Tuesday, 8 March 2016

Review of Thomas Sowell's 'Wealth, Poverty and Politics'

I haven't written much on inequality on this blog and perhaps for good reasons. It is such an infected topic and people tend to go nuts and emotional quite fast. I'll probably wait until I've gone through Milanovic's new book, Global Inequality: A New Approach for An Age of Globalization, coming out in April, and is sure to be both a page-turner and a game-changer. One would hope.

But. I have many long-overdue posts of books I've recently read. Last time I thoroughly reviewed a book was Easterly's Tyranny of Experts back in 2014, which means today it is finally time again.

Wealth, Poverty and Politics (2015) is Thomas Sowell's latest book and perhaps more provocative than we expected. In it, Sowell doesn't hesitate to put forward ideas and explanations utterly politically incorrect but yet supported by evidence and countless of historical and international examples. Truly, those examples make the story highly convincing, illustrated and easy for the laymen reader to follow.

I'll go through an extract of absolutely ingenious arguments. This is by no means the only shining sections of his 242-page jewel. For all intents and purposes, Sowell's book is a must read and his critique against those who favour redistribution and worry about inequalities is devastating indeed.

The Randomness Assumption & the Literal Impossibility of Equality

Sowell's story is a thorough attack on the fundamentals of redistributive ideas of any kind. He carves out the implicit assumption in all such schemes, and calls it The Randomness Assumption. Simply put, it refers to the idea that whenever an diverging outcome between groups is observed, there must be something sinister occurring - oppression or social discrimination, usually. This relies on a belief that skills, genetics, social skills, ethical convictions, societal institutions, qualities, ideas and achievements are Randomly distributed and any non-random outcome is hence taken as sufficient justification for redistributive measures. That is, he points to differences in inputs that eventually produce those outcomes as explanations. With countless examples, Sowell shows that pretty much nothing about human beings are randomly distributed:
people do not behave randomly but purposefully. They do not, for example, immigrate randomly, either in terms of the locations they come from in the country they leave or the locations where they settle in the countries they go to. They do not raise their children the same, as shown by the large differences in the number of words people at different socioeconomic levels speak to their children.
Purposeful human activities are seldom random in themselves or in their consequences. Nor are they the same among different groups, whether different by race, sex, religion, birth order or innumerable other variables (p. 186).
Most stories of inequality that makes the media headlines point to inequalities in a particular setting. Implicitly or explicitly the blame is put on the employer for paying different wages to different groups of people, or on presidents for appointing Supreme Court Justices that don't perfectly represent the population in terms of race or gender or age. Such nonsense doesn't impress Sowell since that could simply be a reflection of institutional settings or unequal outcomes earlier on; the "gender pay gap" is in part a statistical artefact, but the small remaining part is explained by career choices purposefully made by groups of men and women. Putting the "blame" on employers thus misses the point. Furthermore, even if top-ranked Universities assessed their future students perfectly equal, varying degrees of skills, motivations and knowledge among those will produce an unequal outcome. That is, the fact that blacks are disproportionately underrepresented at top-Universities, says nothing about discrimination in admission processes of those Universities:
We cannot tell where the unfairness occurred by where the statistics were collected. If the mix of children raised in welfare families is racially different from the mix of children raised in families with parents who are professionals, then statistics collected at a given employer's business, after these children have grown to adulthood, may well show a racial disparity between which employees are in higher occupations and which are in lower occupations, even if the employer has treated every individual the same when hiring or promoting (p. 99).
That is, the fact that some inequality between some (arbitrarily defined) group is found somewhere, says nothing about how that inequality occurred. It may very well have to do with things outside the control of any human being.

Besides, equality in any meaningful sense is literally impossible. Firstly, since equality in one sense always is incompatible with equality in another; affirmative action might nominally re-balance other inequalities, but creates new ones. Even taking the most extreme examples of obliterating inequality:
even if every American man woman and child had equal individual incomes, that would still leave substantial inequalities in household incomes, because households that are in the top 20% of income recipients today contain millions more people that households in the bottom 20% (p. 239)

If we only count adults and make everyone's individual income the same, singly-mothers with many children would obviously be much poorer than married couple with no children. But let's ignore that, and go even further. Somehow, everyone at every conceivable level has the same income - there are still demographics and experience to account for:
Even if every twenty-year-old Puerto Rican in the US had identical incomes with every twenty-year-old Japanese American, and similar equality at every other age, that would still leave a major income inequality between these two groups since the average Japanese American is more than twenty years older than the average Puerto Rican (p. 239).
No matter how you slice it, major statistical inequalities between groups, ethnicities, households or individuals would emerge. Income equality is a literal impossibility.

Privilege and Social Mobility (pp. 178-185)

Sowell snarks at your typical student activist clinging to terms such as 'Privilege' or 'Social Mobility'. Irrelevant as they are, Sowell has the courtesy and patience to explain why:
We cannot determine how much mobility - that is, opportunity to move upward - a given society has by how much upward movement actually takes place.
[...] personal choices and personal responsibility for the consequences of those choices, matter. Everything is not solely determined by society despite how many may prefer to believe it is (pp. 103-104).
As for the common misperceptions that real wages of (American) workers has been stagnant for decades, and that this should be evidence of a lack of social mobility, Sowell's criticism is devastating - the data is simply not true! Instead of using the aggregated brackets of say the top 10% or the top 1%, as Piketty has an awful habit of doing, Sowell sensibly follows actual, real people. Those brackets are floating brackets where people move in and out - measuring them over time shows nothing about mobility.

He refers to two studies that followed individuals over time, one from 1975-1991 and another from 1996-2005. In the first study, 95% of those initially in the bottom 20% were no longer there in 1991. Almost a third of those initially at the bottom made it all the way to the top bracket. Meanwhile, those as the those at the top had the smallest increase in income, both absolutely and in percentage terms. Such findings are hardly surprising; growing up, gaining experience and human knowledge improves your value in the labour market and sensibly explains why incomes tend to rise.

In the more recent study, based on IRS tax data, those initially at the bottom saw their incomes increase 91%. The (evil?) top 1% saw their incomes fall by 26%. Besides, 58% of the 'top-one-percent' were no longer there in 2005. What Krugman and others refer to as "the charmed circle of the 1%" is seriously misleading, since 12% of Americans will be in it, at some point of their life - as 56% of Americans at some point will be in the top decile.

If we start measure actual people rather than abstract categories, we find that income inequality is falling - not rising as historical GINI-coefficients would have us believe. As stated in WSJ:
Another sign that opportunity and merit continue to drive American success, not accidents of birth. The 'Rich' are not the same people over time.
It is simply not the case that the one percent is some alien overlords living lives completely different than the normal American, like Piketty & co claims:
Piketty's crucial misstep is verbally converting a fluid process over time into a rigid structure, with a more or less permanent top one percent living isolated from the rest of society that is supposedly subject to their control and influence (p. 183).
Piketty's stories, and other like is, is only ever relevant if
economies are not growing, if things are not changing, human capital and experiences are not acquired and people don't move between brackets (p. 184).

Common Misconceptions and 'Resources' Explained

I want to finish off with some very beautiful attacks on the armada of ignorant professors, journalists, politicians, students or scientists. Lashing out against the misconceptions surrounding most people in various Climate Change movements, Sowell pedagogically explains what a resource is and alludes to the sensible conclusion that we will never run out of them.

No resource is a resource on its own, Sowell argues. It all depends on its relation to human knowledge and human technology. Oil was a useless sticky liquid in the soil until human inventions and technology allowed it to become a valuable resource. Same goes with "Fertile Land", for instance; land is only fertile insofar human beings with sufficient knowledge and technology can make use of it:
It was the interaction of the soil, rainfall and changing human knowledge and technology over time that made the lands of northwestern Europe become very fertile (p.14).

This is very much the essence and repeated message of Sowell's book: interaction of factors matters more than any one factor on its own, be them social, political, historical, geographic, demographic or cultural.

The book is filled with these little polite insults of commonly-held beliefs in regards to welfare states, historical legacy of slavery or capitalism. He, not unlike McCloskey, laughs quietly at those who see 'greed' as the cause of as despair:
Despite the frequency with which 'greed' is invoked in this context, it explains absolutely nothing - unless you believe that an insatiable desire for money will itself cause others to pay you that money (p. 214).
Sowell's account is philosophical and put in layman's terms rather than academic or filled with pages of graphs and hard-to-interpret empirical data. It's straight-forward, to-the-point and Sowell never hesitates following the facts to politically controversial or unpopular conclusions.

I'm nevertheless looking forward to Milanovic's book since it is bound to be all these things as well.

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