Knowledge and Decisions

I hesitated to listen to this audio book due to its sheer length and because I know how densely packed Sowell's arguments and statistics are. But Dean Robertson is a top notch reader (I like him at 1.75x speed), and in the library audio app it's easy to skip back 15 seconds at a time when I can't keep up.

It's easy to see how this book won the Law & Economics Center Prize. Tradeoffs are always at play in decision-making, and Sowell teases them out in breadth and depth. One big takeaway is the great cost that falls on everyone by those who think they ought to make decisions for others (political, economic, social, and so on).

Great book. Kinda seems like this book is a giant version of all of his other books combined. There is quite a bit of overlap here from other books of Sowell's that I've read. For me, Basic Economics will always be the best book (maybe even that i've ever read) so it'll be hard to beat. So far nothing has really even come close. Not sure I'd necessarily recommend this book before Basic Econ.

This book is DENSE. Not light reading.

People can acquire knowledge in a variety of ways, not limited to what is already held to be true (culture, religion), as well as deliberate reasoning. Points out the difference between opinions and facts – something can become a fact if it validates a hypothesis. Someone can know how to do something from experience, like milking a cow, oftentimes moreso than someone can “know” something from reading a book. Everything economizes knowledge – instinct is knowledge so that we do not burn or hurt ourselves, or others. Culture compacts knowledge into conditions that make it conducive for us to live. These forms of knowledge impart valuable information on how to live, such that humans are not subject to “analysis paralysis” given that they have to make numerous decisions every day. There is a difference between “knowledge” a.k.a. knowing and one’s “reasoning” process – one can know many things, but have poor reasoning, or vice versa. In the social sciences, there is no good authentication process a lot of the time; thus, the question is, does the idea sound plausible enough, to enough people? Many forms of knowledge are easily authenticated (I.e. did a boy return from the cow with a pail of milk). Thus, there exists an issue between authenticating knowledge and time. If you can write an essay about how to milk a cow, that does not mean you know how to milk a cow. Points to the kinds of decisions we have to make in life – some are a “package deal”, while others can occur piece by piece, or incrementally. Some costs are so great to reverse that we will not undergo a decision – the cost of being bound by a precedent can deter the initial decision (I.e. marriage). Business firms and products economize knowledge – as dad says, bring order to chaos. An example of this is a polaroid camera vs. An elaborate camera with a body, lens, etc. The knowledge of the engineer is economized into the product, and sold to the masses, not requiring the knowledge of the photographer. This is the specialization that is present in our modern economy, from products to people. We moved from a society where the individual provides for himself (in theory, I.e. the farmer, the small businessman), to where a lot of people’s fate is our of their own control, to some level. This is also reflected in the political realm, where a lot of the things that decide people’s fate is out of their hands (I.e. globalization); the “locus of decision making” has moved away from the individual and the family, and toward government and administration. As “capitalists” have become a smaller class, it gives the appearance that decisions by them originated with capitalists, and thus serve only their interests. Points again to the role of middlemen, but much of that outcry is against people who actually distribute things from the higher uses to the lower, I.e. dividing up property for use by the masses; when the wealthy really value “nice neighborhoods” or “untouched wilderness”. In this sense, the developer and the commercial interests are actually in the interest of the many, not the few. Points to political policies and their inherent difficulty; short term benefits vs. Long term consequences don’t align well with the short-term rewards desired by the politician. Also, there is a tendency to judge processes vs. End results, I.e. the malevolent intentions of “big business” vs. Lifting people out of material poverty, or judging the poor state of minorities as evidence that it is all because of a racist system. If you have processes with no effective feedback from the individuals impacted (those who received the consequences), the process is not effective. Points to other structures of business than the corporation which are available to people; coops, partnerships, etc. People with supremacy of values must be offended by market forces, where people make their own decisions for whatever reasons, be they religious or racist; self-righteous observers can see “chaos” and “Waste” by imposing their own value systems on others. Prices convey knowledge, knowledge that is distorted via controls on prices, a control that also alters incentives – many transactions that would have occurred will no longer occur -- I.e. someone who was not hired, or a house that was never lived in. In an economy, knowledge is only useful if it can be effectively applied; actually milking the cow. Points to the choices made by “decision making units”, which are the individual people who make up the society – society is not a decision making unit as a whole. Points to inflation as a form of redistribution. Many people engage in speculation in the course of their normal life -- I.e. farmers speculate on the future price of a crop, even having a child is a form of speculation as it relates to the happiness it may or may not bring you. Points to the very high failure rate of businesses, yet people analyze mostly in terms of the success of “for profit” businesses (which can wind up being not for profit). Ideas of how to do things better are crucial to the advancement of society – how to make a business more efficient, etc. Points to Disney and how his success was in his ideas of his comics, and that Disney himself was not superfluous even when they tried to do the same thing as Disney the animator in his early career without Disney himself. What often happens with progress is that the economy can grow as a result; horse and buggy meant lost jobs, but then there were many more jobs for people to make cars. Rewarding “merit” is to reward a subjective estimate of input, vs rewarding tangible results. Demography and age in particular can distort statistics on race and achievement. “Dedication to high and selfless ideals can be no more effectively demonstrated than by trading off financial gains in the interest of such ideals.” Culture can limit people’s actions; guilt, pride, shame and honor can be powerful forces that guide society along, without having to resort to law enforcement. Evolution is a process; it is not planned, as an economy (does not have) to be; Adam Smith did not think the capitalists good, nor did Karl Marx. But Smith thought the overall outcome was good, the “invisible hand.” Unplanned processes may reward those who are not the most deserving; it just gives us all the best results possible; the “best” fish can die if their lake dries up. Says one of the issues of cultures side by side is it can lead to misunderstandings, higher levels of defenses, and a disproportionate ability to create intergroup conflict via the most bigoted members. Telling voters that what they want is not possible or realistic is not a good strategy for winning elections. “Progress” may look at history and insist that it was the insistence of better things, rather than technology/organizational advances over time, which has led to the progress. The natural fact of groups and incumbent interests is that they can organize, they are entrenched; those groups which are not incumbents or do not exist will have a hard time forming a coalition together. Thus, bureaucracy will bar together to defend itself, and it grows in perpetuity, even past the point of diminishing returns, for the sake of its own existence; limits of knowledge to people outside the group make this possible. If our rights are made so impossible via various transaction costs, they are not really rights at all. To a political decision maker, what matters is how his current decisions impact his chances for higher prospects elsewhere, or reelection. Thus, incumbents of all forms will favor policies which favor themselves, and not those who are not incumbents already. Incumbents can try to legislate their way out of failure, be they a business or a group of people. It is hard for voters to connect the costs of a particular policy with a long-run change occurring a decade later, or more. Businesses can evolve; governmental mandates oftentimes cannot, requiring that the government agency become mere bloat to support its own existence and meaning, as concerned for by the people who work there. Government does not need to produce a profit, thus there is a lack of guidance in that sense, and there can always be more “need”, for more whatever it is, or more people. “The lifeblood of politics is popular emotion, and categorial declarations capture that emotion. No one is going to man the barricades for a little more of A and a little less of B... competition among political groups... promotes exaggerated hopes and fears—and sometimes deeds.” “Whatever the optimal rate of change for a given political entity... that optimal rate for a given political practitioner or party is likely to be greater, since he can gain as the … champion... by his divisiveness.” Incentives and constraints on bureaucracy remain the same unless systems are changed; replacing one group of people with another will generally produce similar results. The lifecycle of a regulatory agency can change as zealots who wanted change are replaced with bureaucrats as the agency takes a real form; thus, the incentives presented attract different kinds of people. Insurgent groups may “betray” ideals once they have access to new information that they did not have before. “The desire to judge systemic results morally can be seen in the medieval practice of attributing plagues to sins which had aroused the anger of God, or the modern practice of attributing unhappy systemic results in general to the moral failings of a personified ‘society’.” Whatever system, desires may remain unsatisfied; Sowell does not accept that all “problems" can be “solved.” “A state without the means of some change is without the means of its preservation” -Edmund Burke. Socially optimal results requires considering the damage done to traditional institutions via government programs -- I.e. compulsory school attendance, welfare, etc. The efficiencies that can lead bulk stores to sell cheaper – the fact there are not as many transportation costs – are real efficiencies. Costs are also sunk; economic decisions are made going forward, such as if you have a bunch of product you cannot unload. Thus, were the antitrust and competitive price laws of the 70s productive? Minimum wage laws produce a higher quality employee, but then many people (often of color) are left out of the job marketplace. The costs of living in a small town are isolated from the rest of people; a stamp still gets your letter to an address, etc. “Jitneys” (the name for a nickel) were a way to carpool and catch a ride; they got regulated against to protect public transportation, the incumbents – a market carpool was very efficient (vs. Non market carpools, which can’t just pick someone up at the side of the road). Being “pro incumbent” is a practical political position, as incumbents are organized. Assigning property rights, as to a radio frequency, is a social gain, but the ability to assign it inherently leads to corruption. “Needs” of society relate to the price of things – if price of housing goes down, demand for it can go up, as people stop doubling up in rooms, etc. Thus, where does the demand end, vs. A subjective standard of “need”. Property rights contain a set of options with them; the value of property thus related to the rights that are associated with it. Capping profit “rates” can just lead to institutions bloating to try to get money in other ways (expenses, payroll count, etc). Occupational licensing acts to reduce the quantity of new practitioners, and results in higher prices, to “protect” the public. Pervasive class bias can be seen in protecting the environment, against those developments and things which cater to the masses. “Apparently the trade off between convenience and aesthetics is different for those with less money and older cars... zoning allows some people to impose their values and life style on others who may not share the values or be able to afford the lfie-style.” (auto repair shops and houses comingling). The point of antitrust is to protect competition in the market, and to keep firms from reducing the options available to consumers. Thus, partial market share or concentration is not a valid reason for antitrust. “Everyone is entitled to a living” - Patman (Sowell says this comes at the expense of the consumer). We can get rid of failing schools by letting people pass; what does a “high school degree” then mean in operational terms? People do not know their own tradeoffs until they have to actually do it; subjective judgments, I.e. would you sell your fridge or your car to be able to afford food. You can say what you would do, but that is not what you do if you actually have to. People perceive the physical production of something to be that only thing which generates economic value; getting something from A to B is considered “exploitation.” (see cries of angry people at guy who bought up a bunch of hand sanitizer to sell online). Abuse of power is pervasive across economic systems; it is not a defining characteristic of capitalism. Abuse of power is abuse of power. Administrative agencies and regulations have overtaken the government, sometimes rendering rights moot; expansion of government reduces its representativeness. Hypotheses used as axioms is not good reasoning; discrimination definitely plays a role in outcomes for minorities, but it is not considered to what extent other causes play a role; this is a big part of the victimization approach. “Freedom is precisely the right to behave contrary to the values, desires or beliefs of others. To say that this right can never be absolute is only to say that freedom itself can never be absolute.” Questions how poor the American poor are really, calling consumption into question. “If prosperity could come only from the united efforts of upright and noble-minded people, all of mankind would still be sunk in poverty.” James Baldwin says Americans are “the most dishonorable and violent people in the world” without considering Nazis and Russians. “Moralism is fatal to freedom” a former friend of Robespierre.

One of the classics. A masterpiece.

In this landmark work Sowell charts the movement, diffusion and transmission of knowledge in economics, politics, and law through various feedback channels and the incentives/constraints that govern them, as well as the costs, benefits and tradeoffs that go along with acquiring that knowledge. He covers a remarkable breadth of ground, bringing common sense empirically based arguments to the fore on issues as large as socialism and judicial activism to those as small as busing and age preferences. Sowell consistently brings new and interesting arguments and evidence to old issues, as he seemingly does in almost all of his works.

"Knowledge and Decisions" is more time consuming than most of Sowell's other works, but it's a treatise on information flow and more importantly how and why we humans live and interact with each other in the ways we do every day. It is well worth the investment.

Intellectuals exist in order to promote their own wit, ok that was nice :)
the book is very deep and extensive, mathematics spoken with words and explains the thinking behinds many decisions. I wonder if he forgot anything, if he did we will see a new edition soon.
However, must say that this is not a book for listening but for reading, so don't buy the audiobook but the actual paper version.

Essential.

Loved the way he built on the basics of knowledge which ultimately led to decisions on the highest levels of goverment. Well reasoned and very thought provoking.