| Applied Economics: Thinking Beyond Stage One
By Thomas Sowell
GLENN: Thomas Sowell, he is the scholar in residence at the Hoover Institution. He has also written a book, Applied Economics: Thinking About Beyond Stage One. He’s probably one of the great economic minds of our time and he is on the phone with me to try to explain some of these things to me, Thomas. Tell me that I’m wrong that we’re not really seeing a course change as much as we’re seeing somebody step on the gas and make things much, much worse?
SOWELL: Oh, I’d feel so much better if I could tell you you were wrong, but I’m afraid you’re right. It is truly amazing what we’ve talked ourselves into. You are right, first of all, about the government itself being the major factor behind this whole mess. They got in there by politicians deciding that they knew how housing markets ought to operate better than people who had operated housing markets all their lives and so they put pressure in various sorts but very strong pressure on all kinds of lending institutions to lend money to people they would never have lent money to otherwise. And now that both the lenders and the borrowers have been ruined by this transaction, the politicians are looking everywhere except in Washington to find a scapegoat.
GLENN: Let me — you know, I just asked, I just asked this question because I went back and I read. Thomas, so you know, I’m a complete and total loser and I don’t have a life. I went back and I read all the inaugural speeches up until 1937, and I read them and I noticed that there was a change around 1880 to 1900 where they started talking about globalism and they started talking about banking and everything else. And when you get to Wilson and then you get to FDR, they’re saying exactly the same thing. They are talking about the same exact problem that we have during this inauguration. And it caused me to think to myself, "Well, wait a minute. What are the things that are consistent from then to now?" And all I can come up with is the gigantic banking system, the Fed, the government, all of these things that we never pay attention to, nor change. Am I off and the wrong track?
SOWELL: No, I’m afraid that my reading of the Great Depression’s the same way. I’m just amazed at all the things that are put forth under the label of change, are things that have been tried before, they were tried throughout the 1930s. They failed throughout the 1930s and now they are going to do it all over again so we can have them fail again.
If you look at the — you know, the other thing that’s very much the same is the blaming of what’s happened on the market rather than on the politicians.
SOWELL: Now, for more than a year after the great stock market crash of 1929, the unemployment rate never reached 10%. Once the politicians got into it starting with the Hawley-Smoot Tariff, the country went through nearly three consecutive years in which unemployment never fell below 20% for any month.
GLENN: Thomas, help me out on this because a lot of people won’t know what the Hawley-Smoot thing is and basically what that was, correct me if I’m wrong, is protectionism saying we’ve got to protect American jobs, we’re going to put some tariffs on people that are importing stuff, et cetera, et cetera. If we’re saying we won’t do that now but the rest of the world is in trouble, too, and if one starts to go into protectionism, we all have to and that just changes the dynamics entirely, doesn’t it?
SOWELL: Oh, absolutely. You know, I would sense futility in saying this. More than 1,000 economists from leading universities across the country urged the President and the congress not to put these tariffs in which were higher than tariffs had been in over a century. But their argument was that we’re going to stop the imports, we’re going to produce these things at home and therefore there will be more American jobs and, you know, no thought of what you just said. Others will then retaliate and then we’ll be not only back where we were, we’ll be worse off than where we were because all international trade will shrink, which it did.
GLENN: In 1987 Ronald Reagan was run through the mud because he did nothing to curb things and they said he was out of touch. The New York Times I believe said that he was — that he had missed a great opportunity to change the way things were done. A lot of people are also telling us that this is just 1987. Clear up the differences between now and 1987.
SOWELL: The biggest difference, of course, is that Reagan understood that the government could make things worse, and he did nothing and he paid a high price in terms of the media and so on. But the fact is it was from that date to 2007 that we enjoyed 20 years of the greatest prosperity and low unemployment, low inflation than we’ve seen perhaps in the whole history of the country, whereas now Obama is taking us back to Hoover and FDR, both of whom thought that the government should intervene.
You know, prior to the Great Depression of the 1930s, nobody thought it was the federal government’s business to try to get us out of our depression and no other depression was ever as deep or as long-lasting as this one where the government intervened.
GLENN: Well, let me ask you this: It’s my understanding that the Depression is called, in all other textbooks all around the world, it is just known as the Depression. In France it’s the Depression. But here in America it’s the Great Depression. Why?
SOWELL: Because here in America there was this massive intervention which made the depression far worse, far more long-lasting and we took longer to get out of it than other countries did. So it left a major scar on the national psyche. Worst of all, it left us with the wrong message, namely that FDR had come to the rescue and saved us when the marketplace failed, when it was just the opposite.
GLENN: So Thomas, I hear from people all the time: Well, we’ve got to do something. Well, no, not necessarily. But what should, what should we be pulling for? What should we be demanding?
SOWELL: Well, first of all, there’s no such thing as doing something. You have to do something specific. And so the merits, the demerits of what specifically they are going to do or what ought to be discussed. However, looking at it historically, where the government has done nothing, the result has usually been far better than when they’ve done something.
GLENN: Unbelievably. So we should be, as a people we should be saying, do nothing. Do you believe, Thomas, that we were headed for a global crash if we wouldn’t have done the bailouts?
SOWELL: That was one of the things that made me hesitate to criticize it but in retrospect it’s clear that the bailouts, first of all, have not been what they were advertised to be and so how effective they would have been if they had been what they were advertised to be is a moot point because they weren’t. We’re now bailing out everybody. And I start to wonder why aren’t they bailing out economists.
GLENN: Is it too much of a — is it an overstatement to say that America has become or is significantly down the road of becoming France and we just don’t know it yet?
SOWELL: I’m afraid we’re down the road to becoming France not only economically but worse, much more dangerously, France in terms of international relations. I’m always amazed at people who think we are going it alone if we don’t have France with us. I can’t think of a country in the past 100 years that has made more catastrophic foreign policy mistakes than France. Let’s not forget that France collapsed in just six weeks of fighting in 1940. And what isn’t as widely known is that both the French generals and the German generals thought the French had the better chance of winning that war than Germany did.
GLENN: Thomas Sowell from the — he is a scholar in residence at the Hoover institute at Stanford University, one of probably the best economic minds in the country right now.
May I just go down a conspiracy theorist road here with you for a second?
SOWELL: Oh, yeah.
GLENN: Because you are a smart guy and you are not into the conspiracy theory. So you can debunk this. Here’s what I fear, Thomas, and that is that there seems to be, like with the G20 there seems to be, what was it, a couple of weeks ago over in Paris the leadership of Germany and France and England getting together and saying there needs to be a new controlled kind, globally controlled capitalism. Merkel was calling for an economic board that would be like the security council at the UN where all laws would have to be passed through this so no country would truly be free economically anymore. You’ve got China and France calling for a new currency, et cetera, et cetera, and you have Barack Obama who is this global figure, goes over and gives the first speech ever on a campaign over in Germany. It seems to me like there is a framework being laid if there was ever a gigantic global economic meltdown, that there would be a rapid and sudden push toward some sort of a global framework on the economy. Do you buy into any of that or am I just seeing things incorrectly?
SOWELL: You don’t need a conspiracy for that to happen. All you need is a lot of like minded people all reinforcing one another’s views and you get the same effect as if there had been a conspiracy.
GLENN: But that’s what it seems like we have.
GLENN: So you think this is a possibility?
SOWELL: Oh, absolutely. It’s going to be trying on the international stage the same kinds of policies that have failed repeatedly in individual nations all around the world. This is international central planning.
Now, national central planning has been such a disaster that even communists and socialist countries have gotten rid of it. I mean, China is a classic example where they decide it’s such a disaster, we’re going to go for the market. Well, now we’re going to move back in the other direction. We’re going to try it, since it failed in innumerable countries individually, now we’re going to try it collectively so they can fail throughout the world.
GLENN: Isn’t that the way socialism always works, though? It always fails small and they say, well, it’s because it wasn’t big enough.
SOWELL: That’s right.
GLENN: I mean, it’s insane.
SOWELL: Well, yeah. You know, I suppose we’re having interplanetary exploration. If it fails all over the Earth, they say it must be good somewhere in the other galaxies.
GLENN: Today is Martin Luther King Day. We are inaugurating our first black President. You are an African-American. What does this time period mean to you?
SOWELL: Oh, heavens. I must tell you in all frankness I can’t bear to watch the television except for sports because of all the hoopla. I suppose those people who thought that all the problems that we have as blacks are due to the wrong policies, the wrong people in power and that changing that’s going to matter. I don’t. I don’t even think that this is a breakthrough in the sense of which some people are saying it. I don’t doubt for a minute that Colin Powell could have been elected, you know, eight years ago had he been so inclined. So that it doesn’t come as nearly as big a surprise to me as it does to some people.
GLENN: Have you ever been called a sellout of your race for saying something like that? I mean, that’s pretty significant.
SOWELL: Oh, yeah, that’s one of the milder things I’ve been called. You know, you don’t — you have to choose between whether you are going to call them as you see them or whether you are going to seek to be popular. Since I’m not running for office, there’s no reason for me to pull my punches.
GLENN: Do the moves of Barack Obama, which are so like those moves of FDR, do they frighten you for our future at all or make you more hopeful or neither?
SOWELL: Oh, they make me enormously concerned because we know, or at least those of us who bother to read history know what a disaster the FDR policies were and unfortunately I have a terrible feeling that Obama and certainly his supporters haven’t the slightest interest in finding out what happened when this was done the last time because I don’t think we can stand a 10-year depression. I mean, you realize that for ten consecutive years unemployment never fell below 10%.
GLENN: Thomas Sowell, it is a pleasure to have you on. I’d love to have you on and pick your brain some more if you don’t mind, you know, reappearing on the program.
SOWELL: I look forward to it.
GLENN: Thank you, sir. I appreciate it. We’ll talk to you again.
GLENN: Let me tell you, our sponsor this half hour is Goldline. That doesn’t make you feel good. Does that make you feel good, Stu?
STU: He’s one of the best, yeah.
GLENN: You are not on mic.
STU: It’s just a setting problem. Don’t worry about it.
GLENN: Does that make you feel good? You know, that’s just the kind of guy — I want to talk to these people so they can say, "No, you got it wrong." Unfortunately just make me want to go buy more gold.