Thomas Sowell on The Great Depression and Economic Recovery

Sowell writes:

Guess who said the following: "We have tried spending money. We are spending more than we have ever spent before and it does not work." ...

It was Henry Morgenthau, Secretary of the Treasury under President Franklin D. Roosevelt and one of FDR's closest advisers.

He added, "after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!"...

Far from pulling the country out of the Great Depression by following Keynesian policies, FDR created policies that prolonged the depression until it was more than twice as long as any other depression in American history. Moreover, Roosevelt's ad hoc improvisations followed nothing as coherent as Keynesian economics...

It is not a pretty story. But we need to understand it if we want to avoid the ugly consequences of very similar policies today.

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Thomas Sowell on Moral Hazard

One of the things that makes it tough to figure out how much has to be charged for insurance is that people behave differently when they are insured from the way they behave when they are not insured.

In other words, if one person out of 10,000 has his car set on fire, and it costs an average of $10,000 to restore the car to its previous condition, then it might seem as if charging one dollar to all 10,000 people would be enough to cover the cost of paying $10,000 to the one person whose car that will need to be repaired. But the joker in this deal is that people whose cars are insured may not be as cautious as other people are about what kinds of neighborhoods they park their car in...

Although "moral hazard" is an insurance term, it applies to other government policies besides insurance. International studies show that people in countries with more generous and long-lasting unemployment compensation spend less time looking for jobs. In the United States, where unemployment compensation is less generous than in Western Europe, unemployed Americans spend more hours looking for work than do unemployed Europeans in countries with more generous unemployment compensation.

People change their behavior in other ways when the government pays with the taxpayers' money. After welfare became more readily available in the 1960s, unwed motherhood skyrocketed. The country is still paying the price for that – of which the money is the least of it. Children raised by single mothers on welfare have far higher rates of crime, welfare and other social pathology.

San Francisco has been one of the most generous cities in the country when it comes to subsidizing the homeless. Should we be surprised that homelessness is a big problem in San Francisco?...

We all need safety nets. That is why we "save for a rainy day," instead of living it up to the limit of our income and beyond.

We also hear a lot of talk about "the uninsured," for whose benefit we are to drastically change the whole medical-care system. But income data show that many of those uninsured people have incomes from which they could easily afford insurance. But they can live it up instead, because the government has mandated that hospital emergency rooms treat everyone.

All of this is a large hazard to taxpayers. And it is not very moral.

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Thomas Sowell on the Economy

There is no free lunch-- and the biggest price of all is paid by people who are unemployed because politicians cannot leave the economy alone to recover, as the American economy has repeatedly recovered faster when left alone than when politicians decided that they have to "do something."

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Capitalism and Public Service

from Thomas Sowell:

"It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader.

Those who have helped the poor the most have not been those who have gone around loudly expressing "compassion" for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about."

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Thomas Sowell on the Bailout

Thomas Sowell: Bailout Politics

1. Nothing could more painfully demonstrate what is wrong with Congress than the current financial crisis. Among the Congressional "leaders" invited to the White House to devise a bailout "solution" are the very people who have for years created the risks that have now come home to roost.

2. The idea that politicians can assess risks better than people who have spent their whole careers assessing risks should have been so obviously absurd that no one would take it seriously. But the magic words "affordable housing" and the ugly word "redlining" led to politicians directing where loans and investments should go, with such things as the Community Reinvestment Act and various other coercions and threats.

3. If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out. It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.

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Economics, Gas Prices, and Emotion

Too "Complex"?
Thomas Sowell

Some people think that the reason the public misunderstands so many issues is that these issues are too "complex" for most voters. But is that really so?

With all the commotion in the media and in politics about the high price of gasoline, is there really some terribly complex explanation?

Is there anything complex about the fact that with two countries-- India and China-- having rapid economic growth, and with combined populations 8 times that of the United States, they are creating an increased demand for the world's oil supply?

The problem is not that supply and demand is such a complex explanation. The problem is that supply and demand is not an emotionally satisfying explanation. For that, you need melodrama, heroes and villains...

If you want cheering crowds, don't bother to study economics. It will only hold you back. Tell people what they want to hear-- and they don't want to hear about supply and demand.

No, supply and demand is not too "complex." It is just not very emotionally satisfying.

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