Common Misconceptions of Economic Policy

Common Misconceptions of Economic Policy

Debunking Politically-charged and Emotionally-charged Assertions

By Jerry Wyant

With images by Cheryl Creech

Data charts by Scott Haynie

Published by Jerry Wyant at Smashwords

Copyright 2015 Jerry Wyant

This e-book is licensed for your personal use only. This e-book may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

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Table of Contents

Introduction

Section 1: Fundamentals of the Economy

Section 2: The Role of Market Forces in the Economy

Section 3: Causes and Consequences of Rising Economic Inequality

Section 4: The Role of Corporations in the Economy

Section 5: The Role of Government in the Economy

Section 6: Taxes

Section 7: Unemployment

Section 8: Inflation

Section 9: The Minimum Wage

Section 10: Budgets, Deficits and Government Debt

Section 11: Social Security and Welfare

Section 12: Rational and Practical vs. Irrational and Theoretical

About the Author

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Introduction

Most people would probably admit that they know little about economics, and that they have little interest in undertaking an effort to learn more about the subject. This is understandable. Economics is a subject which has its own confusing terminology, lots of boring numbers (math and statistics, ugh!), theories, graphs, and especially disagreements among experts.

Most people would not claim to be experts, but this does not stop them from publicizing their support for specific policies while demonizing any attempt to argue for alternative policies. Invariably, their positions on economic policies are based almost entirely on the emotionally-charged arguments espoused by politically-motivated advocates. They become pawns in a political game, accepting and spreading talking points from advocates who are not interested in telling the whole truth. Also invariably, they resist all opportunities to think through the issues thoroughly and without bias. They have their minds made up, and they are not at all interested in any contradictory facts or logic.

Many other people DO claim to base their opinions on a superior knowledge of economics, yet they still accept and spread misinformation. These are people who may have taken at least one economics course in school. Some of them might even be economics professors. They accept specific conclusions from economics models and theories, without understanding that in doing so they are ignoring relevant assumptions as well as fundamental economics concepts which supersede all assumption-based theories.

These are people who will tell you that their political viewpoint is the correct one because anybody who knows basic economics knows this is true. Their arguments often boil down to something along the lines of because it says so in Econ 101.

The because it says so in Econ 101 argument is NOT a valid, logical argument. Yet even some economics professors and well-known economists use it frequently. A closer look at the issues for which this argument is used will often reveal that those making the case are leaving some important assumptions out of their arguments.

One case in point is the common raising the minimum wage only hurts the people it is designed to help, and if you knew basic economics you would know that too argument. I take on that argument in Section 9 of this book.

I am not a political junkie. I’m not interested in taking political talking points at face value. I’m not interested in simply repeating the talking points I hear. I’m not interested in mindlessly agreeing or disagreeing with somebody over politics, based on political labels.

I do like economics, though. I do believe in cutting through the partisan rhetoric and simplistic talking points in order to get to basic truths. I do believe in ignoring illogical arguments from partisan sources in order to get to basic truths.

Whenever I hear the same illogical talking points being repeated ad nauseam; whenever I see the same misinformation being spread on social media and elsewhere; and whenever I find people being misled by untruths, half-truths, and out-of-context facts designed to mislead people into supporting a political position which is otherwise not worthy of support – then I make an attempt to write about the specific issues involved from a rational and factual point of view.

This book is a selection of individual essays that I have recently published on key topics related to economic policy. Every essay in this book has been written for the purpose of debunking common misconceptions about how the economy works and the effects of economic policies.

The final section of the book provides examples of common illogical political statements, followed by a list of logical fallacies. Each of the other essays is dedicated to debunking a specific commonly-held misconception relating to economic policy or the way the economy works.

I do my best to write about economics in language that is easy to understand for everyday citizens - those who are unfamiliar with or uncomfortable with the language of economics. The essays in this book have been written with such a reading audience in mind. My hope is that if you have reading comprehension skills, you can understand what I am trying to say, even if you tend to shy away from the subject of economics.

The only exception is the previously-mentioned essay about the minimum wage. For that one, I use the same types of economic theory, graphs, and language that is used in the arguments that my essay is designed to debunk.

For the remainder of the book, I use – as much as possible and to the best of my ability – everyday language to point out commonly-held misconceptions of several topics relating to economic policy and the economy. In this book, you will find essays on common misconceptions in topics such as taxes; unemployment; inflation; income inequality; deficits and debt; Social Security; welfare; and the roles that market forces, corporations, and the government play in the economy.

I am not using this book as a platform to use political labels and political talking points in order to make political statements based on a predetermined political position. My agenda is to use truth and logic in order to debunk such statements. People will find that the conclusions I reach tend to fall towards the progressive – rather than the conservative – end of what the political spectrum has become in modern times. I already know that many people who blindly follow conservative talking points will see my conclusions and denounce what I have to say, based solely on a liberal label that they attach to me, with no regard for the actual points I make. This happens all the time. They can’t – or at least they choose not to – logically rebut the actual points being made. Instead, they commit several logical fallacies (Section 12) through personal attacks. But they are not alone. On those occasions when my conclusions don’t coincide with commonly-held liberal positions, I get the same treatment from those who blindly follow liberal talking points.

I have found that the truth does not lie on the side of anybody’s talking points. I have also found that the truth cannot be found by making an attempt to balance opposing talking points. The truth can only be found through an unbiased search for the truth. That truth is rarely found straight down the center. I have concluded that it is dishonest as well as illogical to tailor an argument so that it agrees with the left, the right, or the center. The truth is what it is, regardless of labels. I do not manipulate the truth so that it agrees with a political position. I adjust my political position so that it agrees with whatever truths I find.

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The essays in this book were originally published in The Blue Route Blog and in my personal blog at www.economicsonlinetutor.com/blog.

This book is a follow-up to Sanity and Public Policy: Separating Truth from Truisms, by Jerry Wyant.

~ Jerry Wyant, author of Common Misconceptions of Economic Policy

Return to Table of Contents

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Section 1: Fundamentals of the Economy

Social Structure Government and Economics

Follow the Money

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Social Structure, Government, and Economics

(Originally published August 4, 2014 for The Blue Route Blog)

Economics as a field of study is generally taught as stemming from questions of resource allocation: the what, how, and who questions of production and distribution. What they do not generally teach is the process by which this relates to the very basics of social structure and the formation of government. This short list provides some of the important points in the process.

Follow along with these points in order, as if this were a step by step process, in order to grasp the logic.

1. Human greed cannot be eliminated. It cannot be wished away and it cannot be legislated away.

2. As long as greed exists, people will exist who will never be satisfied with what they have. Somebody will always want more possessions and more power, no matter how much they already have.

3. Without social control, the incentive for the greedy to acquire power will be strong enough for the greedy to become the powerful.

4. In the natural state, without social control, wealth always goes to the already-powerful.

5. The most powerful individuals, motivated by greed, will control everything unless social controls are created.

6. The more that powerful individuals control, the less there is for everybody else.

7. Desperation becomes a motive for theft. Theft and greed become motivations for many types of crimes, including violent crimes. Indeed, most crimes result from greed, desperation, or both. Between greed and desperation, all social structures break down.

8. This situation means that the only connection to wealth is power. Power creates wealth relative to the powerless and this wealth can be used to create more power. Power and wealth feed on each other, creating a small wealthy class. Wisdom, generosity, a sense of humanity, safety, freedom, and the like play no role in determining who is powerful and rich.

9. With wealth and power increasingly going to whoever already has both, the incentive for the powerless to contribute to the economy by creating something that will increase the standard of living is nonexistent.

10. The end result is massive poverty, hunger, and an inevitable higher death rate.

11. Social unrest and revolution are also inevitable results. This can eliminate the powerful in the short run, but it cannot eliminate greed. A new cycle of power and greed feeding off of each other will begin.

12. Social control is the only way to prevent this outcome. Laws are established. This is called government.

13. This kind of government is not the same thing as the rich and powerful passing laws to control everybody else and to protect what they already have taken. Government by the rich and powerful is not really government at all. Instead, it is only a step in the power-and-wealth-feeding-off-of-each-other cycle. The kind of government that results in social control is government for the people.

14. Since a lack of government means that all of the wealth and power go to those who already have wealth and power, and since government is formed for the people in order to prevent the inevitable undesirable outcomes that this cycle of wealth and power creates, then what kind of outcome in terms of the distribution of wealth and power should the government for the people aim for? What methods should the government use to bring about a more desired outcome? What methods and outcomes would create a more desirable society? If wealth naturally moves upward towards the rich and powerful, eventually resulting in a breakdown in society and massive poverty, how much of this natural upward redistribution can be said to create a desirable outcome, or should this redistribution not occur at all? How much should contributions of wealth be rewarded, and how much should contributions of labor be rewarded? If equal outcome is the only goal, regardless of contribution, does this create a low level of living standard, due to a decrease in incentives? If contributions of wealth are rewarded more than contributions of labor, how much poverty, sickness, and death associated with poverty is acceptable to society as an outcome of rewarding wealth with more wealth? If neither the extreme of all wealth being centralized in few hands nor the extreme of equal outcome regardless of contribution are desirable, what kind of balance between the two extremes would be desirable? What method of reaching such a balance is acceptable? If fairness is a major concern, then whose idea of fairness should prevail?

15. Mankind has created different points of view in terms of answers to these questions. These viewpoints, the answers to these questions, go directly to the heart of all political and economic systems.

Return to Table of Contents

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Follow the Money

(Originally published August 4, 2014 for The Blue Route Blog)

The money trail will always tell us what we value as a society.

Look to see where the money goes. Take a look at who gets it and what it is used for. That will tell you exactly what we value in our society.

This is true regardless of the type of political system. It is true regardless of the type of economic system. It is true for all economic policies. It is true for free markets.

The only exceptions are those who are economic slaves. These are people who have absolutely no recourse in having their values reflected in the type of society that they are forced to live in. They have no economic power and they have no political power. They cannot vote (or they live in a society in which their votes don’t really count), they cannot hold a political office from which they can make a difference, and they cannot join forces in order to gain political or economic power. They have no say in the type of society that they live in, and they have no power to change this situation. These people are invisible when it comes to society’s values. The money trail reflects the cumulative values of everybody else.

What you choose to do with your own money reflects your values. What you buy with this money reflects your values. Where the money goes after you spend it is also part of the money trail, and it will be a reflection of your values. Your values create this money trail and the money trail will lead to specific results in society. If you save or invest money, then what happens to that money in the hands of others will also be part of the money trail that you have created through your values. This money trail leads to specific results for you and for society. Only real results matter; theoretical outcomes do not.

You even make choices which determine where you get your money, and how much you get. This too reflects your values. How these choices affect other people in society reflect your values. Sometimes, people make money in ways that benefit others, and sometimes people make money in ways that exploit others – these are results of values. There is a money trail that will determine these results.

Government policies that you choose to support or oppose also involve real results that affect real people and society in general. Theories and philosophy will not determine what these results are, but the money trail will. Each policy option will alter the real outcome by altering the money trail. How policies affect real people, and how potential policies would affect real people, as determined by how the policies alter the money trail, reflect the values of those who support these policies.

If you know that specific outcomes will result from your choices, and you are okay with those outcomes, then those outcomes become something that you value.

You don’t have to tell me what you value, what I value, or what we value as a nation. The money trail will tell me that. The only thing that matters is the end result. Don’t tell me that you value one economic or political philosophy over another, or which economic theories you subscribe to, or why. Don’t tell me that you value human life; or that you support the notion that all men are created equal; or that you have Christian values; or anything else using similar language about values. The actual results from the policies you support in the real world for real people will tell me what you value. The results matter and nothing else does. If you support policies which cause pain and suffering, starvation, and even death, then