Sustainable Democracy

I discovered a great story at the Ludwig von Mises Institute about economics. The article details Ten Recurring Economic Fallacies. The full story is well worth the reading time, although it is a bit long. If you don’t think you can make it through the full article, you can read my summary below.

Myth #1: The Broken Window
The myth that when things break (are destroyed, etc.) this provides a beneficial stimulus to the economy. When something breaks a new product is needed, therefore you create production, new jobs, and increase the GDP. It is not an argument to go break things, but they the limited life of goods and incidental breakage of things over time is a positive thing. This ignores the resources and time that is wasted each time something has to be fixed or rebuilt that could have been spent in the development of better products or the betterment of society.

Myth #2: The Beneficence of War
The theory goes that war helps economies. This has become particularly ingrained because of the perception that the US was saved from the Great Depression by WWII. The problem here is the same as that of Broken Windows making the economy better and I fell is best summed up by this quote that the author cited:

William Graham Sumner described how the Civil War, which he lived through, had squandered capital and labor: “The mills, forges, and factories were active in working for the government, while the men who ate the grain and wore the clothing were active in destroying, and not in creating capital. This, to be sure, was war. It is what war means, but it cannot bring prosperity.”

Myth #3: The Best Way to Finance a War is by Borrowing
You can avoid a levy on capital by simply financing a war through debt. This keep the cost away from the population and keeps people happy and free from the economic hardship of war. At least that is the fairy tale. It has instead been perhaps the greatest source of inflation. This also means that all that debt incurred during war must be paid off. Check what taxes actually pay for, they don’t pay for government services, they pay the interest on our debts and nothing more.

Myth #4: Deficit Spending Benefits the Economy and Government Debt
The same people who think that financing a war through borrowing are the same people who have told you that deficit spending is a great tool that solves problems. Instead of a useful tool all we that has been created is a new way to perpetually divert revenue from capital projects or improvements to servicing interest while the principal costs sit idle. (this is perhaps the best myth to read on the real article, my summary cannot explain it well without blatant copying).

Myth # 5: Government Policies to Promote Exports are a Good Idea
Subsidizing exports, devaluing the dollar, and slashing prices to attack the economies of other nations only results in the further devaluation of our own goods. Not even short term benefits are gained as other nations simply adjust their own pricing and strategy in order to compete and prevent a collapse of their own debt driven economies.

Myth #6: Commercial Warfare Works
See myth 5. The same consequences of attempting make make your own exports better apply to halting trade with others. By preventing access to resources for your own industries you create an immense burden on your own industry and do very little to harm the other nation.

Myth #7: The Late Nineteenth Century was an Era of Laissez-Faire Capitalism
there is no better summary of this point than simply the first paragraph of the article itself:

Certainly, the late nineteenth century was not an era of laissez-faire, despite the stubborn and persistent myth to the contrary. True, there were few government regulations on business, but high tariffs, railroad subsidies, and the national banking system prove that the government was no neutral bystander. Sumner more accurately termed it the era of plutocracy, in which politically organized wealth used the power of the state for selfish advantage.

Myth #8: Business Corporations Favor a Policy of Laissez-Faire
Research any economic crisis and look for one thing. Do the large corporations radically change the way they do business to adapt to the times, or do they beg the government for immediate assistance? Corporations, bankers, and traders have always come screaming to government to save them whenever there have been troubles.

What corporation want and prefer is a system of plutocratic special interests. As long as they can create the illusion of success by mimicking the government method of debt creation and get rich while doing it they have no incentive to actually compete or drive any innovation.

Myth #9: Hamilton Was Great
Hamilton thought that Americans were fundamentally lazy people.

By imposing harsh taxes Americans would have to work harder.

This would increase the GDP and resources available for the government to use (steal).

Hamilton was stoned by angry New York workers.

I think the last line above best demonstrates how you can tell that Hamilton’s ideas should be respected as far as you can throw the current tax code.

Myth #10: Agrarianism or Industrialism: We Must Choose

I’ve given you 9 of the 10 point in wonderful little bite sized chunks. I’ll let this point speak for itself, you don’t have to choose. If you want to know why or learn more read the article, it really is excellent. And once again, you can find it here.