Economic Facts and Fallacies (review)
Buy Issue for $25 at JHUP- Economic Facts and Fallacies
The latest book by prolific author Thomas Sowell, the Rose and Milton Friedman Senior Fellow at Stanford University’s Hoover Institution, has two aims: to provide a list of widely held but demonstrably false economic beliefs and then to demonstrate their invalidity using hard facts. These economic beliefs come in six areas: the economics of cities, differences between men and women, differences among races, higher education, income inequality, and developing economies. He deals with each topic in a separate chapter.
The opening chapter lays out four fallacies: the zero-sum fallacy, the fallacy of composition, the chess piece fallacy, and the open-ended fallacy. The chess piece fallacy is never mentioned again, and the other three appear in only a single chapter each. If this typology of fallacies were useful, it would have been more important to the subsequent discussion. Instead, the introductory chapter seems strangely irrelevant to the understanding of what follows.
The other failing of the introduction is that it does not lay out a common template for evaluating these fallacies. As a result, the presentation of the fallacious beliefs and even the quality of the evidence varies greatly across the chapters.
The best of the chapters deals with income distribution. The beliefs to be tested are clearly enumerated at the start of the chapter, including the loss of the American middle class to the purported excess compensation of failed CEOs at the expense of stockholders and customers. The source of the incorrect beliefs is also clearly demonstrated: income stagnation is exaggerated by using household income because the average size of household has decreased even though per capita incomes have risen quite dramatically. Income inequality is exaggerated because a rising share of the population includes the retired elderly who have little income but substantial wealth. The vanishing middle class is shown to be a statistical artifact of rising median incomes. Golden parachutes for unsuccessful CEOs are paid precisely because it is worth so much to get them out of the firm. This chapter is clear, engaging, and tightly argued. Unfortunately, these adjectives do not apply to all the chapters.
The weakest chapter deals with higher education, the topic of greatest interest to the readership of this publication. The chapter is a compilation of loosely connected thoughts which may or may not be fallacies. The only explicitly stated fallacy [End Page 431] is that an Ivy League education is necessary for success. Is this a widely held belief? Or would it be more precisely stated that Americans believe an Ivy League education can contribute to success? Evidence purporting to illustrate the inaccuracy of this fallacy is limited to a statement that only 4 executives of the 50 largest U.S. corporations have an Ivy League education. This assertion ignores the math: If the Ivy League is responsible for 8% of CEOs of these largest corporations, that percentage is well above the Ivy League’s share of all college graduates.
Furthermore, it is easy to come up with other equally isolated data sets that would “prove” the exact opposite. For the past 20 years, the U.S. president has been an alumnus of a single Ivy League school. Four of the five losing presidential candidates over that span were also Ivy Leaguers. Moreover, there are refereed journal articles that have examined the value-added of an Ivy League education much more rigorously, but Sowell has ignored them.
The rest of the chapter relies on equally unimpressive evidence. A statement that professors routinely accept kickbacks for adopting textbooks cites a single unnamed sales representative. A comment that curricula have been rendered meaningless for the convenience of the faculty is unsupported by any evidence at all. If an academic is not turned off by Sowell’s disparaging attitudes toward the profession’s integrity and work ethic, he or she certainly will be by Sowell’s indifference toward the quality of the “facts” produced in evidence.
Of the remaining chapters, the discussion on urban economics is the best supported. The evidence that building restrictions are...
