New Years:\u00a0 a time to reflect; to look back and to look forward; to greet the future with hope; to make resolutions to better one\u2019s life.\u00a0 In short, starting the new year with a new perspective.\u00a0 And perhaps no other mode of thought needs a new perspective as much as common beliefs about economics do.\u00a0 So, in keeping with the theme of this month\u2019s issue of Blog Wyrm, this article will look at the top 5 myths or misconceptions that still plague the how we think about the dismal science.<\/p>\n
It is all too common to hear even highly-educated people claim that the wealth of the rich was obtained and is built on the backs of the poor.\u00a0 And, unfortunately, there are some cases where this is actually true \u2013 isolated and small cases when measured against all of human progress \u2013 but, nonetheless still there.\u00a0 But, as discussed in the earlier post A Provocative Question<\/a><\/em>, it is an unsupportable position that all wealth is based on zero sum game.\u00a0 Additional proof, beyond the mere standard of living increases discussed in that post are the fact that these improvements are enjoyed mostly world-wide. \u00a0Consider, Ukrainian hackers who hold your computer hostage, Nigerian scammers who go on phishing expeditions, or South Korean gamers who \u2018pwn a noob\u2019 in Call of Duty.\u00a0 None of these characters can exist in the world without having access to computers, electricity, and a culture of specialized labor that allows them to hone their craft.\u00a0 It is undeniable that wealth is created.<\/p>\n Closely related to the zero sum fallacy, another puzzling misconception that is widely held is the notion that a good, service, or commodity has a fixed value that can be assigned by the market or that is agreed upon in a transaction.\u00a0 As pointed out the in the previous posts Value and Trade<\/a> and Candy and Wealth<\/a>, value is strictly in the eye of the beholder.\u00a0 In any type of transaction, financially-based or strictly bartered, each side gains from the transaction.\u00a0 This must hold, else the transaction would never happen.\u00a0 When party A agrees to pay $10 for an item and party B agrees to take the money in exchange, both sides or gaining (or, at least, perceive that they are gaining).\u00a0 That means that party A values the item greater than the $10 he is willing to pay just as party B values the $10 more than the item he just delivered.\u00a0 The prices found in any market, for example a grocery store, are simply the shorthand for the seller saying that he values the monetary value listed more (not equal to) the item in question.\u00a0 The item for sell must be substantially less in his eyes than the price listed, else why would he go to the trouble of displaying, listing, and ultimately exchanging it.<\/p>\n It is often said by people either citing John Maynard Keynes or by those purporting to be Keynesians that any economic activity is good.\u00a0 They will say things like: \u2018In a time of crisis, get people digging ditches even if you have them filling them back up again.\u2019\u00a0 This myth is brilliantly debunked by Frederic Bastiat in his refutation of the Broken Window Fallacy<\/a>.\u00a0 As is often the case, subtle logic, such as Bastiat employs, is often easier to understand when carried to an extreme as is done in the post Save the Economy: Nuke a City<\/a>.\u00a0 There it is argued that if destruction were really embraceable as a valid economic strategy, then any society should always be destroying large swaths of property in order to \u2018stir the pot\u2019.\u00a0 Interestingly, many of those same ditch-digging proponents who think arbitrary activity equates to an economic stimulus are the same people who are most vocal about the wastes of war.<\/p>\n This myth is so pervasive, insidious, and just plain wrong it is hard to even know where to begin.\u00a0 Taken almost as a doctrine of religious faith, most people believe that licensing by the state protects consumers.\u00a0 But, as a critical examination of Airbnb, ebay, or any another of the myriad services offered in the internet reveals, human interaction can be dependable done with a minimum of government oversite.\u00a0 And while these endeavors aren\u2019t perfect can an honest person say that he is somehow worse off engaging these goods and services than he would be from those offered in the highly-regulated sectors?\u00a0 Compare the rider experience of Lyft to that of conventionally licensed taxi-cabs.\u00a0 Does the licensing really benefit the consumer? (See Medallions for Freedom?<\/a> for a look at just what licensing does to the taxi-cab owner.)\u00a0 More often than not, licensing and regulation is used as a barrier to entry that protects entrenched interests that lobby the government from new-found competition.\u00a0 Just ask the monks of Covington Louisiana who were prohibited from selling coffins that undercut the ridiculous profits of funeral homes (Of Monks and Coffins<\/a>).\u00a0 And finally, there is ample evidence that lawmakers using licensing for their own ends, ensuring that their interests are protected from scrutiny while keeping all other out (Gunless and Gunrunners<\/a>).<\/p>\n Closing out this list is a myth, whose scope and damage dwarfs all the others by leaps and bounds: the myth that socialism works.\u00a0 One would think that all the required evidence to debunk this myth is available just by looking at the failure of the USSR, Cuba, or Venezuela.\u00a0 Unfortunately, the misery of the hundreds of millions of people who have suffered and died under this economic scheme over the past century or so is a dark testament to just how wrong, and yet how eternally appealing, this idea is.\u00a0 Unfortunately, its adherents are willing to look past the enormous body of empirical evidence offered by these failed states and the experiential accounts of the victims and survivors.\u00a0 Neither are they swayed by historical analysis offered by those who experimented with the system (Free Riders on the Mayflower<\/a>) nor by the body theoretical analyses in behavioral economics (e.g see Free Electric Riders<\/a>, An Ultimatum You Can\u2019t Refuse<\/a>, or The Gravity of a Minimum Wage<\/a>).\u00a0 Just what will convince people that this myth is dangerous and should be shunned is beyond me \u2013 but I hope we find an answer soon.<\/p>\n","protected":false},"excerpt":{"rendered":"\u00a04. Things Have Unique Values<\/h2>\n
3. Any Activity is Good for the Economy<\/h2>\n
2. Licensing Protects<\/h2>\n
1. Socialism Works<\/h2>\n