Applied Economics: Thinking Beyond Stage One

So Dr. Sowell touched on pet peeve of mine, when discussing public policies. Often times proposed policy matters seek to solve the immediate problem, with little concern about two and third order effects. His alagory regarding prescription pill pricing really captured that point effectively.

Its obvious Thomas Sowell has a "constrained vision", to borrow his own idea, so I understand why people who have "unconstrained visions" don't like his work. However, he is meticulously rational and he presents his ideas with an array of supporting evidence. I respect his style of persuasive writing and enjoy his books.

After chapter upon chapter telling of the counter-productiveness of government intervention in markets, the immigration section is entirely out of place. Apparently there's nothing wrong with heavy regulation and central planning in the case of workers wanting to cross borders. The lack of an appropriately weighty explanation for the inconsistency with the rest of the book casts everything else into doubt. Instead of a coherent and principled set of arguments, all the rest could be cherry picked statistics and anecdotes.

I expected 'thinking beyond stage one' to be about something grand where stage one was the first n-hundred years after the invention of something, but it just means longer term thinking. I got tired of hearing about how voters or elected representatives (Sowell always uses the more pejorative term 'politicians') should have been thinking beyond stage 1 when some law eventually had the opposite effect of intended. He could have dropped the subtitle and used a few other phrases to say the same thing, or better yet let the reader make that conclusion.

Lots of explanations for the status quo, but where Sowell is critical there aren't any suggestions for how to fix things. It's either not broken and trying to fix it will make it worse, or it's just broken- where frequently Sowell implies that democracy itself that is broken.

Over-use of the word 'particular', usually around bland generalizations with very little content- it wouldn't be that hard to substitute some real details.

There isn't any big picture analysis to show the relative economic importance of say driving after age 75 vs. owners of dangerous dogs not paying proportionally vs. government funded health care, it's all put on equal terms.

كتاب الاقتصاد التطبيقي يتناول قضايا اقتصادية سياسية في عصرنا الحالي وأثر القرارات السياسية على اقتصاد الدول وانعكاسها على المجتمعات، ستدرك أن السياسة مدمرة وعواقبها وخيمة عندما يتعمد رجالها إلى تجاهل القرارات الاقتصادية لأجل مصالح شخصية أو تكسب سياسي عن طريق استثارة عواطف الشعب أو اللعب على وتر المشاعر .

يقول نيكسون في مذكراته بعد أن فاز في الانتخابات الرئاسية للولايات المتحدة بأغلبية ساحقة سنة ١٩٧١م : " قرار فرض ضوابط على الأسعار والأجور قد حظي بشعبية هائلة على المدى القصير ولكن على المدى البعيد القرار خاطئ، فلا بد من تحمل ثمن الخطأ في أن ثمن التلاعب في الآليات الاقتصادية فادح" ، ظهرت الكوارث الاقتصادية بعد فوزه كانخفاض كمية البضائع المعروضة ونقص في البنزين مما أدى إلى حدوث عجز في تغطية طلبات المستهلكين، وزادت نسبة البطالة.

يتناول الكتاب مواضيع كالدخل، والعمل الحر، ورأس المال البشري، في المقابل يتطرق إلى العمل الإلزامي، والعمل بالإكراه، ومعسكرات العمل الإجباري، العبودية والعبيد كنظام اقتصادي في الأزمنة القديمة، ستستخلص من هذه المواضيع أن الحرية نعمة لا تقتصر منافعها على السياسة أو الأفراد بل لها منافع اقتصادية.

يطرح الكتاب قضايا أخرى متفرقة منها اقتصاد الرعاية الطبية، اقتصاد الإسكان، النشاطات التجارية واقتصاد الهجرة والتمييز في العمل وغيرها، سيتضح للقارئ أن الجانب الاقتصادي للقضايا تختلف رؤيته تماما عن الجانب السياسي،
السياسة تقدم حلولا أقرب إلى المصالح والمنافع والأهداف الجذابة، أما الاقتصاد يقدم تفضيلات وفقا لما هو مناسب للمجتمع، ويبصرنا بالتكاليف وبتتبع عواقب القرارات مع مرور الوقت

من جهة أخرى تجد أن الاستقرار السياسي أحد العوامل الرئيسية لازدهار وتحسين الاقتصاد، وأن القرارات السياسية لا يجب أن تؤخذ بعيدا عن الاقتصاد.

وأخيرا ...
الكتاب فيه اسهاب لنقاشات باعثة للملل وأحيانا تفاصيل تشد قارئها، كنت متوقع أن تُذْكر فيه أحداث سياسية اقتصادية عالمية ولكن الحديث غالبه في الشأن الأمريكي، وأمور نقاشية أخرى باعتقادي أن الإطالة فيها قد لا تهم القارئ العربي.

While on vacation in southern California, I hit a Barnes & Noble in Costa Mesa to look for something to read and something for my wife's birthday. I was looking for a book I'd read about like New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America, but the store I was at seemed chock-full of books about President Barack Obama, Global Warming, what was wrong with the Republican Party, and not much of anything that would interest a conservative like me. I did find, however, this book: Applied Economics: Thinking Beyond Stage One.

There was one small problem. My B&N discount card membership had expired one month prior. I'd only used it make one book purchase in that entire year and, coincidentally, it was at that same store in Costa Mesa. I wasn't about to blow more money on their stupid discount plan and I wasn't going to spend $35 on "Applied Economics". I bought a different book instead and got something for my wife's birthday and went on my way.

When I returned home, I ordered Applied Economics Thinking Beyond Stage One from Amazon along with some other books, all at much more reasonable prices. I decided to read this one first.

Thomas Sowell is a very interesting guy. He's scholar in residence at the Hoover Institution at Stanford University and has taught economics at Cornell, UCLA, Amherst and other schools. He's written several books on economics. This book is the revised (and enlarged) edition and aims to help members of the general public understand complex economic systems.

Shooting for the general public is a lofty goal. I don't think Sowell quite made it. It was hard for me to absorb some of this material and I think I've been exposed to more economics material than the average member of the general public. I think this is a testament to how difficult of a task Sowell had taken on rather than his inability to achieve his goal.

The book is divided into eight chapters, each tackling an issue from the standpoint of pure economics. The first chapter, "Politics versus Economics," serves as a primer for the rest of the book and explains the "stage one" concept in the subtitle. Sowell states that most politicians (and many regular people, for that matter) fail to consider (or admit knowledge of) the long-term effects of economic policies (or any policies, for that matter.) This is, as Sowell puts it, "stage one thinking."

Sowell's intention in this book is to help the reader understand the longer-term effects of legislation and policy decisions.

In the first chapter, Sowell explains:

Laws and policies that will produce politically beneficial effects before the next election are usually preferred to policies that will produce even better results some time after the next election. Indeed, policies that will produce good results before the next election may be preferred even if they can be expected to produce bad results afterward.

As an example, a few paragraphs later:

... it is an open question whether drug prevention programs actually prevent or even reduce drug usage, whether public interest law firms actually benefit the public, or whether gun control laws actually control guns.

Later, he examines the consequences of a series of wage and price controls instituted in the 1970s by the Nixon administration and upheld or carried further by the Ford and Carter administrations. What seemed like a good idea at the time resulted in terrible economic consequences in the long run.

Sowell points out that many politicians just feel an overwhelming need to "do something" whenever there is a crisis at hand.

Doing something almost always seems like such a good idea, to those who do not look beyond stage one, that they see no need to look back at history or to apply economics. The alternative to a "do something" approach is not to have the government always do absolutely nothing but,rather, to recognize that governments can only do something specific-- and that these specifics must be assessed in terms of their specific erffects, both immediate and long-term, as well as the general effects of extended experimentation.

The second chapter, "Free and unfree labor" begins by talking about the history of slavery. It was interesting reading a book by one of the handful of famous black people in the field of economics discussing the pros and cons of various types of slavery. Sowell actually points out that slaves in the southern United States prior to the U.S. Civil War were treated very well compared to other forced labor situations throughout history.

This chapter also touches on crime as an occuptation, and indentured servitude.

The third chapter dives into the economics of medical care. It's no surprise that Sowell makes a strong case against government-subsidized healthcare (i.e. "Universal health care"). His most pronounced argument is simply that government healthcare is another way for saying "price controls" and he already discussed the disastrous effects such controls have on a market in the first chapter. He shows these effects are obvious when you look at government health care systems in Great Britain, Canada, and other countries that offer such programs.

He also discusses the economics of malpractice insurance, pharmaceutical drugs, drug advertising, and finally an extremely enlightening treatment on organ transplants and how much sense it makes to allow a legal market for organs for organ transplantation. That was really eye opening.

Chapter Four discusses the economics of housing and illustrates how government action and regulation affects pricing. He also discusses rent control, creative financing programs, segregation in housing, and other housing issues.

Chapter Five is titled "Risky Business" and is generally about the economics of insurance, but it goes beyond just the business of insurance. Most people, and certainly some politicians, don't consider risk issues when considering an issue.

One of my favorite sections of this chapter discusses how the family was traditionally the main risk reduction instutition in people's lives. This makes perfect sense when you consider how important family honor was, say, 2-300 years ago.

...the family-- the oldest insurer of all -- cautions its members, both when they are growing up and one specific occasions afterward, against various kinds of risky behavior. When families had the burden of taking care of an unwed daughter's baby, there was more chaperoning, screening of her associates, and moral stigma attached to unwed motherhood. All these things declined or disappeared after mean of these costs were shifted to government agencies.

Sowell attacks the issues of risk and insurance from a number of surprising and enlightening angles.

In Chapter Six, Sowell takes on immigration. Expecting him to jump right into the overwhelming costs to the system the illegal immigrant issue burdens our government, I was a little taken back when I a rather comprehensive look at immigration across history. He discusses cultural implications, income implications, health implications, legal and illegal immigration, economic benefits and costs to immigrants and the society they are immigrating to. It is, perhaps, the most unbiased and clearly focused treatment on immigration I've ever read.

In his conclusions, he does touch on some points specific to the hot issues in the US illegal immigration debate. For example, in comparing import of products versus import of labor:

When Americans buy a Toyota from Japan, the Toyota does not demand that the United States accomodate the Japanese language or that Americans adjust themselves to Japanese customs in their own country, much less introduce diseases into the American population. Moreover, Toyotas do not give birth to little Toyotas that can grow up with the problematic attitudes of some second generation immigrants.

Chapter seven is about discrimination. It begins by educating the reader on the distinct differences between bias, prejudice, and discrimination. Sowell points out that bias, prejudice, and discrimination are not "bad" by themselves. There are circumstances, history, and more criteria to consider before we can judge that they are bad.

From there, Sowell discusses anti-discrimination laws, affirmative action regulations and legislation, and the pros and cons (mostly cons) of each. One statement from the summary section reads:

...those who fail to qualify for particular benefits are often said to be denied "access" or "opportunity," when in fact they may have had as much access or opportunity as anyone else, but simply did not have the developed capabilities required...
...a mental test may be characterized as "culturally biased" if one group scores higher than another, as if it is impossible for different groups to have different interest, experience, upbringing, education, or other factors that would lead to a real difference being registered, rather than a biased assessment being made.

Chapter eight discusses the economic development of nations. This chapter discusses the misnomers of "developing nations," the effects of foreign aid, the importance of formal property rights, the geographic issues related to economies as well as bunch of other implications.

As I mentioned at the beginning of this review, Sowell's book is pretty heady content, but I found it refreshing as it is so clear cut. All of his statements came down on the side of common sense. Isn't that what we all wish our policy makers employed more of?

This was a really good look into the long run consequences of choices. Its impressive how most people only focus on the initial results to their potential detriment later. Something that everyone should be made aware of, but sadly probably won't.

Applied Economics: Thinking Beyond Stage One by Thomas Sowell demonstrates the application of economics to major contemporary real world problems--housing, medical care, discrimination, the economic development of nations--and is the theme of this book that tackles these and other issues head on in plain language, as distinguished from the usual jargon of economists. It examines economic policies not simply in terms of their immediate effects but also in terms of their later repercussions, which are often very different and longer lasting. The interplay of politics with economics is another theme that explores the often unintended and unexpected consequences of Applied Economics, whose examples are drawn from experiences around the world, showing how similar incentives and constraints tend to produce similar outcomes among very disparate peoples and cultures. As usual, with any book by Thomas Sowell, you will learn something and unlearn things that are just wrong but thought to be true.

Very 2003 & very American lol

I appreciate the time, research, and effort put into this book but at the end of the day the title is a bit misleading. I expected this to be a sequel to basic economics in which you might learn more difficult concepts and build on the ideas in basic economics. Unfortunately this is just case after case of ways in which government intervention cause all sorts of unexpected and unintended costs. Which is fine if that is what you are expecting but I was not. The book should really be called “hidden costs: how government intervention and regulation costs more”.

I don’t think I’d recommend this book to anyone because it just expands on many of the ideas in basic economics. Which I would recommend to literally everyone I meet. Skip this and go read basic economics instead.