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.
Thomas Sowell: Yes, because he is determined to interfere in the market. How did we get out of the recession in the early 80s? Reagan did nothing. The economy adjusted and we’ve had 20 years of growth, low inflation, and low unemployment. Many people argue that the New Deal got us out of the Depression by spending. Well, the New Deal spent for years without getting us out of the Depression and then the war came along. The defenders come along and say, “You see with the war, spending increased and that did it.” What the war did was put an end to the New Deal. When the New Deal ended, the economy revived.
JH: What are some things that Americans who are not familiar with government-run health care in other countries should anticipate if a system like that is implemented here?
Thomas Sowell: Well, even better than anticipating, they might inform themselves of what actually happens when the government runs the medical system. In those countries, you have to wait vastly longer for medical treatment, not only in terms of hours in a doctor’s office, but even more importantly, the months you have to wait for someone to perform [a] surgery. That is not a small price. You can pay in money or you can pay in pain and death. The idea that we can’t afford the existing doctors, hospitals, and medicines, but we can afford all those things plus a huge bureaucracy just boggles the mind.
JH: Well, the huge bureaucracy is going to make it cheaper. That’s what they’re saying.
Thomas Sowell: (Laughs) They can say anything as we have discovered many times. The people who operate bureaucracies have to live. They have to be paid. I have not even seen a suggestion of how they will make medical care cheaper. They may make the amount of money you pay directly to the doctor or hospital cheaper, but of course, the fact that you pay the rest of it in taxes doesn’t change the cost of medical care.
JH: In the book, you say that Charles Ponzi, the man who ran the famous pyramid scheme, used the same principle behind the pension plans in many Western governments today.
Thomas Sowell: Yes, it was very simple. Ponzi said that he would give you your money back in about 90 days with a huge increase. People sent in their money; 90 days later they got more than they put in. Once the word spread, a new generation came in and did it. All that he was doing was that he paid off the money from the first generation with the money he received from the second generation — and kept on doing that. Of course, the minute that the pyramid stopped growing, there was nothing for him to pay out and so the last people left holding the bag found that the bag was empty.
That’s exactly what we’ve done with Social Security. People in my generation and the generation before me did very well on Social Security because the next generation was much larger. So the pyramid kept expanding. But now that people are living longer and now that there are fewer people being born, the whole situation is setting up like the Ponzi scheme, where the last generation is going to be the one that was cheated out of what they were promised. I think the great inflation that they are building with these multi-trillion dollar deficits will mean that the government can legally pay back the dollars that they promised, but by then, a dollar will be worth 10 cents on the dollar (in today’s money).
JH: There is an assumption that many people make about immigration in this country that you challenge in the book. Most people believe that immigrants come here and then their children almost automatically become more educated, assimilated, and productive than the immigrants who parented them. You noted that isn’t always true.
Thomas Sowell: No, it isn’t. I think it’s not going to be true this era especially — since there are two things that the immigrants of a hundred years ago didn’t have. One, you have organized minority groups whose work is to create grievances, who work to alienate the minorities from the larger society. In some cases, where they speak a different language, they work to keep them speaking that language. Then you have the multi-culturalists who dominate so many institutions who say it’s wrong to try to assimilate them. Put those two factors together and you have a formula to have people within your borders who resent your society and do not assimilate to it.
JH: Now, I’d like you to elaborate on something you wrote in National Review back in 2007:
When I see the worsening degeneracy in our politicians, our media, our educators, and our intelligentsia, I can’t help wondering if the day may yet come when the only thing that can save this country is a military coup.
Thomas Sowell: That’s true, unfortunately. I just noticed this morning that … I am getting more and more emails from people who are simply despairing. They are saying that we may have reached the point of no return. We have had dumbed down education for enough generations that people don’t even realize that it’s dumbed down education. We have propaganda against all the institutions of this society, literally from the elementary school to the universities. You can’t raise a whole generation of people who don’t know how to think but are taught to resent anything that they don’t understand, and expect that you are going to survive in the long run.
JH: One last question: if John Boehner, Mitch McConnell, Michael Steele — the guys who are leading the Republican Party today — came to you and said, “Thomas, we respect you. Tell us what you think we should be doing.” What would you tell them?
Thomas Sowell: One good thing they are doing right now is not going along with this stimulus. Too often, the Republicans have acted as if they have to be players and join in with the Democrats so we can all go over the cliff together. The other thing is that they have got to learn is to talk. The inarticulateness of the Republicans can be fatal politically.