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Jewish World Review Feb. 5, 1999 /19 Shevat, 5759

Thomas Sowell

Thomas Sowell Why economists visit
dentists so often

(JWR) --- (http://www.jewishworldreview.com) BEING AN ECONOMIST IS NOT EASY. You end up gnashing your teeth a lot when you hear the kinds of ignorant nonsense about the economy that is par for the course in the media.

How often have you heard people in the media and in politics refer to "the trickle-down theory"? This theory is supposed to be that you give benefits to the rich, in hopes that the money will trickle down to the poor.

The only problem is that there is simply no such theory and never has been.

As someone who spent the first decade of his professional career researching the history of economic theories and writing about them in scholarly journals, I can assure you that no recognized economist in any part of the spectrum has ever had any such theory.

This non-existent "trickle-down" theory is trotted out every time someone wants to cut taxes in general or capital-gains taxes in particular. But tax cuts to encourage investment are not intended to let anything trickle down.

In order to have capital gains, you first must invest --- which is to say, create jobs, products and industry. Nothing trickles down to the working class. It is the workers who first get the money and only later do the investors find out whether they have made money or lost money. Benefits trickle up -- not down -- if and when the investment pays off. There are no capital gains to tax until afterwards.

Misconceptions of international trade are the norm in the media. When our trade deficit increases, that is said to be a "worsening" and when it is reduced, that is called an "improvement." Adam Smith knew better than that two centuries ago. But apparently this knowledge has not yet "trickled down" to the media --- or to politicians.

If a growing trade deficit is a "worsening," then why did we achieve our highest level of prosperity last year at the very same time when we had our largest trade deficit in history? Rather than attempt to answer such straightforward questions as these, those who are spreading alarm about the trade deficit say that it "can't go on forever."

If it can't go on forever, then why do we need government policies to end it, since we know that it will end anyway?

To listen to those who panic over international trade, you would think that the whole purpose of it was to get rid of as much of what we have produced as possible and to get as little as possible of what other countries have produced in return.

A perennial fallacy about international trade is that countries with high wages cannot compete with countries that have low wages. The cold fact is that 19th-century Britain was the leading exporter in the world when it had higher wages than most of the countries that bought its products. The same is true of the United States today.

Countries have high wages for a reason --- and that reason is usually that its output per worker is higher. When a worker is paid twice as much and produces three times as much per hour, the labor costs per product are lower.

Proposals for freer trade have set off hysterical talk about "that giant sucking sound" that would be heard as American jobs were siphoned overseas to low-wage countries. In reality, we now have lower rates of unemployment than we had when there were more trade restrictions and the total number of jobs has hit an all-time high.

Some people do lose their jobs because some foreign country produces their particular product either cheaper or better. But that is equally true within the United States. The fallacy is in imagining that you can generalize, when in fact millions of other Americans get jobs because of international trade and consumers -- meaning all of us -- benefit from getting what we want from wherever we want at the lowest price or the highest quality.

The stock market is another economic phenomenon routinely misunderstood in the media. For example, it always seems to come as a big surprise to newscasters that the stock market has gone up or down, even though stock markets have been going up and down for as long as there have been stock markets, anywhere in the world. Nevertheless, the news-readers seem to need to come up with some special reason why it went up or down today.

We don't need more economists. We need more people to take Economics 1.

02/2/99: Warning: Good news
01/29/99: What is at stake?
01/26/99:Moral bankruptcy in the schools
01/22/99: Who is going to convict Santa Claus?
01/19/99: Seeing through the spin
01/13/99: A trial is a trial is a trial
01/11/99:Trials and tribulations
01/08/99: Rays of hope
01/04/99: Random thoughts
12/31/98: The President versus the presidency
12/29/98: The time is now!
12/23/98: World-class hypocrisy
12/21/98: The spreading corruption
12/17/98: Politically "contrite"
12/16/98: Polls and partisanship
12/14/98: The "non-profit" halo
12/11/98: Corruption and confusion
12/03/98: The health care "crisis"
11/30/98: Knowing what you are talking about
11/23/98: The impeachment legacy
11/23/98: Random thoughts
11/19/98: Tales out of bureaucracies
11/16/98: Scholarships based on scholarship
11/12/98: Forward march
11/09/98: Moral outrage
11/05/98: Will the Republicans ever learn?
11/02/98: A voter's duty
10/30/98: The poverty pimp's poem
10/29/98: Random thoughts on the election
10/27/98: "Partisan" and "unfair"
10/23/98: Ed-u-kai-tchun
10/21/98: McGwire, Maris and the Babe
10/16/98: Lightweight Boxer
10/14/98: A strange word
10/09/98: Impeachment standards
10/08/98: Alternatives to seriousness
10/07/98: Heredity, environment and talk
10/02/98: A much-needed guide
10/01/98: Starr's real crime
9/24/98: Costs and power
9/18/98: Are we sheep?
9/16/98: Judicial review
9/15/98: Hillary Rodham Crook?
9/14/98: Taking stock
9/11/98: Moment of truth
9/04/98: Random thoughts
8/31/98: The twilight of special prosecutors?
8/26/98: "Doing a good job"
8/24/98: America on trial?
8/19/98: Played for fools
8/17/98: A childish letter
8/11/98: Hiding behind a woman
8/07/98: A flying walrus in Washington?
8/03/98: "Affordability" strikes again
7/31/98: Random thoughts
7/27/98: Faith and mountains
7/24/98: Clinton in Wonderland
7/20/98: Where is black 'leadership' leading?
7/16/98: Do 'minorities' really have it that bad?
7/14/98: Race dialogue: same old stuff
7/10/98: Honest history
7/09/98: Dumb is dangerous
7/02/98: Gun-safety starts with
parental responsibility
6/30/98: When more is less
6/29/98: Are educators above the law?
6/26/98: Random Thoughts
6/24/98: An angry letter
6/22/98: Sixties sentimentalism
6/19/98:Dumbing down anti-trust
6/15/98: A changing of the guard?
6/11/98: Presidential privileges
6/8/98: Fast computers and slow antitrust
6/3/98: Can stalling backfire?
5/29/98: The insulation of the Left
5/25/98: Missing the point in the media
5/22/98: The lessons of Indonesia
5/20/98: Smart but silent
5/18/98: Israel, Clinton and character
5/14/98: Monica Lewinsky's choices
5/11/98: Random thoughts
5/7/98: Media obstruction of justice
5/4/98: Dangerous "safety"
5/1/98: Abolish Adolescence!
4/30/98: The naked truth
4/22/98: Playing fair and square
4/19/98: Bad teachers"
4/15/98: "Clinton in Africa "
4/13/98: "Bundling and unbundling "
4/9/98: "Rising or falling Starr "
4/6/98: "Was Clinton ‘vindicated'? "
3/26/98: "Diasters -- natural and political"
3/24/98: "A pattern of behavior"
3/22/98: Innocent explanations
3/19/98: Kathleen Willey and Anita Hill
3/17/98: Search and destroy
3/12/98: Media Circus versus Justice
3/6/98: Vindication
3/3/98: Cheap Shot Time
2/26/98: The Wrong Filter
2/24/98: Trial by Media
2/20/98: Dancing Around the Realities
2/19/98: A "Do Something" War?
2/12/98: Julian Simon, combatant in a 200-year war
2/6/98: A rush to rhetoric

©1998, Creators Syndicate, Inc.