Discover more from Economic Forces
Why You Should Read More Thomas Sowell
Especially Basic Economics and Knowledge and Decisions
You are reading Economic Forces, a free weekly newsletter on economics, especially price theory, without the politics. Economic Forces arrives weekly in the inboxes of over 8,500 subscribers. You can support our newsletter by sharing this free post or becoming a paid subscriber:
As an undergraduate, I was a physics and political science major. I hated my economics course in high school, so I had no interest in supply and demand.
That changed at the end of my junior year when I picked up Thomas Sowell’s Basic Economics. As I now tell the story, I picked up the book from the library on a Friday, and on Sunday, I told an econ major friend that I was going to be an economist. I’m not sure that timeline is 100% accurate, but let’s go with it since the book had a major impact on my life trajectory and my decision to go to graduate school for economics.
Because of Sowell’s impact on me, I was honored when Art Carden asked if I would like to coauthor a piece on Thomas Sowell for a special issue of The Independent Review on “Under-Appreciated Economists.” Our paper is now up on SSRN, and readers of this newsletter will appreciate it. It’s only 12 pages of text, less than some of our most ranty newsletters.
Due to the word limit, we couldn’t go as deep as we would like on each of Sowell’s contributions. In particular, in this week’s newsletter, I want to elaborate on what I see as his greatest scholarly work, his 1980 book, Knowledge and Decisions.
Before we get to that book, it is a little ironic to say Thomas Sowell is under-appreciated. Sowell is one of the most famous economists of the last few decades. When I checked on April 28, he had four of the 100 bestselling books in “Economics” on Amazon, a wide-ranging category that includes many books that are not economics by any economist's definition. In 2011, when economics professors were surveyed about their favorite economists, Sowell ranked number 15 in the category “Economists over 60” that were alive at the time. He was the highest-ranked person on the list not to win a Nobel prize, falling right behind John Nash and Daniel McFadden.
Yet, within academic circles, he is too often seen as merely a popularizer of economics or, worse, just a political pundit. According to Google Scholar, his most cited work is Ethnic America: A History, with over 1,562 citations. This is an impressive number for mortals but far behind the most-cited works of others near him on the list, such as John Nash (13,865) or Daniel McFadden (24,014).
However, academics do not read Sowell’s academic work, which includes seminal contributions to cultural economics, information economics, and the history of social thought. The imbalance between Sowell’s academic citations and the quality of his insights is why we argue that he is under-appreciated. The paper goes through each of those topics, plus how they all fit into a perspective on philosophy, politics, and economics.
Knowledge and Decisions
In many ways, Knowledge and Decisions is a book-length analysis and application of the principles that F.A. Hayek explained in his 1945 article “The Use of Knowledge in Society.” Given how much, Hayek comes up on Economic Forces, you probably could guess our appreciation for Sowell. Hayek’s insight was that markets could bring dispersed but important knowledge to bear with incredible effectiveness.
Constrained knowledge is something that many of us, especially economists, pay lip service to, but it often gets lost in day-to-day debates about policy. Sowell uses Hayek’s insight to understand and critique social, economic, and political institutions, which he judges in terms of “what kinds of knowledge can be brought to bear and with what effectiveness.” There is a reason that the title for Hayek’s review of the book—a title Hayek chose—was “The Best Book on General Economics in Many a Year.”
As Sowell summarizes,
The analysis begins with one of the most severe constraints facing human beings in all societies and throughout history—inadequate knowledge for making all the decisions that each individual and every organization nevertheless has to make, in order to perform the tasks that go with living and achieve the goals that go with being human.
Those mechanisms for dealing with our inadequate knowledge go beyond just the usual dichotomy between markets and central planning. Even within the federal government, different institutions will face different informational constraints. Within a policy area that I work on—antitrust—different government actors receive different information about the costs and benefits of actions. The FTC does not have the same knowledge as Congress. Each receives different feedback. That’s not to say one is better than the other, only that we need to think of the different feedback mechanisms.
This may seem obvious, but it’s completely missing in most policy discussions. For example, in debates around the FTC’s proposed non-compete ban, no one was asking if the FTC had the best knowledge to make this type of decision. I wrote for Truth on the Market
Let’s accept for the sake of argument that all of the best experts today agree that noncompetes are a net negative for society. We have to deal with the fact that we can be proven wrong in the future, and different regimes will deal with that future change differently.
If implemented, the FTC’s total ban of noncompetes replaces the decision making of businesses and workers, as well as the oversight of state governments, with a one-size-fits-all approach. Under that new regime, we need to ask: How quickly will they respond to new information—for example, that it had destructive implications? How easily can they make incremental changes?
Moreover, not all knowledge is the same. I often think of Sowell’s framing of different meanings of “knowing”:
To say that a farm boy knows how to milk a cow is to say that we can send him out to the barn with an empty pail and expect him to return with milk. To say that a criminologist understands crime is not to say that we can send him out with a grant or a law and expect him to return with a lower crime rate. He is more likely to return with a report on why he has not succeeded yet, and including the inevitable need for more money, a larger staff, more sweeping powers, etc.
If you asked the farm boy to write an essay about how to milk a cow, it may be pretty awful and unhelpful for people who have never been around cows. The criminologist (or the economist) may be completely eloquent and move readers with her prose.
As Sowell puts it, “it is by no means a foregone conclusion that the mere formally logical articulation is in fact more rational, much less empirically correct.” In fact, the great thing about markets, in particular, is that “Economic knowledge need not be articulated to the consumer, but is conveyed-summarized-in the prices and qualities of goods.”
I used Sowell’s insight for a piece in The Boston Globe withon self-preferencing bills. The bill allowed for self-preferencing if the business establishes that doing so is necessary to “enhance the core functionality” of a platform. Sowell teaches us how that is not how markets work. As Sam and I wrote, the bill
misunderstands the trial-and-error process of innovation. Companies have ideas about what consumers might like, and they try those ideas out. The ones that consumers like are left standing while the others go bust. It’s often difficult for a business to know exactly why its product is successful. Requiring that a business must prove that a given feature improves its service would foreclose much of this experimentation, leaving both consumers and competition worse off.
Ultimately, what matters for determining whether a company is using its resources to make society better off is the feedback mechanism of profit and loss, not an engineer articulating to a judge that some feature is necessary.
As Art and I write in our paper, Knowledge and Decisions is where Sowell developed as a social theorist, expanding his analysis to include political, social, and legal trade-offs. As Sowell wrote that “various decision-making processes differ…in the extent to which they are institutionally capable of making incremental trade-offs, rather than attempting categorical ‘solutions’.”
Again, the focus is on the economist’s insight about trade-offs on the margin. Returning to the FTC and non-competes, does the FTC have the ability to make incremental trade-offs? Maybe. Maybe not. We need to at least ask the question.
If it seems like I’m fawning, it’s because I just love this book. There are flaws, but there are a ton of little tidbits that I love sprinkled throughout that I constantly come back to, like above for self-preferencing. My recent newsletter on t-hacking? I got that from reading Sowell.
I know some readers will be turned off by Sowell’s political commentary. But not reading Knowledge and Decisions because of things Sowell said in a weekly column 40 years later is like not reading Krugman 79 because of something he wrote in NYT. Read both. They are classics.
None of my appreciation for Sowell is meant to imply that everything he wrote was brilliant or correct. Many of his syndicated columns were standard, conservative pieces, with all the flaws those pieces entail. His detailed work in the history of economic thought was, at best, outdated or, at worst, simply wrong.
I’m not suggesting you read the bad stuff. As with anyone, read Sowell’s best stuff! For me, that’s Basic Economics, for an intro to economic reasoning and policy book, and Knowledge and Decisions, for a deeper dive. Both would be good for readers of this newsletter, who are interested in price theory, basic economics, and applying the logic of economics to a wide variety of topics.
Again, the full paper is available over on SSRN.
While Sowell is no longer writing weekly columns on economics, do you know who is? Josh and I, here at Economic Forces!
If you want to support more Sowell-esque content on economics, consider sharing this post or becoming a paid subscriber.