Understanding Economics According to Thomas Sowell
Thomas Sowell is one of the most recognized personalities in modern economics. His writings are not only specific to various economic situations and topics but also on politics and social situations. Since the 60s, he has worked with various universities as a professor and lecturer. As of this writing, he is currently under the Hoover Institution as a senior fellow. Because of his achievements in economics, he has received numerous awards since the 90s including the National Humanities Medal in 2002 and Bradley Prize in 2003. Sowell is a well known supporter of free economy or the laissez-faire format of economic transactions. This ideal also reflects and influences his stand on various political issues.
Aside from his extensive work with various universities for decades, Sowell is also a noted columnist and author. He has published a number of books not only in economics but even on political topics and family related topics such as dealing with autism. He is currently a nationally syndicated columnist where his views on various political issues are extensively discussed. Aside from traditional newspapers, his columns can also be read online.
Explanation to the Economic Downgrade
Sowell’s explanation to the economic downgrade particularly of the US economy is based on current spending requirements for each citizen. While it is true that income necessarily increases over the years, consumption has dramatically increased that it has outpaced the financial capability of an individual. This reality is happening even from the fact that a person’s financial earning has increased drastically. Sowell also points to the fact that households are getting smaller which means the potential spending should be lower. More people are seeking divorce which means they do not have to spend money on anyone else. But even with the increased access to personal earnings, Sowell believes that consumption still outpaces earnings.
Complementing the idea that consumption increases and outpaces income is the inaccurate measurement of inflation. Sowell believes that current measurement of inflation is based on commodities used over time. The measurement of time, according to Sowell, is not taken into consideration and this greatly affects data on inflation. Although inflation appears to be low because of the low prices of commodities, the fact that they were expensive when first released to the market was never considered. Also, the demand is very high during its first release was never considered. The current inflation indicators don’t provide a complete picture because it lacks the time factor.
Focus on Empirical Data
One of the key concepts of Sowell’s studies which greatly influenced his positions on various topics is the belief that conclusion and decisions should be based on empirical evidence. Without data, claiming for something cannot be accepted. This position has greatly influenced on his belief on discrimination.
According to Sowell, discrimination is not just on minorities and specific races. Everyone experiences some type of discrimination from a certain perspective. He cited an example of the correlation between Asian-Americans, African Americans and Caucasians. When lay-off happens during an economic downturn, facts show that African Americans are usually laid off more compared to Caucasians. While that looks like discrimination against African Americans, Caucasians also experience some type of discrimination. Compared to Asian-Americans, Caucasians are most likely to resort to sub-prime mortgage loan. Through these setting, Sowell believes that discrimination is actually based on certain perspective. Using these evidences, he was able to point out discrimination is not necessarily based on a specific race. He even believes that affirmative action didn’t do much except elect more African American public officials. Poverty rate is still the same and number of single mothers even increased for the past decades. By using tangible evidences, Sowell has practically countered the idea of discrimination and even on affirmative action.
Laissez-Faire Economy
Thomas Sowell is staunch supported of laissez-faire economy and he doesn’t fail to cite facts and data that could support his advocacy on this type of economy. One of his most recent examples is the downturn of US economy because of subprime mortgage troubles. He believes that mortgage loan is one of the safest businesses for any bank could consider. But for some reason; recession happened because of subprime mortgage.
Sowell believes that the reason or the downturn is because of government activity that influenced bank transactions on mortgages. He cited the Community Reinvestment Act of 1977 where banks are directed to offer loans in local communities especially when the need for credit arises. This sounds like a good plan which was first only “encouraged” for banks. However, HUD (Housing and Urban Development) made this “encouragement” a requirement. Banks are now required to provide information that they actually offer this type of support in their local community. If banks will not follow the ruling, they will have to deal with the Department of Justice through lawsuits.
At first glance, the availability of credit is good for everyone. However, this decision should be considered a business decision and should not be left to policy makers. Forcing this ruling to banks would mean they would have to deal with individuals with low credit score which means the possibility of repayment is very small. The enactment of the ruling from HUD started in the 90s and it was only felt more than 10 years later. Its effect however, is very devastating.
Like his previous theories and concepts about the economy and politics, Sowell used tangible data to support his claim. This is the reason why he is one of the well known economists and political commentator in USA.