Thomas Sowell’s “Applied Economics”

March 28, 2009

The first few pages of Thomas Sowell’s Applied Economics: Thinking Beyond Stage One explains the incentives that doom government do-good programs.

People evaluate political decisions on intentions and economic decisions on results.   A political decision, such as using taxpayer money to bail out banks, is made to make the politicians look well-intentioned in order to win favor with voters, whether the result matches the intentions or not.  Often government programs hurt the very people they’re intended to help because of unintended consequences.  Yet programs continue on and grow because of the visible good intentions.

On the other hand, when I make an economic decision, like buying dinner from a restaurant, I evaluate the result.  Was the dinner worth what I gave up in exchange (money, time, drive)?  The restaurant workers may have good intentions, but if they don’t deliver a tasty meal in a reasonable time I won’t return. 

Sowell described that his Harvard economics professor, Arthur Smithie, got him to think through potential unintended consequences by asking which policy he favored and why and then asking, “And then what will happen?”  He would keep asking the last question over and over again.  I’ll give that a try.


One Response to “Thomas Sowell’s “Applied Economics””

  1. […] Fabric of Reality By Seth A phone conversation this evening reminded me of this post on the different incentives of economic and political decisions.  As I become more aware of […]

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