Interviewing Thomas Sowell about the 5th Edition of His Classic Book, “Basic Economics.”

I was delighted to have an opportunity to interview the great Thomas Sowell for an 11th time about his latest work, “Basic Economics–5th Edition.” What follows is a slightly edited transcript of our conversation. Enjoy!

First one, in the new chapter of your book, you note it’s not the size of a population that determines its wealth; it’s the productivity. Since America’s population seems to both be aging rapidly, aging out of the workforce while simultaneously we seem to be adding more and more people to government assistance as a percentage of the population, doesn’t that suggest America is on track to become significantly less wealthy?

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Wow.  I usually avoid predictions given the track record of economists’ predictions because so many things could change.

Sure.

If, if we continue on the same path, obviously you’re going to get down to, you know, a very small number of people being taxed to support a very large number of people.

Well, let me ask you another question. It’s a little related to that one and it generally fits with a lot of themes in your book. It’s an abbreviated Mark Steyn quote I’m going to read to you that stuck with me. Here’s Steyn, “Once upon a time you were a kid until you were 13 or so and then you worked, then you died. The bit between childhood and death has now been chewed away on both ends.  We’ve invented something called adolescence that not only merely extends to the teenage years, but through half a decade of college.  At the other end of the spectrum we introduce something called retirement that in the space of two generations has led to the presumption that able-bodied citizens are entitled to spend the last couple of decades, 1/3 of their adult lives as a long holiday weekend.  The bit between, the bit between adolescence and retirement is your working life and it’s been getting shorter and shorter — which is unfortunate as it has to pay for everything else.  This structural deformity in the life cycle of the Western man is at the root of most of our problems.”

What do you think of that?  Have we gotten to a point where we’re actually just taking too much, we’re just not productive enough?  We’re spending too much time before we start working and too much time after we’re working to support our lifestyles anymore?

Well, I think that adolescence is a major problem a lot of times because that adolescence could go on to age 30 easily.  Suppose someone is going for a PhD or for medical school, you know, you’re going to be pushing 30, if not at 30, by the time you get out of that.

Right.

That means that you, you will not have taken on adult responsibilities that are supporting yourself until you’re pretty well advanced.  I’ve often thought that if we were deciding on voting ages on the basis of maturity and knowledge, the age should have been raised to at least 30.

There has been a lot of talk about illegal immigration lately and whether it’s good for the economy or not.  That’s a big discussion point.  At a time when a lot of Americans are unemployed, would legalizing large numbers of foreign workers who are generally thought to be less educated and have less skills than most American workers help or harm the country as a whole economically and also would it benefit or harm poor Americans?

If we’re going to be adding people who have advanced degrees in physics and things like that, then there’s something to be said for it, whereas what we’re really doing is not even selecting.  Whoever has the guts to go across the border gets here, and much of that immigration is going to be very low skilled people who are going to make life that much less good for American lower skilled people.

And it’s amazing that so many of those who make so much to-do about poverty in America and what we ought to do about it, are bringing in millions of people who are going to add to the poverty problem. I guess what they have in mind is they will simply keep Americans in poverty on the dole and work the foreigners in poverty.  That has happened in a number of countries; in fact, I did a couple of trips completely around the world and I was struck in Japan by the fact that the maids and the people who deliver the food to your rooms were all Japanese.

That was not the usual case.  I mean in France the people who did that were not French.  In England they weren’t English and in many American hotels they’re not native-born Americans.  In a lot of places, you feel like you ought to know Spanish if you want to talk to the people who are delivering the food or cleaning the rooms.  And I think it’s at best a tragedy and at worst, a monumental catastrophe.

I think we ought to look at what’s happened in Europe. They have imported millions of unassimilable people, many of whom hate their guts and create acts of terrorism within Europe.

You talk about monopolies and cartels in the book.  Given the immense size some businesses have grown to, do you think we’ve become too complacent about protecting consumers from monopolies and should the government be more aggressive in dealing with everything from too-big-to-fail banks to Microsoft? 

I think monopolies are a lot easier to talk about than they are to create and without the help of government, it’s very hard to maintain a monopoly.  And I can think of only one major monopoly that existed independently of government and that’s the Aluminum Company of America.  And even in that case the Aluminum Company of America I think was founded somewhere around the 1890s or whatnot.

And they were a monopoly in the sense that they produced all the, at one time, all the virgin in-got aluminum, that is aluminum that had been made from raw materials.  That’s the thing, that aluminum that was recycled from old cans and stuff.  The Aluminum Company of America, the price of aluminum first of all declined over the decades to a fraction of what it was when the Aluminum Company of America was formed.

And you might say, “How can that be if they’re a monopoly?”  And the answer is that, you know, a monopoly depends like so many things on what your definition is.  Alcoa made the only virgin. Alcoa was smart enough to know that if you jack up the price of aluminum, all kinds of things could be made out of all kinds of other materials from steel to plastics, so they were not a monopoly in the classic textbook sense.

Very few producers are monopolies, even Microsoft, you know. Apple has its own system, Linux has its own system, and they prosecute Microsoft as if it is a monopoly in the textbook sense when, in fact, it’s not.

So, really, you don’t think it’s a big concern?  It’s something we probably shouldn’t worry very much about?

I worry much more about the government trying to regulate or prosecute monopolies than I do about the monopolies themselves partly because the government is ready to call almost anything a monopoly that they want to prosecute.  For example, the Palo Alto Daily is a newspaper that publishes obviously in Palo Alto and it’s the only daily newspaper published with its headquarters in Palo Alto.  It’s utterly meaningless.  You can live for years in Palo Alto without ever picking up a copy of the Palo Alto Daily.

Of course, if you want to go to the movies, the San Francisco Chronicle tells you; you want to get world information, the New York Times will tell you. The Wall Street Journal is actually physically printed in Palo Alto. I suspect that there are far more people in Palo Alto who buy these papers than there are who buy the Palo Alto Daily. So much of it is a matter of word games.

Now I do have one question from outside the book.  It’s an interesting argument you made that I hadn’t seen anybody else making. You said that we should dramatically increase the salaries of members of Congress.  Why is that?

Not that the current members of Congress deserve it, but precisely because we want to get a lot better people than the current members of Congress.  I mean anything better, we know we usually have to pay more for it. I think it would be enormously important:  one, to get, I would combine the term limits, or rather a term limit singular.  I would say you have a term and when it’s over, you’re gone because if you have multiple terms, it means the first term is going to be spent trying to get reelected.

If you allow three terms, then the first two terms will be spent trying to get reelected.  And, in fact, if a person is going to go on to another position, all three terms would be spent trying to get reelected.  And I don’t think that problems with the country are beyond the capabilities of Congress or other legislative bodies.  It’s just that all these senators ought to devote your time and energy towards reelection.

And I, when I think of all the Americans who donate their time to all kinds of philanthropic organizations, running them, doing the routine work and all the way up to the executive work, there are plenty of people who can serve in Congress a lot better than the people we have, but the ones who are the best qualified are usually making a salary that would require a huge sacrifice to their families’ interest.

I mean a surgeon or even a successful economist would end up having to take a hit of more than half their income to serve in Congress.  Or even to be President. I’ve thrown in the notion of a million dollars a year. If you paid every member of Congress, for example, a million dollars a year for an entire century, it would be less than it cost to run the Department of Agriculture for one year. So we are being penny-wise and pound foolish in getting cheap politicians who are in fact expensive politicians because they lavish the taxpayers’ money on buying votes from the right constituencies.

That’s a good point on that and a very interesting point, too.  Last question: we have had very low interest rates for a very long time; what are the dangers of that Federal Reserve policy?

The danger is in allowing the preconceptions of people who serve on the Federal Reserve to determine what the income of the various people in this society are going to be.  People who have saved money over their lifetimes are now essentially getting zero interest rates.  They’re actually getting negative interest rates in the sense that when you put your money in the bank, these incredibly tiny interest rates they have are lower than the inflation rate.

And so your money is being slowly stolen as each year goes by. The bias built in is that the Federal Reserve is likely to pay far more attention to how the interest rate makes it harder or easier to finance the national debt than they are to how the economy would work so much better if you had more people saving because they had a bigger return on their interest rate.

When the Federal Reserve was set up, Woodrow Wilson made a big stew about the fact that these would not be private bankers, you know, serving their own selfish interests — that these would be unbiased public officials.  And it’s nonsense.  There’s nothing unbiased about being on the Federal Reserve.

You know that if the President appointed you and you know that if, if the Federal Reserve would’ve raised the interest rate to five percent, which has been in times past — just paying the interest on the national debt, $18 trillion at five percent would be staggering.  And so they’re not going to do it because they find it politically inexpedient to do something like that.  I mean they’d have hell to pay.  For one thing, the head of the Federal Reserve would never get reappointed.

Mr. Sowell, I appreciate your time.

Thank you.

Once again, Thomas Sowell’s latest work is “Basic Economics–5th Edition.” On a personal note, I’ve read a previous edition of “Basic Economics” and found it to be one of the finest books on economics that I’ve ever read.

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