Here’s a great read on 10 Recurring economic fallacies:1774-2004. It’s involved and highly academic. However, I encourage everyone to read it. There’s alot of truth in there (even if it comes from a liberal standpoint). The truth is, economics knows neither conservative nor liberal, neither Democrat or Republican. The laws of economics are set in stone and this guy nails some good points. Here’s a summary (snippets from the article):
- Myth #1: The Broken Window - One of the most persistent is that of the broken window one breaks and this is celebrated as a boon to the economy: the window manufacturer gets an order; the hardware store sells a window; a carpenter is hired to install it; money circulates; jobs are created; the GDP goes up. In truth, of course, the economy is no better off at all.
- Myth #2: The Beneficence of War - A second fallacy is the idea of war as an engine of prosperity. Students are taught that World War II ended the Depression; many Americans seem to believe that tax revenues spent on defense contractors (creating jobs) are no loss to the productive economy; and our political leaders continue to believe that expanded government spending is an effective way of bringing an end to a recession and reviving the economy.
- Myth #3: The Best Way to Finance a War is by Borrowing - Beginning with the War of Independence and continuing through the War on Terror, Americans have chosen to pay for their wars by borrowing money and inflating the currency. Adam Smith believed that the war should be financed by a levy on capital. This way the people of the country understand how much the war is costing them, and then can better judge whether it is really necessary. While he conceded that borrowing might be necessary in the early part of a war, before the revenue from war taxes began to flow into the treasury, he insisted that borrowing be kept to a minimum as a temporary expedient only.
- Myth #4: Deficit Spending Benefits the Economy and Government Debt - They are wrong. By avoiding having to increase taxes, borrowing hides the price to be paid for increased government spending (the destructive diversion of capital and labor from private pursuits to government projects), and defuses potential public opposition to new or expanded government initiatives, here and abroad. It is thus both unrepublican and anti-democratic.
- Myth # 5: Government Policies to Promote Exports are a Good Idea - The fallacy that government is a better judge of the most profitable modes of directing labor and capital than individuals is well illustrated by exporting policies. In the twentieth century, the federal government has sought to promote exports in various ways. The first was by forcing open foreign markets through a combination of diplomatic and military pressure, all the while keeping our own markets wholly or partially closed. The famous “open door” policy, formulated by Secretary of State John Hay in 1899 was never meant to be reciprocal (after all, he served in the McKinley administration, the most archly protectionist in American history), and it often required a gun boat and a contingent of hard charging marines to kick open the door.
- Myth #6: Commercial Warfare Works - I won’t rehash the history of the depreciating Continental which led to the confiscation of property without adequate compensation, defrauded creditors, impoverished soldiers and sailors, price controls, a larger war debt but I will point out what Sumner so amply demonstrated in his financial history of the Revolutionary War: the commercial war harmed the Americans far more than the British.
- Myth #7: The Late Nineteenth Century was an Era of Laissez-Faire Capitalism - (Historians consider the presidents during this last period Fillmore, Pierce, and Buchanan as among the worst we have ever had. Yet, from 1848-1860, the country was at peace, the economy prosperous, taxes low, money hard, and the national debt was shrinking. This tells us how historians define political greatness.
- Myth #8: Business Corporations Favor a Policy of Laissez-Faire - Never in the history of our country have corporations, Wall Street financiers, bond holders, and other large capitalists, as a class or interest, favored a policy of economic liberty and nonintervention by government. They have always favored some form of mercantilism. It is surely significant that the second Republican Party, founded in Michigan in 1854, was funded and led by men who wished to overthrow the libertarian desideratum of the 1840s and 50s. Of course there have been exceptions.
- Myth #9: Hamilton Was Great - Hamilton believed many things that are not true that federal bonds were a form of capital; that a national debt was a national blessing; that the existence of banks increased the capital of the country; that foreign trade drained a country of its wealth, unless it resulted in a trade surplus; and that higher taxes were a spur to industry and necessary because Americans were lazy and enjoyed too much leisure.
- Myth #10: Agrarianism or Industrialism: We Must Choose - Hence, to expand trade, it should fight protectionist powers and hostile trading blocs, acquire more agricultural land through purchase or war, and, after obtaining the requisite amendment, fund the construction of internal improvements to foster the movement of agricultural produce to the seaports.
Now, I don’t agree with everything the author writes. I very much agree that Alexander Hamilton was NOT a great man. I disagree with his myth #8 where he somehow concludes that corporations don’t favor laissez-faire policies. That’s one of the most ridiculous (and evidencially undocumented) claims I’ve heard. Myth #6 tells us he’s not a capitalist. As a capitalist, I disagree with his conclusion there as well.
Overall a good read. I encourage anyone who would like to converse about this topic to read the article first. He’s got some good (and bad) things to say.
