“Applied Economics: Thinking Beyond Stage One” by T. Sowell

Introduction

In the book Applied Economics: Thinking Beyond Stage One, the author, Thomas Sowell, looks at several problems that have been present in history for centuries. The scholar considers two main approaches to their investigation – politics and economics, showing how economic analysis provides more insight into the long-term outcomes of every decision. The essence of the book is Sowell’s belief that politicians and citizens often fail to think about the consequences of their choices, which then leads to results that they did not anticipate. This way of thinking is compared to “stage one,” while the author urges the reader to consider what happened during stage two, three, and so on.¹

This review summarizes the work of Sowell, paying the most attention to his views on politics, medical care, housing, immigration, discrimination, and national development. Then, it offers an evaluation of the author’s claims using the economic thinking and ethical principles of Christianity. Finally, Sowell’s ideas are used to discuss contemporary public policy issues, including such topics as healthcare, immigration, and distribution of wealth and economic progress in different countries.

Summary

The first chapter outlines Sowell’s ideas and establishes a tone that the entire book follows. One of his central beliefs is that people’s decisions in the spheres of politics and economics differ substantially because of their immediate result on the person and the duration of the impact that this decision has.² Similarly, sellers of goods and politicians act differently since they aim to appeal to other people in their own way. However, both systems are based on the concept of incentive, although politics are categorical and economics are incremental. Herein lies the main contrast between these spheres – it is much easier to change and finetune the decisions made during each purchase, while political actions are much more massive and long-term. Another term that the author introduces is “one-term thinking” that often influences politicians’ decisions to act without considering the effects that come after the first wave of changes has happened.³

The first example of this approach to national concerns is discussed through the lens of medical care. According to Sowell, the popular strategy of price controls has many quantitative and qualitative consequences for people, the government, and the economy. The author shows that healthcare regulated by the government leads to long waiting lines for vital medical surgeries, the lack of innovation, and highly limited time for doctors to see patients.⁴ As Sowell explains, price controls create an imbalance in the market’s equilibrium, increasing the demand for cheap procedures. On the other hand, the supply is decreased as providers are hesitant to maintain an unprofitable business. Similar outcomes are shown in the chapter about housing, resulting in adverse conditions, faulty city planning, increased traffic, and other problems.⁵

In chapters 6-8, Sowell discusses the pitfalls of stage-one thinking in discussing social concepts – immigration, discrimination, and national development. Here, the author notes that one cannot provide a single answer to the question about such complex problems since people cannot be considered as one inseparable group. Thus, he argues that the specifics such as place and time play a significant role in determining the right action to take. Nonetheless, when talking about immigration, Sowell does not find many benefits in this process that would outweigh potential risks. In contrast, he states that any general policy cannot fully anticipate the unintended consequences. ⁶

Moreover, the author believes that anti-discrimination laws do not affect the opportunities of minority groups, whose level of discrimination is challenging to assess. Finally, Sowell finds that the economic development of countries depends on several factors, and none of them should be chosen as the primary affecting force. Nevertheless, technological advancement is highlighted as a change that has significantly affected the rate of innovation in many areas, diminishing the role of geography and resources.⁷

Evaluation

The author’s observations are consistent with the basic ideas considered in modern economic scholarship. Such concepts as the incentive lie at the basis of many economics-related views, and the author shows how they affect the decisions that people make. For example, his discussion of politicians and sellers’ decisions for choosing products and services to provide demonstrates the various elements that get citizens and customers motivated. However, Sowell goes further in his observations, taking each problem and showing how such decisions may affect the economy and the people in the future, using the fundamental principles of supply and demand, competition, and monopoly.⁸ Arguments against price controlling in medical care and housing are explained using the first of these ideas, demonstrating how increased demand and decreased supply create a problem that results in long-term consequences, endangering people and damaging the economy.

It is clear that the author opposes the intervention of the government into the activities of the market. For instance, when looking at presidents’ responses to national crises, Sowell argues that their inaction could have been comparable if not more successful than their intervention. He explains their motivations with the pressure of constituents who wished to see some interference due to the position of a president as a certain ruling force.⁹ Nonetheless, this reliance on constant action is challenged by the scholar who supports the theory of the “invisible hand.” As a result, most of the conclusions made by Sowell in regard to common policy issues are based on the opinion that the economy reaches full equilibrium on its own. At the same time, government intervention damages the balance and creates further problems that are difficult to solve.

The question of poverty considered by Sowell in the final chapter is answered by him based on the idea that economic prosperity is the primary factor in helping to elevate the nation’s quality of life. Here, the issue of poor and rich people is not seen as a problem of all countries, including the US, but a problem that affects certain nations due to the lack of advancement. Furthermore, the author’s opposition to welfare policies contradicts some Christian ethical principles, which call for people to help the poor and aid them when possible.¹⁰ While the US’s medical care, as noted by the author, is one of the best, it fails to eliminate problems that arise from systemic discrimination of those without sufficient resources.¹¹

Current Public Policy Problems

One can apply the ideas discussed by Sowell to modern issues such as immigration, healthcare, and national growth. For example, one can look at the problem of poverty in developing countries, which, according to Sowell, can be resolved if the government and businesses were to consider the long-term outcomes of their decisions. The technological advancement of the world affects these states as well, giving them more opportunities for further expansion. However, systematic problems prevent many developing nations and impoverished populations in developed countries from reaching a high level of prosperity.¹² One can agree with Sowell that the current incentives of politicians are often guided by corruption and the interest of a limited group, which negatively influences the effectiveness of the anti-poverty policy. In this case, the author would suggest removing these unhelpful policies and giving more power to the market, changing the focus towards increasing the quality of the labor force and incentivizing businesses to drive the economy forward.

Similarly, the author states that immigration has many negative consequences for countries of destination due to the risks that the arriving individuals may pose. Although research finds that immigrants have short-term benefits on the economy, it is mostly related to skilled workers, while the unskilled labor force is affected negatively.¹³ Therefore, there exists an incentive for countries to revise their policy in regards to unskilled workers, which could potentially improve their education level, income, and input into the national economy. As workers with some skills are more represented among immigrants than poor laborers, the governments should also devise policies that would appeal to this demographic, ensuring their desire to work and prosper locally.

Conclusion

In his book, Sowell uses modern economic principles to discuss politics and public policy issues that concern the United States and the world in general. His main argument is that political decisions often lack consideration for long-term outcomes that may be substantially different from the first impact of each action. Thus, the author calls for a review of suggested policies to demonstrate how they can be harmful to the country’s economy in the future. Sowell’s views on medical care and housing show his strong preference for the theory of the free market and his belief that the supply-demand equilibrium is the guiding force behind economic prosperity. In contrast, government intervention is viewed as detrimental to growth and people’s desire to improve.

Bibliography

Abramitzky, Ran, and Leah Boustan. “Immigration in American Economic History.” Journal of Economic Literature 55, no. 4 (2017): 1311-45.

Asrar, Zaeema, Hasan Raza, and Muhammad Farrukh Aslam. “Poverty in the Developing Countries: A Multifold Curse.” Archives of Business Research 5, no. 7 (2017), 68-75.

Farrington, Conor JT. “Co-Designing Healthcare Systems: Between Transformation and Tokenism.” Journal of the Royal Society of Medicine 109, no. 10 (2016): 368-371.

Hunt, Janet. “Average Cost of an ER Visit.” The Balance, 2020. Web.

Sowell, Thomas. Applied Economics: Thinking Beyond Stage One. 2nd ed. New York: Basic Books, Inc., 2009.

Footnotes

1. Thomas Sowell, Applied Economics: Thinking Beyond Stage One, 2nd ed. (New York: Basic Books, Inc., 2009), 14-15.
2. Sowell, 2.
3. Sowell, 14.
4. Sowell, 62.
5. Sowell, 111.
6. Sowell, 206.
7. Sowell, 273.
8. Conor JT Farrington, “Co-Designing Healthcare Systems: Between Transformation and Tokenism,” Journal of the Royal Society of Medicine 109, no. 10 (2016): 369.
9. Sowell, 5.
10. Psalm 82:3 (NIV).
11. Janet Hunt, “Average Cost of an ER Visit,” The Balance, 2020. Web.
12. Zaeema Asrar, Hasan Raza, and Muhammad Farrukh Aslam, “Poverty in the Developing Countries: A Multifold Curse,” Archives of Business Research 5, no. 7 (2017), 69.
13. Ran Abramitzky and Leah Boustan, “Immigration in American Economic History,” Journal of Economic Literature 55, no. 4 (2017): 1326.