Three Widely Believed Economic Fallacies

Steve Horowitz:

The Fallacy of the Zero-Sum Game

The first of these fallacies is the belief that market activities, especially exchange, are zero-sum games. Zero-sum games are those in which the total gained from playing the game is zero. So, for example, if each of five people playing poker buys into the game for $100, there is only $500 to be won.

. . .

We see this misperception of markets in a variety of forms. At the most general level, the belief that the rich get rich by impoverishing others is a species of zero-sum thinking.

 

 

The Fallacy That Order Requires Design

The second fallacy is the belief that economies require someone or some group to design and/or control them. Often this belief is linked to an argument from complexity: only a simple economy could be left to its own devices. Complex, advanced economies like those across most of the globe require human monitoring and regulation to function properly.

. . .

The flaw at the heart of this fallacy is that it ignores the idea of spontaneous or undesigned order.

 

The Fallacy that Consumption is the Key to Growth

The final fallacy is the belief that consumption is the source of economic growth. This belief is widely held by everyone from the citizenry at large up through economic journalists and politicians. We hear it every time the economy enters a recession and begins to recover. Pundits declare that consumers need to start buying things to generate a recovery, and reports about the latest data on consumer spending make the headlines.

. . .

In fact, consumption expenditures vary the least as economies go through booms and busts. The component with the greatest variation is private sector investment. If anything is needed during a recovery, it is more investment by the private sector, not more consumption.

. . .

The heart of the fallacy, however, is that consumption consumes things! When we consume goods and services, we destroy their value by using them up. Consuming food does not create anything valuable, it eliminates something valuable.

Excellent work. Read it.

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Amazon Executives Face NYC Protesters and Legislators

“We have a crumbling subway system, record homelessness, public housing that is in crisis, overcrowded schools, sick people without health insurance and an escalating affordable crisis,” said City Council Speaker Corey Johnson, a Democrat.

All those local issues, in one of the highest taxing and spending states in the U.S. Why is that so? And a proud progressive city and state to boot:

State Assemblyman Ron Kim, a Queens Democrat, told protesters rallying on the steps of City Hall before the hearing, ” Any politician in our progressive city and our state who’s willing to had $3 billion to Amazon — that should be a career ender right there.”

It would be funny if it weren’t so sad.

Whole thing here.

France Tops OECD Table as Most Taxed Country

WSJ via Stephen Green:

The Organization for Economic Cooperation and Development’s annual review of taxes in its 36 members published on Wednesday showed the French government’s tax revenues were the equivalent of 46.2% of economic output, up from 45.5% in 2016 and 43.4% in 2000. The Danish government’s tax take, which was the highest among OECD members between 2002 and 2016, fell to 46% of gross domestic product from 46.2% in the previous year and 46.9% in 2000.

The U.S. government’s tax revenues also rose relative to the size of the economy as a result of a one-off tax on accumulated profits earned by American businesses overseas. But at 27.1% of GDP, only five countries had a lower tax take: Mexico, Turkey, Chile, South Korea and Ireland.

This is misleading. Taxes may be lower but the real burden is government spending because the spending must be paid for out of taxes eventually. So if tax rates are low but budget deficits continue, that excess spending must be paid for in the future. What good is that? It helps politicians now because they don’t have to raise taxes now or cut spending now. Its still socialism.