Book review: Economic Facts and Fallacies

Over the last few years, a number of people (including some students) have recommended that I read books by Thomas Sowell. I have a few of his books, but until recently I had never read any of them. The one that I chose to begin with was the 2011 second edition of Economic Facts and Fallacies, which I just finished reading.

To be honest, I found it a bit uneven. Sowell is an excellent writer, and the book is easy to read. However, in this book he clearly had some pet hates that he wanted to air. The book sets out a grand purpose:

The purpose of all this is not simply a debunking, in order to conduct a sort of demolition derby of ideas, but to reveal fallacies that have had harmful effects on the well-being of millions of people in countries around the world. Economic policies based on fallacies can be - and have been - devastating in their impacts.

That charge against economic policies seems fair, for example there are those policies that were highlighted in Joseph Stiglitz's book Globalization and Its Discontents (which I reviewed recently here). Sowell begins the book by outlining some specific categories of fallacies, including the 'zero-sum fallacy' (that what is gained by one person must have been lost by someone else), the fallacy of composition (that what is true of a part must be true of the whole), the post hoc fallacy (that because one thing happened after another, the second event must have been caused by the first), the chess-pieces fallacy (that policy can be devised to change people's behaviour in much the same way that a chess player moves pieces on a chess board), and the open-ended fallacy (that there is no scarcity, and no matter how much is done, more could be).

Those fallacies are well explained (much better than I could do in a single sentence). However, for the most part, the first chapter is the only place where those fallacies are encountered. After the first chapter, Sowell launches into what he considers various fallacies, generally without referencing any of them back to the types he outlined in the opening chapter. That left me wondering why the need to outline those fallacies in the first place. To be fair, they are in there, especially the fallacy of composition. It is just that Sowell doesn't refer to them much, if at all.

Each chapter after the first outlines a collection of fallacies within a topic area, and outlines various facts and research that Sowell uses to argue against the fallacy. He begins with urban fallacies, and then moves onto gender, academia, income, race, and development. Sowell clearly has a lot of bugbears that he wants to counter. However, he often overstates his case, and in some instances I believe he creates his own fallacious strawman arguments in order to do so. For instance, in relation to the declining middle class:

One of the simplest statistical illusions has been created by defining the middle class by some fixed interval of income - such as between $40,000 and $60,000 - and then counting how many people are in that interval over the years... the number of middle class people declines when there is a fixed definition of "middle class" in a country with rising levels of income.

The second part of the quote is correct, but is generated by the original claim that the middle class is based on a fixed level of income. I'm unaware of anyone serious who has made that claim, and Sowell doesn't attribute that claim to anyone (despite providing a number of references throughout the book). He sets up a strawman argument, and then sets it on fire. There are several other examples where he does the same, such as his claim that:

Here are encapsulated the crucial elements in most critiques of "income distribution" to this day... In reality, most income is not distributed, so the fashionable metaphor of "income distribution" is misleading.

People refer to the 'income distribution' because it is a statistical distribution, not because they believe that income is distributed (for example, by the government). Sowell walks back that claim a couple of pages later, but I find it highly ironic that he accuses advocates of redistribution of engaging in "verbal sleight of hand". To me, a significant portion of this book is a master class in verbal sleight of hand.

One further example of this should suffice. In considering audit studies (such as the one I described here), where researchers send out job applications that differ only in the race of the applicant in order to identify the extent of racial discrimination in decisions to invite applicants to a job interview, Sowell writes:

The fallacy in this approach comes from ignoring the high cost of knowledge and the high costs of making wrong decisions. Neither objective job qualifications nor income tell the whole story for anyone of any race. Other sorting devices may be resorted to where acquiring more specific information is costly, such as seeking more detailed information from previous employers - which many former employers are reluctant to provide, given the legal risks they face when providing adverse information - or hiring private detectives to look into the private lives of job applicants, housing applicants, or applicants for loans.

If the samples in audit studies are matched across all criteria except race, then none of these other considerations matter. Sowell sells an eloquent story here, but he is really just engaging in obfuscation.

The book is not all bad, though, just uneven. On the positive side, I found myself agreeing wholeheartedly when Sowell writes:

Concerns over poverty is often confused with concern over differences in income, as if the wealth of the wealthy derives from the poverty of the poor.

This is a point that I have made before (e.g. see here or here). There are many other examples of fallacious arguments that Sowell adeptly dismantles, especially those that are used by decision-makers (like bureaucrats, or university administrators) to impose costs on others. Clearly, imposing costs on others where a decision-maker faces no consequences themselves is one of Sowell's pet hates.

Overall, the book is easy to read, and may go some way towards helping readers to recognise that people make fallacious arguments to support their preferred policy prescriptions. However, as I'll note in my next post, it is unlikely that simply exposing those fallacies and arguing against them will actually change anyone's mind.