Thomas Sowell: Common Sense in a Senseless World

Thomas Sowell: Common Sense in a Senseless World traces Sowell’s journey from humble beginnings to the Hoover Institution, becoming one of our era’s most controversial economists, political philosophers, and prolific authors. Hosted by Jason Riley, a member of The Wall Street Journal editorial board, the one-hour program features insights from Sowell and interviews with his close friends and associates, revealing why the intensely private Thomas Sowell is considered by many to be “one of the greatest minds of the past half-century” and “the smartest person in the room.”

Thomas Sowell on the myths of economic inequality

Peter Robinson at Uncommon Knowledge of the Hoover Institution interviews Thomas Sowell about the myths of economic inequality.

Thomas Sowell discusses economic inequality, racial inequality, and the myths that have continued to falsely describe the system of poverty among different racial and economic classes. He explains the economic theories behind these pervasive myths and proposes fact-based solutions for seemingly intractable situations.

Sowell discusses his early life as a high school dropout and his first full-time job as a Western Union messenger delivering telegrams. He admits to flirting with Marxism in his early twenties as he first tried to grapple with the housing inequality he saw across the neighborhoods of New York City. Marxism, he says, was the only explanation he could find at the time. He went on to serve in the Marine Corps before continuing his education in economics at Harvard and earning a master’s at Columbia and a PhD at the University of Chicago.

Sowell’s first job after his receiving his PhD in economics was working for the Department of Labor, and he says it was there that he realized Marxism was not the answer. He argues that the government has its own institutional interests in inequality that cannot be explained through Marxism. He began to be discouraged by Marxism and the government in general and began searching for better economic ideas and solutions (the free market).

Robinson and Sowell discuss Sowell’s written works, his ideas of racial and economic inequality, the state of the United States today, and much more.

Thomas Sowell on his new book "Discrimination and Disparities"

Peter Robinson at Uncommon Knowledge of the Hoover Institution interviews Thomas Sowell about his new book Discrimination and Disparities.

Rich or poor, most people agree that wealth disparities exist. Thomas Sowell discusses the origins and impacts of those wealth disparities in his new book, Discrimination and Disparities in this episode of Uncommon Knowledge.

Sowell explains his issues with the relatively new legal standard of “disparate impact” and how it disregards the American legal principle of “burden of proof.” Sowell and Robinson discuss how economic outcomes vary greatly across individuals and groups and that concepts like “disparate impact” fail to take into account these variations.

They chat about the impact of nuclear families on the IQs of individuals, as studies have not only shown that children raised by two parents tend to have higher levels of intelligence but also that first-born and single children have even higher intelligence levels than those of younger siblings, indicating that the time and attention given by parents to their children greatly impacts the child’s future more than factors like race, environment, or genetics. Sowell talks about his book in which he wrote extensively about National Merit Scholarship finalists who more often than not were the first-born or only child in a family.

Sowell and Robinson go on to discuss historical instances of discrimination and how those instances affected economic and social issues within families, including discrimination created by housing laws in the Bay Area. They discuss unemployment rates, violence, the welfare state in regards to African American communities, and more.

Thomas Sowell and Samuel Bowles on Marx

From Thomas Sowell's book "On Classical Economics":

Not everybody judges Marx quite so harshly. In a recent article on "Marx and modern microeconomics", at VoxEU.org, Samuel Bowles argues that Marx has, in fact, contributed something significate to modern microeconomics,

Few economists doubt that Marx flunked economics, a judgement mostly based on his labour theory of value. But this column argues that Marx’s representation of the power relationship between capital and labour in the firm is an essential insight for understanding and improving modern capitalism. Indeed, this insight is incorporated into standard principal–agent models of labour and credit markets.

If the rejection of Marx is primarily about the labour theory of value then would we not also have to flunk Adam Smith? We don't so there must be more than this going on.

Bowles goes on to say,

But Marx chose to study a more challenging question: how could the domination of labour by capital take place in a private, perfectly competitive, economy governed by a liberal state? His answer was based on what seems a strikingly modern principal–agent representation of the employer–employee relationship, arising from a conflict of interest over the amount of labour effort performed that could be resolved in an enforceable contract.

In a sense, Bowles is wrong about the perfectly competitive model. Since this model is one of zero transaction costs there are no firms and the production environment is one without principal-agent problems. Firms and principal-agent issues only arise in a world of positive transaction costs.

Bowles continues by saying,

The final step in Marx’s explanation of domination in a liberal capitalist economy was the process of accumulation and technical change that supports a permanent “reserve army" (ibid) of the unemployed, and which provides the basis of the employer’s labour discipline strategy. The private ownership of the means of production conveys the right to exclude others from use of the firm’s assets, and therefore the owners of firms have a powerful threat to induce workers to supply the effort that could not be secured by contract: work hard, or join the "reserve army".

and

Marx did not explain why the labour contract was incomplete. He assumed this was an uncontroversial empirical observation and used it as the starting point for his economic theory.

Further on Bowles writes,

Just as Mendel underpinned Darwin, a more complete understanding of the incomplete labour contract developed in the twentieth century, but did not overturn Marx’s conclusions. Like Marx, Ronald Coase (1937) stressed the central role of authority in the firm’s contractual relations:

“[N]ote the character of the contract into which a factor enters that is employed within a firm ...[T]he factor ... for certain remuneration agrees to obey the directions of the entrepreneur.”

Indeed, Coase defined the firm by its political structure:

“If a workman moves from department Y to department X, he does not go because of a change in prices but because he is ordered to do so ... the distinguishing mark of the firm is the suppression of the price mechanism.” (ibid)

Herbert Simon provided the first Coasean model of the firm (Simon 1951). He represented the employment contract as an exchange in which the employees transfer control rights over their work tasks to the employer, in return for a wage. Simon stressed the advantage to the employer of this arrangement, because there was unavoidable uncertainty about the tasks that would be required over the course of the contract. Therefore there was a high cost of agreeing to a complete contractual specification of the activities to be performed. Simon did not know that he was modelling exactly the incomplete contract for labour that was the fulcrum of Marx’s economic theory.

Coase or Simon did not directly explain why control rights confer power. As an empirical matter, the firm appears to be a political institution in the sense that some members of the firm routinely give commands with the expectation that they will be obeyed, while others are constrained to follow these commands. If we say that the manager has the right to decide what the worker will do, this means only that the manager has the legitimate authority, not the power to secure compliance. Given that, in a liberal society, the manager is restricted in the kinds of punishment that can be inflicted, and given that the employee is free to leave, it is a puzzle that orders are typically obeyed.

Noticing this, Armen Alchian and Harold Demsetz challenged the Coasean idea that the firm is a mini “command economy”, suggesting that the employment contract is no different in this respect from other contracts:

“The firm ... has no power of fiat, no authority, no disciplinary action any different in the slightest degree from ordinary market contracting between any two people ... Wherein then is the relationship between a grocer and his employee different from that between a grocer and his customer?” (Alchian and Demsetz 1972)

Oliver Hart (1989) responded:

'[T]he reason that an employee is likely to be more responsive to what his employer wants than a grocer is that the employer ... can deprive the employee of the assets he works with and hire another employee to work with these assets, while the customer can only deprive the grocer of his customer and as long as the customer is small, it is presumably not very difficult for the grocer to find another customer."

In a footnote in his book "Firms, Contracts, and Financial Structure" Oliver Hart does note that,

Given its concern with power, the approach proposed in this book has something in common with Marxian theories of the capitalist-worker relationship [...]

But what is not clear is that the development of the incomplete contracts approach to the theory of the firm by Grossman-Hart-Moore owes anything directly to the Marxian theories. The connection between them seems to have been noted after the fact rather than being a driving force.

When discussing the why in the property rights theory firms rather than workers own the nonhuman assets used in production Bengt Holmstrom argues that one reason is that by putting the nonhumans assets under the control of the firm, those running the firm have the maximum power to decide how the firm is organised and run. He notes that Marx would have agreed with this, but Holmstrom disagrees with Marx about the purpose of the firm's concentration of power.

This brings me back to Sowell's point that a contribution depends not just on what is offered but also on what is accepted, and I'm not convinced that Marx's ideas were accepted in the sense that they actually drove the development of the property rights approach to the firm.

So I'm thinking that Sowell, rather than Bowles, is right in his assessment of Marx.

Dave Rubin interviews Thomas Sowell

Dr. Thomas Sowell (Economist and Author) joins Dave to discuss his new book “Discrimination & Disparities.” They dive into Dr. Sowell’s Marxist past, free speech on college campuses, the role of government, minimum wage laws, his experience as a black conservative, debunking systemic racism, and more.

Thomas Sowell: so long, and thanks for all the fish

At age 86, Tom Sowell has decided he has better things to do with his time than write magazine columns and so he has retired as a regular columnist. His final column is here. Sowell writes,

Even the best things come to an end. After enjoying a quarter of a century of writing this column for Creators Syndicate, I have decided to stop. Age 86 is well past the usual retirement age, so the question is not why I am quitting, but why I kept at it so long.

It was very fulfilling to be able to share my thoughts on the events unfolding around us, and to receive feedback from readers across the country — even if it was impossible to answer them all.

Being old-fashioned, I liked to know what the facts were before writing. That required not only a lot of research, it also required keeping up with what was being said in the media.

During a stay in Yosemite National Park last May, taking photos with a couple of my buddies, there were four consecutive days without seeing a newspaper or a television news program — and it felt wonderful. With the political news being so awful this year, it felt especially wonderful.

Sowell notes the advances that have been made in terms of material welfare during his lifetime,

In material things, there has been almost unbelievable progress. Most Americans did not have refrigerators back in 1930, when I was born. Television was little more than an experiment, and such things as air-conditioning or air travel were only for the very rich.

My own family did not have electricity or hot running water, in my early childhood, which was not unusual for blacks in the South in those days.

It is hard to convey to today's generation the fear that the paralyzing disease of polio inspired, until vaccines put an abrupt end to its long reign of terror in the 1950s.

Most people living in officially defined poverty in the 21st century have things like cable television, microwave ovens and air-conditioning. Most Americans did not have such things, as late as the 1980s. People whom the intelligentsia continue to call the "have-nots" today have things that the "haves" did not have, just a generation ago.

The effects of economic growth can be dramatic and welcome, and those who are anti-growth, for whatever reason, should keep this in mind.

Thomas Sowell on intellectuals and society

From the Hoover Institution and The National Review Online comes this series of videos in which the great economist Thomas Sowell introduces his new book, Intellectuals and Society. Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution.

In Chapter 1 of 5 he expounds on what he calls “the fatal misstep of intellectuals.”




Chapter 2 of 5 Thomas Sowell offers examples of why intellectuals are so often wrong about economics.



Chapter 3 of 5 What is the vision to which contemporary intellectuals subscribe? Thomas Sowell responds.



Chapter 4 of 5 Thomas Sowell reasons that intellectuals certainly can renounce war, “and that does not stop your neighbor from building up the biggest army in the world and coming in and killing you.”



Chapter 5 of 5 Thomas Sowell explains how the demand for public intellectuals is largely manufactured by the public intellectuals themselves.