Joe: Here’s a wild thought: what if the most compassionate-sounding policies—like capping the price of bread to feed the poor—are actually the cruelest things you can do? What if they lead directly to starvation? Lewis: Okay, that’s a heck of an opener. It sounds completely backwards. Making essential goods affordable seems like the most basic function of a caring government. How could that possibly be a bad thing? Joe: Because it ignores what happens next. That’s the kind of brutal, counter-intuitive truth we’re tackling today. It forces you to look past the good intentions and see the devastating results. Lewis: This has a very specific flavor. It feels like we're about to dive into some tough economic medicine. Joe: We are. And this all comes from a book that’s famously polarizing but incredibly sharp: Applied Economics: Thinking Beyond Stage One by Thomas Sowell. Lewis: Ah, Sowell. The man who started as a Marxist and, through his own real-world experience, became one of the most prominent free-market thinkers. That journey alone tells you he’s not afraid to follow the data, no matter where it leads. Joe: Exactly. He's all about peeling back the first layer of a problem to see the machinery underneath. His whole argument is that most of us, especially in politics and the media, are trapped in what he calls "Stage One" thinking. Lewis: And what exactly is that? It sounds like the tutorial level of a video game. Joe: It pretty much is. It's when you only look at the immediate goal of a policy. The goal is to make housing affordable, so we pass a rent control law. The goal is to make food cheap, so we cap prices. You judge the policy by its beautiful intention, not by its chaotic, messy, and often disastrous consequences. Lewis: The road to hell is paved with good intentions, as they say. Joe: Sowell would say it's paved with Stage One policies. And the wreckage is everywhere, once you know how to look for it.

Joe: Let's start with the most direct example of this: price controls. The idea is simple and seductive. If something is too expensive, the government just passes a law making it illegal to sell it for a higher price. Problem solved, right? Lewis: It sounds good. If people can't afford bread, and the government says bread can't cost more than a dollar, then more people can eat. That seems like a clear win. Joe: That's the Stage One analysis. Now let's look at Stage Two. Sowell brings up the harrowing example of Zimbabwe in 2007. The country was suffering from runaway inflation, so the government did exactly what you said. They decreed massive price cuts on essential goods. Lewis: And what happened? Joe: Stage One was a brief, euphoric shopping spree. People rushed to the stores and bought everything they could. But then came Stage Two. The bakers, the farmers, the producers… they couldn't make a profit selling bread for less than it cost to produce. So, what did they do? Lewis: They stopped making it. Joe: Exactly. The shelves went bare. Not just for bread, but for sugar, cornmeal, everything. It wasn't that the goods were unaffordable; the goods simply ceased to exist. The policy that was meant to fight scarcity created an absolute, catastrophic famine. Hospitals ran out of basic medical supplies. People died. The government's attempt to repeal the law of supply and demand had devastating human consequences. Lewis: Wow. That's terrifying. But I have to push back a little. Zimbabwe was an extreme case, a collapsing economy. Surely that couldn't happen in a stable, developed country like the United States? Joe: You'd think so, but Sowell points out that we ran our own little experiment with this. In 1971, President Richard Nixon, facing inflation and an upcoming election, did something unprecedented in peacetime America: he imposed nationwide wage and price controls. Lewis: Nixon? The Republican? I thought he was a free-market guy. Joe: Politically, he was a 'win the next election' guy. His own economic advisors, many of whom were brilliant, told him it would be a disaster. There's a famous quote where Nixon allegedly told an aide, "I don’t give a good goddamn what Milton Friedman says. He’s not running for re-election." Lewis: That is impressively cynical. So he knew it was a bad idea economically but did it anyway for the political win? Joe: He did. And the Stage Two chaos arrived right on schedule. Farmers started drowning their own chickens because the price of feed was higher than the price they were allowed to sell the full-grown birds for. Cattle ranchers withheld their herds from the market. Food store shelves in American cities started to look eerily empty. Lewis: So the policy designed to control prices led to massive shortages of the very things people needed. Joe: Precisely. And here’s the kicker. Did the public blame the government's price controls? No. They blamed the oil companies for gas shortages, the farmers for food shortages. Nixon's policy was a political home run. He won a landslide victory in 1972. He successfully traded long-term economic health for short-term political gain. That’s the dangerous allure of Stage One thinking.

Lewis: That Nixon story is just incredible. It feels like the central problem isn't just a lack of foresight, but a fundamental conflict in what we want. We want the impossible, and politicians are happy to sell it to us. Joe: And that gets to the heart of Sowell's next point. The real battle isn't between good and bad policies; it's between good intentions and the cold, hard logic of incentives. Economics, he argues, is the study of how people respond to incentives. Politics is often the art of ignoring them. Lewis: What's the difference? Don't politicians have incentives too? Joe: They do, but they're completely different. A business owner's incentive is long-term profitability. They have to think about sustainability, reputation, and customer satisfaction for years to come. A politician's primary incentive is winning the next election, which is usually two, four, or six years away. This creates a fatal short-sightedness. Lewis: So they'll make decisions that look good now, even if they know it'll cause a disaster in ten years, because they'll be out of office by then. Joe: You've got it. Sowell uses a brilliant, if grim, metaphor for this. He says, "Killing the goose that lays the golden egg is a viable political strategy, so long as the goose does not die before the next election and no one traces the politicians’ fingerprints on the weapon." Lewis: That's dark. Can you give me a real-world example of that goose getting cooked? Joe: Infrastructure. Think about the Minneapolis bridge collapse in 2007. After that tragedy, investigations revealed that thousands of bridges across the country were structurally deficient. The problem wasn't a secret; engineers had been warning about it for years. Lewis: So why wasn't anything done? Joe: Because of incentives. What gets a politician more positive press and a great photo-op? Cutting the ribbon on a brand-new, shiny convention center, or quietly approving the budget to replace rusty bolts on a 50-year-old bridge? Lewis: The new project, every time. Nobody holds a parade for routine maintenance. Joe: Right. So the incentive is to fund the visible, exciting "Stage One" projects and neglect the invisible, boring, but life-or-death maintenance. The goose—our critical infrastructure—gets weaker and weaker, year after year, because the political incentives are all about short-term appearances, not long-term stability. Lewis: That makes so much sense. It's like in our own lives, choosing to buy a new 8K TV instead of fixing the leaky roof. The TV is exciting now, but the water damage later will be a complete catastrophe. Joe: It's the exact same logic. And voters are part of the problem. Sowell points out that we invest far less thought into a political decision than an economic one. You'll spend weeks researching which car to buy because it directly affects your life and your wallet. But voting? You have a tiny influence on a massive outcome, so most people vote based on soundbites and feelings. As former Congressman Dick Armey said, "Demagoguery beats data." Lewis: So if politicians are trapped by these short-term incentives, and voters are making low-information choices, what's the solution? Are we just doomed to repeat these mistakes forever? Joe: Sowell argues the solution isn't just better politicians, it's a public that understands the real source of value in an economy. And that brings us to one of his most powerful ideas, which flips our whole understanding of wealth on its head: the concept of human capital.

Lewis: Human capital. That sounds like something from a corporate HR manual. What does Sowell mean by it? Joe: He means that the most valuable asset isn't money, or property, or natural resources. It's the skills, knowledge, and experience inside people's heads. And this idea completely shatters a lot of the myths we have about wealth and poverty. Lewis: What kind of myths? Joe: The biggest one is that income brackets are permanent. We hear all the time about the "top 1 percent" or the "bottom 20 percent" as if they're fixed, unchanging groups of people. But Sowell cites studies showing incredible mobility. One University of Michigan study found that of the people in the bottom 20 percent of income earners in 1975, over three-quarters of them had reached the top 40 percent at some point by 1991. Lewis: Wait, really? So the "poor" aren't the same people over time? They're often just people who are young, starting their careers, and then they move up? Joe: Exactly. The statistical category stays, but the people in it are constantly changing. And the engine of that change is the accumulation of human capital. He tells these incredible stories to illustrate it. My favorite is about Frank Winfield Woolworth. Lewis: The founder of the Woolworth's five-and-dime stores? Joe: The very same. In 1873, he was a poor farm boy who applied for a job as a salesclerk. The owner took one look at his ragged clothes and lack of experience and said he wasn't worth any pay. But he offered him a deal: Woolworth could work for free for three months, just to learn the business. Lewis: An unpaid internship, basically. Today, there would be outrage. Joe: Massive outrage. The other clerks laughed at him. He was doing menial work for nothing. But what was he really doing? He was investing in his own human capital. He was learning merchandising, display, and customer service from the inside. He was paying for a world-class business education with his own time and labor. Lewis: And it obviously paid off. Joe: In a way that's almost unimaginable. After his "apprenticeship," he got a paid job, and a few years later, he took the knowledge he'd gained and opened his own store with a revolutionary concept: a five-cent counter. That idea grew into the F.W. Woolworth retail empire, making him one of the wealthiest men of his time. He saw that the knowledge he could gain was infinitely more valuable than the small wage he was giving up in the short term. Lewis: Wow. So he was a master of thinking beyond Stage One, even in his own life. He was literally paying for his education with his own labor. He saw his time not as an expense, but as an investment in himself. That's a complete mindset shift. Joe: It's a profound shift. And it applies to so many areas. Sowell even analyzes crime from this perspective. He argues that for career criminals, it's a rational occupational choice based on costs and benefits. When the cost of crime goes up—like a higher chance of getting caught and imprisoned—crime rates go down. He points to the town of Kennesaw, Georgia, which passed an ordinance requiring every household to keep a firearm. Lewis: I've heard about this. What happened? Joe: The residential burglary rate dropped by 89 percent. The incentive structure for criminals changed overnight. The potential cost of breaking into a house in Kennesaw became drastically higher, so they went elsewhere. It wasn't about changing their morals; it was about changing the math.

Lewis: It’s fascinating how all these ideas connect. The price controls, the crumbling bridges, the story of F.W. Woolworth—they’re all different facets of the same core principle. Joe: They are. It all connects. 'Stage One' thinking fails because it ignores incentives. And the most powerful incentive is the drive for individuals to build their own human capital, to improve their own lives. The policies that work are the ones that unleash that fundamental human drive, and the ones that fail are those that try to replace it with a simple, top-down, 'good intention.' Lewis: So the book is really a plea to respect the complexity of human society. It's saying you can't just draw up a plan on a whiteboard and expect millions of people to behave like robots. You have to understand the invisible forces—the incentives, the trade-offs, the long-term consequences—that actually guide their choices. Joe: That's the essence of it. It’s about humility. It’s about recognizing that an economy is not a machine to be engineered, but a garden to be cultivated. You can't force a plant to grow by pulling on it; you have to provide the right conditions—the right soil, water, and sunlight—and then let it grow on its own. Lewis: It leaves you with a big question, doesn't it? When you look at a new policy or a politician's promise, are you looking at the beautiful 'Stage One' photo, or are you demanding to see the messy, complicated, long-term reality? Joe: That's the challenge Sowell leaves us with. And it’s more relevant today than ever. We'd love to hear your thoughts. What's a 'Stage One' policy you see in the world today? Let us know on our socials. We're always curious to see how these ideas play out in our listeners' lives. Lewis: It’s a powerful lens to view the world through. It might not make you more popular at dinner parties, but it will definitely make you wiser. Joe: This is Aibrary, signing off.