Sowell Applied Economics Thinking Beyond Stage One (revised and enlarged ed)

A P P L I E D

E C O N O M I C S

A P P L I E D

E C O N O M I C S

Thinking Beyond Stage One

THOMAS SOWELL

Revised and Enlarged Edition

A Member of the Perseus Books Group

New York

Copyright © 2004, 2009 by Thomas Sowell

Published in 2009 by Basic Books,

A Member of the Perseus Books Group

First edition published in 2004 by Basic Books

All rights reserved. Printed in the United States of America. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. For information, address Basic Books, 387 Park Avenue South, New York, NY 10016-8810.

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A CIP catalog record for this book is available from the Library of Congress.

ISBN-13: 978-0-465-00345-7

LCCN: 2008932670

10 9 8 7 6 5 4 3 2 1

To Professor Arthur Smithies, who taught

me to think beyond stage one

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C O N T E N T S

Preface		vii
1	Politics versus Economics	1
2	Free and Unfree Labor	20
3	The Economics of Medical Care	53
4	The Economics of Housing	95
5	Risky Business	133
6	The Economics of Immigration	171
7	The Economics of Discrimination	207
8	The Economic Development of Nations	238
Sources		275
Index		319

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P R E FAC E

This is the revised and expanded edition of Applied Economics. There is a new chapter on the economics of immigration, and existing chapters have much new material, such as an analysis of the economics of organ transplants in the chapter on the economics of medical care and an explanation of some of the “creative financing” behind the subprime

mortgage crisis in the chapter on the economics of housing.

Despite its title, this is not a book designed for economists to use in applying their expertise. It is a book to enable anyone, with no prior knowledge of economics, to understand some of the key economic issues of our time— medical care, housing, discrimination, and immigration, for example. Because these are political, as well as economic issues, we will need to consider what incentives and constraints apply to political decisionmaking, as well as those which apply to economic decision-making.

Economics requires thinking beyond the immediate consequences of decisions to their long-term effects. Because politicians seldom look beyond the next election, it is all the more important that voters look ahead— beyond stage one— rather than voting for a candidate or a policy that they will end up regretting later. This book stresses long-run repercussions to decisions and policies.

It is helpful to have something of a sense of humor when considering economic policies. Otherwise, the study of these policies and their often painful, and sometimes disastrous, unintended consequences can get to be too depressing or you can get too angry. Save your anger until you are inside the voting booth on election day. In the meantime, enjoy the process of getting more understanding of issues and institutions that affect your life and the future of the country.

Because this is a book for the general public, the usual footnotes or endnotes are omitted. However, for those readers who want to verify what is said here, or to read further on some of the subjects covered, the sources of the many facts discussed here are listed in the back of the book. Many, if

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Applied Economics

not most, of those facts were gathered for me by my extraordinary research assistants, Na Liu and Elizabeth Costa. The former also created the computer files from which this book was directly printed and the latter did the copy-editing.

THOMAS SOWELL

The Hoover Institution

Stanford University

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