell column I find something that I disagree with. Take for example his May 21 column in the Springfield Republican. Sowell arrived at a false conclusion from an obvious fact.[1]

The fact was that, “The most knowledgeable person on earth does not have even one percent of the total knowledge on earth.” Sowell’s conclusion was that because of this, “social engineering, economic central planning, judicial activism and innumerable other ambitious notions favored by the political left…are formulas for disaster.” [2]

Note the buzzwords. “Central economic planning” might make you think of Stalin. “Social engineering”-- of Mao and the Chinese communes. In case you missed his point, Sowell reminds us that many people died in Stalin’s collectivization of agriculture and in the famine following Mao’s Great Leap Forward. [3]

Then he brings his point home, and I quote: “… the political left … share … the notion that knowledgeable … people like themselves have … a right and a duty to use the power of government to impose their superior knowledge and virtue on others.” [4]

The danger is in our midst warns Sowell. His solution: “… free markets, judicial restraint and reliance on decisions and traditions growing out of the experience of the many—rather than the groupthink of the elite few – are [very] important.”

Sowell opposes minimum wage laws -- an example of social engineering. He also opposes laws forbidding child labor. [5]

Why do we have a central bank, or Federal Deposit Insurance, which, following his logic, Sowell would oppose. Why have regulatory agencies and laws forbidding child labor and establishing a minimum wage?

It is not because some mini-elite has “thought up” these things. These institutions (excepting the Federal Reserve) are in existence because political movements formed to force the so-called free market to take action – action that market participants would not do if left alone.[6]

Left alone, businesses produce not just products but pollution. Though individual consumers by their decisions to buy cars can “signal” their desires to producers through their purchases (take the example of SUVs vs. smaller cars) there is no way for those individuals to “signal” that they would like commuter rail lines in major cities or a European style railroad system. [7]

Left alone, food producers produce attractive food but may not be concerned about the long term health effects of the additives they use.

A free market for unskilled or semi-skilled labor leads to very low wages unless either a labor union or government limits the ability of employers to pay low wages.

Sowell plays a trick on his readers by asserting that the government policies just described are enacted by a small group of very bright people who think they know better than the collective decision-making of millions of independently thinking and acting economic agents. But this is actually the opposite of the truth. The millions of independently thinking and acting economic agents discovered long ago that without political cooperation to enforce their collective will on the market (through laws like the minimum wage or the prohibition against child labor) a few elites with lots of money and power are able to take advantage of the powerlessness of the individuals they confront as either workers or consumers. [8]

Sowell acts as if the only power that damages the will of the people as expressed through the so-called free market is the government.. Not once in his column does he mention the word corporation -- yet a corporation is a significant center of power. Without government intervention, no matter how imperfect, to counter corporate power, we would be immeasurably worse off.

1. The column in the Republican is entitled “Knowing it all is not enough.” It is available on a web site called dated May 16. There is has the title, “Presumptions of the Left.”

2. Because of the need to compress the text into the time available for a radio commentary, the full text of this section of Sowell’s argument was compressed. Here it is without the ellipses: “If you start from a belief that the most knowledgeable person on earth does not have even one percent of the total knowledge on earth, that shoots down social engineering, economic central planning, judicial activism and innumerable other ambitious notions favored by the political left. If no one has even one percent of the knowledge currently available, not counting the vast amounts of knowledge yet to be discovered, the imposition from the top of the notions favored by elites convinced of their own superior knowledge and virtue is a formula for disaster.”

3. Here is Sowell’s reference to Stalin and Mao: “ …economic disasters, important as they are, have not been the worst consequences of people with less than one percent of the world's knowledge superimposing the ideas prevailing in elite circles on those subject to their power -- that is, on the people who together have the other 99 percent of knowledge. Millions of human beings died of starvation, and of diseases related to severe malnutrition, when the economic ideas of Stalin in the Soviet Union and Mao in China were inflicted on the population living -- and dying -- under their iron rule. In both cases, the deaths exceeded the deaths caused by Hitler's genocide, which was also a consequence of ignorant presumptions by those with totalitarian power.” Note that Sowell cannot quite bring himself to acknowledge that Hitler’s genocide was also the product of a mini-elite running an entire nation. In fact, there is nothing in his column to indicate that he believes there is any such thing as a right-wing or “conservative” elite.

4. The full text is: “Many on the left may protest that they do not believe in the ideas or the political systems that prevailed under Hitler, Stalin or Mao. No doubt that is true. Yet what the political left, even in democratic countries, share is the notion that knowledgeable and virtuous people like themselves have both a right and a duty to use the power of government to impose their superior knowledge and virtue on others.” This is definitely a correct description of the Leninist conception of communist organizations and the way governments controlled by parties calling themselves Leninist have behaved. However, movements of the left, in general, have often been highly democratic in organizational form and in practice. The most obvious examples have been anarchist groups. [Though there have been very few examples where true principles of anarchism have had a chance to be put into practice, one such example was during the Spanish Civil War. The details can be followed in Noam Chomsky’s first major political work: American Power and the New Mandarins in his chapter: “On objectivity in liberal scholarship” where he shows how the story of the Spanish anarchists has been totally distorted by the scholarly community.] In the US, the Industrial Workers of the World (the IWW, known as the “Wobblies”) was a highly democratic bottom up labor movement. Students for a Democratic Society and the Student Non Violent Coordinating Committee which were important organizations in the 1960s were highly democratic in structure as well as in their goals. (SDS has recently revived. You can check out their website at Since Sowell and the right-wing echo chamber that he invites [Anyone interested can go to the web site and follow any of the discussion threads that respond to Sowell’s postings. With one or two ‘liberal’ interlopers as exceptions, the attitudes of the posters are a pretty predictable example of right-wing groupthink.] include liberals and social democrats in their blanket condemnation of “the left” it is important to note that virtually every “liberal imposition” on the so-called free market that Sowell decries has come from bottom up pressure and not from the top down.

5. Sowell has published a detailed popularized version of his philosophy of economics and economic policy in Basic Economics. (3rd edition, NY: Basic Books, 2007) His attack on the minimum wage is presented on pages 210-221. His attack on Child Labor laws is presented on pages 232-4. (Reading the endnotes to these pages is quite revealing. [see p. 586] Sowell writes [p. 214] “Even though most studies show that unemployment tends to increase as minimum wages are imposed or increased, those few studies that seem to indicate otherwise are hailed as having ‘refuted’ this ‘myth’.” In the endnotes Sowell points the reader to articles that support his view and counter “those few studies…” but not to the articles that present the arguments and evidence in support of the view that the minimum wage does not increase unemployment. For a balanced view, and a reference to David Card and Alan Krueger’s summary work Myth and Measurement, the New Economics of the Minimum Wage see an interesting set of exchanges from the blog of N. Gregory Mankiw, a former head of President Bush’s Council of Economic Advisers:

6. Minimum wage laws and laws banning child labor have been a demand of the labor movement from the earliest years of capitalism. Today, the labor movement is often characterized as part of the elite because labor leaders are well-paid executives of large organizations. However, the original labor movements (and this applies to the vast majority of union members and organizers and officials today as well) were groups of workers who recognized that they were powerless alone to force their bosses to pay them decent wages but that in unity there was strength. Many years, many struggles, (many deaths) later, they achieved things we take for granted – like the weekend, the eight-hour day, seniority, the ability to bargain over working conditions, and for some – health insurance and a pension. It is true that it took an act of Congress and the signature of a President to transform the minimum wage and a ban on child labor from demands into laws but Congress would never have acted without years of struggle and pressure. Many of the regulatory bodies that exist in the US today (the Food and Drug Administration, the Federal Trade Commission, the Occupational Safety and Health Administration, the National Highway Traffic Safety Administration) were created in response to wide public outrage against abuses documented often by muckraking journalists.

The Federal Reserve System (our nation’s Central Bank) is an exception to this rule. Though there had been a long serious of popular movements in the 19th century who agreed that the control of the nation’s finances by large private banks had a negative effect on the ability, particularly of farmers, to get credit when they needed it and to escape from the rising burden of debt as the currency deflated (yes, the US economy suffered a long run deflation between 1873 and 1897), the solution created with the Federal Reserve Act of 1914 was clearly a product of elite, top-down, decision making. The story is told in William Greider’s masterful work, Secrets of the Temple (NY: Simon and Shuster, 1987): 243-289.

7. In other words, though I can go buy a small fuel efficient car and if lots of other people do that, then businesses will produce less SUVs and more of the fuel-efficient kind, there is no market out there where I as an individual can make a purchase that will cast my “dollar vote” for a light-rail line in the urban area where I live or a national rail system like France’s or Japan’s. Obviously, such a “vote” would have to be a political vote to get a majority of my fellow-citizens to support raising taxes to create such a transportation set-up.

8. For just one example of how real elites operate, check out the documentary “Who Killed the Electric Car” (2006). It argues that GM created and then failed to market the first battery-operated car called EV1. Meanwhile, the California Air Resources Board which had previously mandated the sale of zero-emissions vehicles, caved under pressure from industry lobbyists and removed that requirement. (The federal government had joined private industry in a suit against California to prevent them from enforcing the Zero Emission Vehicle mandate.) It’s a complicated story and obviously subject to debate but the main point of the movie is that we as citizens have no way in the “free market” to “vote” for an electric car so long as oil companies are making lots of money selling gasoline. It requires government activity to make an electric car a viable alternative.

Note that the recent growth of hybrid cars as a share of the market in the context of very high gasoline prices shows that markets can at times accurately signal what people want. However, the price of gasoline at the pump does not reflect the full cost borne by society as a result of the burning of that gasoline. This is an example of what economists call externalities. Sowell’s celebration of the so-called free market [I use the modifier “so-called” because it isn’t really free…] ignores the many situations where the prices charged in the market are actually sending the wrong signals. If the gasoline tax were more in tune to the true cost imposed on society of running a car on gasoline, the demand for SUVs would plummet. But that would cut auto industry profits and the demand for gasoline, so you can imagine how strong the political campaign would be against anyone who advocated a big hike in gasoline taxes. In addition, there would definitely be legitimate differences of opinion about what the “true cost” imposed on society by driving gasoline powered cars actually is.

For a general discussion of the role of private elites in the US, I still believe G. William Domhoff’s work Who Rules America? and The Higher Circles is the best summary. For a summary see Professor Domhoff’s web site:


Blogger John said...

very interesting .. I know a little bit about tom sowell's thoughts and for sure I'm not about to defend 'em. I do think he always makes extremely good arguments and very often, and this is what I love about economists, bases them on statistics. So in the end I understand your criticism and sowell's brilliance and I fall somewhere between but maybe closer to sowell 'cause in the big picture he is right. Central planning cannot work and in it's heart it is immoral. The nasty fact is that we must have central planning to certain degree, we cannot have everyone buying they're protection thus no has to plan police and so forth and the same can be said about army and a few other things.

Bottom line. All this debate would become will never be over but it would be more productive if people we're more politically active and I sure as hell don't mean chanting at a rally with glassed eyes that makes every sane person think of nazi-germany. I mean really understand the big picture and policies executed and planned. Then we at least would have what people want instead of just people voting for the guy with prettiest face(over simplification but you get the picture).
Unfortunately I believe this change in US is pretty much impossible.

12:32 AM  
Blogger AMIT said...

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9:04 AM  
Blogger dynogong said...

In my opinion, many of Dr. Sowells thoughts were taken out of context or twisted somehow. I am a fervent reader of his, and base many of my views on his writing. When you say he is against child labor laws, that is incorrect. He does believe that they were necessary during the 1880s-early 1900s yet now they serve the purpose of keeping kids from handling pieces of paper in air conditioned offices. Many of the most successful men in US history were working at a very young age. Rockefeller, Ford, Morgan, JC Penney, and many more.

Also, minimum wage does not do the good that it is commonly thought to. Raising minimum wage only assures that people whose skills dont justify that wage will not be hired. it essentially outlaws hiring low-skilled workers.

9:45 PM  
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3:47 AM  
Anonymous Anonymous said...

"there is no way for those individuals to “signal” that they would like commuter rail lines in major cities or a European style railroad system."

What!? Yes there is! Just because it isn't done and the author thinks it should be doesn't mean he is correct.

People in the EU and china use these rail lines because they are not paying the full costs of the services. Other people who don't ride help pay through taxation.

Ie people want it, just other people to pay for most of it.

If commuter rail could be created and delivered at a prices that people would pay markets would bring it.

The freight rail system in North America, was for the most part built by private individuals by raising private capital run privately,and has far cheaper fairs then other places that are government run.

Sorry but your example falls flat.

10:42 PM  

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