I was pleased to once again (previous interviews here and here) talk with Thomas Sowell about his new book, Applied Economics: Thinking Beyond Stage One, which I have read twice and highly recommend. What follows is a slightly edited transcript of my conversation with Mr. Sowell.
JH: Barack Obama has publicly said that he expects to run trillion dollar deficits for the next few years. What are the real world consequences of carrying that sort of crushing debt?
Thomas Sowell: Oh, inflation — and this is a debt that is going to be passed on to the next generation. The Keynesians loved to say in the past that we owe it to ourselves, since American citizens used to buy almost all the federal bonds, but now between 40-50% of the debt is owed to foreigners. That means future generations of Americans will be transferring vast sums of wealth to China, among other places.
JH: There has been some concern about the government nationalizing the banks. I guess that’s understating it a bit by saying “some concern.” So, let me ask you a question that many Americans are probably pondering: what’s the harm in having the federal government control our banks?
Thomas Sowell: (Laughs) You have people who know nothing about banking, nothing about economics, and who have no stake in the outcome, issuing orders to people who do know. That’s what’s wrong with government control of banking. It’s what’s wrong with government control of other industries. There’s no human being capable of running all the major industries of the country — or even two or three of the major industries in the country.
JH: Now in the book, you say, “The often expressed desire for a national government program to produce affordable housing has misconceived the reality.” Can you explain what you mean by that?
Thomas Sowell: The politicians say that we have a large national problem of people being unable to afford housing, by whatever standard they are using. That is not the case. That has never been the case. The case is that in much of the United States, during this period of great concern about affordable housing, people are spending no higher percentage of their income on housing than they were 10 years earlier, when there was no such alarm.
What has happened is that in some particular places, of which coastal California is a good example, the housing costs are absolutely astronomical. We’re talking about million dollar homes, for example, in San Mateo County, under 2000 square feet. So you’re talking about paying prices for very modest homes that you pay in other parts of the country for mansions. So the political hype about a national problem is nothing more than the prelude to wanting a federal program. But, in point of fact, in most parts of the country, these are not the situations that exist. In a relatively few places, the situation is virtually impossible, usually due to local politicians interfering with the housing market via land use restrictions.
JH: What is the harm in using taxpayer money to bail out a failing company, like the “Big Three” automakers for example?
Thomas Sowell: Well, you can go back a hundred years and say why shouldn’t the taxpayers have bailed out the horse and buggy industry when the automobile suddenly appeared and began devastating the horse and buggy industry.
JH: Now, we’ve heard people say that this is a uniquely bad economic situation — that it could be as bad as the Depression, etc. However, looking at GDP and job loss numbers, it doesn’t look as bad as, say, the recession in the early 80s. So how bad is this really and if you were advising the president, what would you tell him to do?
Thomas Sowell: Resign.
JH: (Laughs) That would be helpful.