A couple of the Senators who questioned Fed Chair Yellen today mentioned her “historic” appointment. This is simpleminded identity politics. The Fed has been run by the tribe for thirty years. You know which tribe we mean – Keynesians! So, this one is female. Big deal. How about putting Thomas Sowell in there? Now, that would be historic.
Tag Archives: Sowell
It is time for another lesson in basic economics – which, by the way, is the title of Dr. Sowell’s book. Today we expose the fallacy behind the “trickle down” theory.
This is a powerful metaphor, because we can easily imagine wealth flowing from some source on high, like a mountain spring. The rich have elbowed their way up to the source. From where we are, we can’t even see it. We don’t know that they are, in fact, creating the wealth.
Believe it or not, the people who run the factories and sign the paychecks are creating new wealth in the economy. When Henry Ford made automobiles widely available, he opened up a new capability which translated into real wealth. The same goes for Howard Hughes, Steve Jobs and, on a smaller scale, Earl down the street at Earl’s Tool & Die.
Jeremiah is writing for those who were raised to believe that there is a fixed amount of wealth. This is called zero sum thinking, where one man’s gain is another’s loss. Consider this – planet Earth now supports billions of people, most of them adequately fed, and many with a standard of living once reserved for royalty. Louis XIV never had an iPhone.
We take advancing technology for granted, and we don’t see it for what it is – people creating new wealth on the planet. True, not all wealth is created fresh. Some is indeed the result of exploitation. We’ll close this one with a riddle. What is the biggest entity you can think of that does not create any wealth, but only moves it around, and consumes much in the process?
Vice President Biden recently said that the fiscal cliff could be avoided – snapping his fingers – like that! Congress merely has to accept higher taxes on the rich, and President Obama will sign. You may recall the president brandishing his pen.
Raising tax rates on the top two percent will not garner enough additional revenue to run the government for ten days.
What the vice president means – and the president, and the popular media – is merely that the deadline will be moved. Our fiscal crisis will persist, but the self-imposed deadline known as the “fiscal cliff” will be repealed.
No one is talking about the root problem. This whole debate is about obtaining the president’s permission to kick the can down the road. The American people are easily distracted. Let’s hope the bond market is fooled, too.
Mark Twain said, “there are lies, damned lies, and statistics.” Those with training in statistics are alert to its many deceptions – as are the spin doctors. The populist rage against the top 1% income bracket is an especially dangerous fallacy. It gives the impression that the 1% are a specific group of people hogging all the income. In fact, any survey will have a top 1%, and a top 10%, and a bottom 10%. You will find different people in these categories every time you run the survey.
Our favorite economist, Dr. Thomas Sowell, calls this the “enduring class” fallacy. In fact, someone in the top 1% this year probably wasn’t there last year – and probably won’t last two years. This churn among all income levels is called social mobility, and it’s what makes America the “land of opportunity.”
The enduring class fallacy dovetails with the zero-sum fallacy, which Dr. Sowell has debunked elsewhere:
“There is a lot of anger and it’s for a very good reason,” Wolff said. “If all of the income gain goes to the top, there’s not much left to go to the rest of the people.”
Unbelievably, the fellow quoted above is an economist. This idea is just ridiculous. No one has actually believed it since, maybe, Mao – and it’s likely the Marxists only use it for recruiting. It seems appropriate to cite an iconic Democrat in rebuttal:
As they say on my own Cape Cod, a rising tide lifts all the boats. And a partnership, by definition, serves both partners, without domination or unfair advantage.
It was lovely to hear that, with “pahtnership,” in the original Boston accent. In fairness, social mobility in America is not what it used to be. The OECD found that Scandinavia now has better mobility, and so did the Institute for Labor. Both studies found that it is hard for Americans to climb out of the bottom quintile, due to poor public education. That’s what we should be protesting.
Here is the latest from Thomas Sowell. This is a right-wing paper, but Sowell makes a point that should resonate with both sides. Regardless of how you feel about the Dream Act, NCLB, or workfare, you should be uncomfortable with the President – any President – overruling Congress.
Jeremiah has written about this before. Our Constitution divides power between Congress and the President for good reason. It ensures “a government of laws, and not of men.” Sowell goes on to apply the term “banana republic.”
George Clooney is raising funds for Obama, and Ted Nugent is voting Republican – but it is KISS guitarist Paul Stanley who has the last word. Asked by CNN, Mr. Stanley declined to make an endorsement, stating he was “stunned” that people look to celebrities for political advice.
There is nothing more embarrassing than people who have become famous in film or music, suddenly feeling they have a qualified opinion about anything other than film or music.
As a thought experiment, we suggest a season of American Idol judged by economists. Pictured here are Ben Bernanke, Paul Krugman, and Thomas Sowell. Not so pretty, is it?
Jeremiah has written before about bad reasons to choose a candidate, and celebrity advice has to be near the top of the list. If all you have on November 6 is some rock star’s opinion – do America a favor and stay home.
Thomas Sowell’s latest article is here. Sowell writes that lower tax rates can paradoxically increase tax revenue, by stimulating economic growth. He cites both John F. Kennedy, a Democrat, and Ronald Reagan. Kennedy famously stimulated growth by cutting taxes, declaring that “a rising tide lifts all boats.” Especially interesting is Sowell’s observation about the zero-sum mentality:
Those with a zero-sum conception of the economy often show little or no interest in the factors affecting the creation of additional wealth — as distinguished from their preoccupation with the distribution of the current level of wealth.
This echoes Jeremiah’s analogy to the fall of Rome. But don’t take his word for it. Read Professor Sowell.
See also: Books by Thomas Sowell