Saturday, November 22, 2008

Thomas Sowell and the economic crisis

Thomas Sowell is a brilliant economist; a Senior Fellow at the Hoover Institution of Stanford University. I've been reading his book, Basic Economics which was written before the current economic crisis. Sowell writes:
Any given firm or industry can always be rescued by a sufficiently large government intervention...The interaction that is ignored by those advocating such policies is that everything the government spends is taken from somebody else. The 10,000 jobs saved in the widget industry may be a the expense of 15,000 jobs lost elsewhere in the economy by the government taxing away the resources need to keep those other people employed...The fallacy is in believing that these are net savings of jobs for the economy as a whole (Sowell, Thomas. Basic Economics, 3rd ed. 2007).

Sounds to me like the economic bailout is just smoke and mirrors designed to protect the rich and powerful. The job losses have apparently just been put off for another day and in other sectors of the economy.

1 comment:

Kevin said...

What we may be seeing is that our government has too much money and too much power, and by accumulating so much money and power they have influenced the markets and have played a significant role in creating these crisis.

Sowell's underlying premise is that central planning will fail because central planners do not have enough information and could never process all of the possible information or the nuance of it to actually make definitive decisions, so eventually they fail. A valid theory and I think over time (years, not decades) it proves itself to be true... BUT, it may be that once in awhile when the failure of an industry could create a chain reaction throughout the entire economy... the central planners might be right, they may gamble and stave off a worse crisis (although it would be hard or impossible to prove that they were successful).

Either way... we're in this mess now, more bailouts don't make sense... fiscal responsibility, reducing spending, and curtailing governments overstepping its bounds will help this economy. For example, instead of meddling in private business the government and courts should be restricted from taking freedoms away from companies to target specific groups of people. In the case of eHarmony, the "do gooder" government has wasted tax dollars in the courts, wasted corporate resources in the courts, and now will waste additional resources to create a same-sex relationship service from a company that is built on an algorithm designed for and fed w/ with data from heterosexual couples. Not only will this waste eHarmony's resources, but it could harm other same-sex specific businesses whose systems are tailored to the psychology of people seeking same-sex relationships.

My point... hopefully the government got it right, but the more they spend, the more they legislate, the more we lose freedoms. Freedom doesn't always work out like you want it to... but it's better than the alternative.