Economic Facts and Fallacies 1/2

Thomas Sowell

MK: This book is interesting, but some of the judgements published there are arguable. I’ll try to avoid my own echo chamber and go through the pain of reading this point of view but can’t promise to finish the book.

1/ The Power of Fallacies

  • People are using common terms implying different meanings and thus becoming deaf to what the other party is saying. [MK: if they care to listen at all and not to expect others to talk cliches.]

  • The zero-sum fallacy: one’s gain is someone else’s loss. One wonders why economic voluntary activity still stakes place if one party if bound to lose. It’s damaging to the people and businesses.

  • But, say, the government can impose policies that (while attempting to address a particular issue) reduce the ZOPA (zone of possible agreement) for both parties and reduce the number of transactions, thus making both parties worse off as a whole [MK: in Russian this means “butt”, and the implications can’t be ignored].

  • The examples are rent control making building new units uneconomical and the workplace laws making hiring permanent staff uneconomical since there are lots of hurdles to let go even of the worst underperformer.

  • The fallacy of composition is the belief that what is true of a part is true of the whole. Helping one group of people at the expense of another under any possible guise is an example. Privatizing gains and nationalizing losses is another example of a crony government policy.

  • Inviting rich citizens [MK: Miami + Austin inviting rich Silicon Valley folks to enjoy their low taxes] makes sense, but the societal cost is kicking out poorer people, so on a large scale this is a net loss to the society. Displaced citizens simply move their habits elsewhere.

  • Government policies are not voluntary transactions, so the negative- or zero-sum operations can continue indefinitely without anyone’s being accountable for it.

  • It may sound too libertarian, but the government spending to boost economic activity (provided it’s the tax revenue being spent, not the newly minted money) is less efficient (i.e., a negative-sum game) than if the money remained with the original taxpayers. [MK: this is true if the government doesn’t provide any sort of safety net for the less fortunate, otherwise it’s a shade of grey and, of course, a huge arguing point.]

  • The Post Hoc Fallacy: event A happened after event B, so B is the cause for A. The examples are the Great Depression that followed, but was not caused by, the 1929 stock market crash, or the politicians’ attempts to “own” the predecessors’ policies, or the CEOs boasting their achievements that had nothing to do with them.

  • The Chess-Pieces Fallacy is when the corporate CEOs or government officials believe people are just pieces in a chess game, and their values, plans and wills can be ignored. Most social experiments fail, thus creating a negative-sum game for those involved. This also causes uncertainty … or wait.. the COVID response of most countries’ governments can be classified as such!

  • The Open-Ended Fallacy is a tricky one because it goes against the “good” in the society, i.e. one can always make an argument for diverting resources towards doing more of the good thing: health, education, crime control, etc. “Open-ended” here means that there’s no end in sight when the actor can say: “OK, this chapter is closed for good, moving on to another trouble”. It’s a very popular tool of the populists and people who don’t understand (or deliberately ignore) what budgeting is and what alternative uses for funds there are.

  • Also, there’s unlimited extrapolation, when trends are taken at face value and are extrapolated to the point of ridicule. I’m talking about infinite population growth or peak oil. There are other (very libertarian) rebuttals of extrapolations like the lack of the need for antitrust legislation. But that’s a whole different topic worth a book in itself.

2/ Urban Facts and Fallacies

Transportation

At the very least, cities have to supply people with food and send-receive goods in a trade, so it makes sense to place cities as close to the transportation interchanges as possible (and preferably closer to the waterways as water transportation is cheaper than via land).

The spreading of communities was made possible by reduced transportation costs. [MK: one wonders what the long-term effect of COVID might be?] Proximity of distance was replaced by proximity of time.

The concentration of people in cities is the very reason why cities can offer large infrastructure projects (hospitals, theatres, cathedrals), which are only affordable when their costs can be spread around large communities.

Overpopulation is NOT the reason for poverty; quite the opposite – poor people have higher chance of survival when they’re in large communities.

Suburbs (and the associated transportation costs) only became affordable to people since 1950+ thanks to the ubiquity of automobiles.

Automobiles have dramatically increased the area of job search making most jobs accessible; they at some point were more important in securing a job than a high school diploma. Also say hello to rush-hour congestions, which have their own costs of wasted time and fuel - $1000 to $1500 per year per motorist.

Closing streets to traffic can (and does) kill businesses on these streets as many people don’t associate walking and shopping. And since these decisions are made by government officials who pay no price for the wrong decisions, they are reversed decades later than they should.

Roads are a public good (unless they’re built with private money, in this case they’re an extortion mechanism), and any public good can fall victim to excessive use. [MK: The book claims that tolls and toll increases change driver’s behaviours and the routes they take, but my personal experience living in Sydney when paid roads are the fact of life tells me that drivers simply absorb the extra costs and dig into their savings or food budgets. Quite anecdotally, in Sydney the introduction of peak charges made rush hours longer, not spread out as planned – in the pre-COVID times, of course.]

There’s the mass transit vs road building argument where the advocates of the former say that cars are bad and electric buses or trains move people faster with less emissions. There, in fact, are good arguments for and against both approaches, but there are three things I want to throw into the mix: a) most cities have deficit budgets, so they need more taxpayers, and ubiquitous public transportation helps keep more people on smaller pieces of the land; b) driving a car poses less risk of catching COVID than being in a public transport; and c) the de-facto unemployed delivery couriers or Uber drivers have become an essential part of the “new economy”, but are stretching the limits of the “old economy” infrastructure (i.e. get a free ride of some sorts).

MK: The book clearly has a bone to pick with mass transit and is quite aggressive about “let the people choose!” kind of argument. It conveniently ignores the facts that: a) more and more people drop car ownership completely choosing to share cars, or Uber-style taxis, or public transport; b) public transportation (among other uses) provides the people in the government or service sector (nurses, police, teachers, cooks, etc.) or the underprivileged (students, minimum-wage workers) the opportunity to commute to work or study without the need to spend all their savings on a car. The counterargument that “some employers can send vans to pick up workers from neighbourhoods, so there’s no transportation problem” seems very shallow.

Part 2.