11 Big Myths About the Economy That Are Destroying America

[xchrom]

http://www.alternet.org/11-big-myths-about-economy-are-destroying-america



Myth 1: Economics is a science.

The way economists maintain stature in public policy circles is to present their discipline as a science, akin to physics. In Econ 101, there is no uncertainty, only the obvious truths embedded in supply and demand curves. As noted economist Lionel Robbins wrote, “Economics is the science which studies human behavior as a relationship between given ends and scarce means, which have alternative uses.” If economics is actually a science, then policymakers can feel more comfortable following the advice of economists. But if economics is really a science – which implies only one answer to a particular question — why do 40 percent of surveyed economists agree that raising the minimum wage would make it harder for people to get jobs while 40 percent disagree? It’s because as Larry Lindsey, former head of President Bush’s National Economic Council, admitted, “the continuing argument [among economists] is a product of philosophical disagreements about human nature and the role of government and cannot be fully resolved by economists no matter how sound their data.”

Myth 2: The goal of economic policy is maximizing efficiency.

Economists have one overarching principle that shapes their advice: maximize “efficiency.” As economist and venture investor William Janeway notes, “Efficiency is the virtue of economics.” But the goal of economic policy should not be to maximize static efficiency (the “right” allocation of widgets), but to create inefficiency — in the sense of disruptive innovation that makes widgets worthless. For it is the development of new widgets and better ways to make them (e.g., innovation), rather than efficiently allocating existing widgets, that drives prosperity. As noted “innovation” economist Joseph Schumpeter pointed out: “A system which is efficient in the static sense at every point in time can be inferior to a system which is never efficient in this sense, because the reason for its static inefficiency can be the driver for its long-term performance.”

Myth 3: The economy is a market.

In the world of Econ 101, “the economy” is usually treated as a synonym for “the market.” But an enormous amount of economic activity takes place outside of competitive markets dominated by for-profit, private firms.

Myth 4: Prices reflect value.

If the economy is a market, prices are what allow goods and services to be efficiently allocated. In Econ 101, because prices are set in “free markets,” the price of something must be a reflection of its real value. This principle — known as the efficient market hypothesis — was the reason why, when in the run-up to the Great Recession real house prices increased 40 percent (a more than seven-fold increase from decades prior), virtually no economist sounded the alarm, precisely because those higher prices must have reflected higher value. This is why Ben Bernanke stated in 2005 that rising home prices “largely reflect strong economic fundamentals” and Fed chairman Alan Greenspan assured us that, “It doesn’t appear likely that a national housing bubble, which could pop and send prices tumbling, will develop.” Had economists not been in the grip of the efficient market hypothesis, they would have realized that something was seriously amiss and helped rein in lending to reduce the bubble and subsequent collapse. But if they tell policymakers that prices don’t always reflect value, then the entire foundation of Econ 101 starts to crumble.

[raccoon]

1. Off to Greatest with you! nt

[KG]

2. alternet - awesome repository of uncomfortable truths.

the lack of comments and replies by the DU palace guard bear this out.

[BlueStreak]

4. They are too busy trashing Snowden and micro-analyzing the Zimmerman trial

This place is becoming irrelevant. It used to be that smart people had lots of insightful discussions about the most important topics of our time. Not so much anymore. This place has become dominated by people who are stuck on one issue and don't offer any useful insights. It borders on the definition of trollish behavior.

[Volaris]

7. "the DU Palace Guard..."

Now that's funny.

[Hydra]

41. Hehe

I call them "The Ministry of Truthiness"

[BlueStreak]

3. Regarding myth #6, economists have no integrity at all

"Myth 6: Monopolies and oligopolies are always bad because they distort prices"

When was the last time you heard ANY economist even mention the fact that nearly all of our major industries have become monopolies or oligopolies?

3 big phone companies.

One big company controlling all the planting of agricultural seeds.

Soon just 4 airlines, all of which engage in price-fixing (except Soutwest, for the most part). United/Continental, Delta/Northwest, Usair/America might as well be one airline. They all have exactly the same prices and policies, and have effectively agreed to carve up the market for routes so there isn't any real competition.

Three companies carving up most of the health insurance business -- again using obvious price-fixing.

And so on in almost every damn industry.

Name one Economist who has even observed this about ANY industry lately.

[hatrack]

8. Or find even one economist (other than Greenspan) who admitted they were wrong

If economics is a predictive science, why is it then that no one (with the odd exception like Roubini and maybe el Arian) called the crash of 2008?

Two possibilities:

A. It's not a predictive science, but nobody knew, and the egg on the faces of the Glenn Hubbards of the world was unavoidable.

B. It's not a predictive science, and everybody knew, and nobody cared about the egg on the faces of the Glenn Hubbards of the world, since it was so easily wiped away with stacks of hundred dollar bills.

[BlueStreak]

43. There's that. nt

[marmar]

5. k/r

[LisaLynne]

6. Myth 7: Low wages are good for the economy.

This just makes me want to ask what is the purpose of the "economy" then? If workers must have low wages in order for the "economy" to be good, what does having a good economy mean?

More wealth for the 1%. That's who these people are serving and it's gotten to ingrained that I don't even think they realize or question it.

[Thor_MN]

9. Myth #1 40 percent of surveyed economists agree that raising the minimum wage would make it harder

for people to get jobs, because 40 percent want to fuck over poor people to enrich the people that already have almost all the money.

#0 is that "success" is never clearly defined and agreed upon. Supply side, trickle down economic policy is enormously successful if your goal is income disparity and concentration of wealth to the highest. If your goal is increasing standard of living for all, it is an abject, colossal failure.

[DontTreadOnMe]

12. The Republicans are pushing hard for not raising the minimum wage

Especially here in my state of NJ.

If Democrats could JUST organize on one issue, this should be it.

[zeemike]

27. I think there is a concerted effort on their part

To keep us from organizing on one issue but keeping us busy fighting for things they don't care about so they can move on things they do care about.

And we seem to fall for it unfortunately.

[Shankapotomus]

10. I would agree Capitalism is not a science

But I'm not sure I get why Economics is not a science. Surely, a proper economics would be based on logic and still promote egalitarian principles, would it not?

And efficiency is a relative term. Efficient to whom? To the individual, as capitalism is and is clearly too narrow a scope to support a community? Or efficient to the group?

Correct me if I'm wrong but it sounds as if the article is conceeding science to capitalism; something I don't think is necessary.
Science is on the side of egalitarianism and what I call group economics.

So I don't think egalitarian economics has anything to fear from science. Capitalism does.

Cooperating and sharing extra resources with others of the group, promotes the species as well as reinforces the community bonds that led to the advancement of group unity in the first place. So it's a demostratably efficient and advantageous economic model.

Non-cooperation and hoarding of resources breaks down community and erodes the advantages gained from cooperating as a group.

[NRaleighLiberal]

11. I was thinking the same thing - the issue, I believe, is spin/greed/power -

meaning we have hundreds of years of the impact/effect of economic policy, performance, and the effects of decisions in differing climates. To me (a scientist), you have the facts and data needed to do whatever analyses that are needed to come up with principles that work. The issue - that work for whom? What can't be separated out is the effect of politics on the facts and data - the need to spin something so that particular groups or people benefit - and that is where the main problem lies.

[Shankapotomus]

19. As a scientist would you agree

that main battle now and even going back to our pre-human ancestors is between the singular thug and upstart who wants to hoard resources to himself and coalitions of the weaker allying to try to procure enough resources for themselves?

And that the clear survival advantage goes to the coperative group coalitions?

I mean, it seems to me all one has to do is look at the difference between a solitary species like a bear and almost any social species to see the evolutionary advantage of social species and how that would translate to forming proper theories in regard to economics.

[NRaleighLiberal]

20. indeed. the imperfections of human beings is on full display these days!

I think there is a philosophical thing going on - do we see the world as one (everyone gets lifted, we judge ourselves by looking at those with the least and how we treat them - expanded into the environment - do we take care of the world for the future?), or as survive or die (I'm OK so screw you....I will enjoy my days on the earth as I wish and who cares about those to follow). My main disappointments these days come from constantly bumping into the latter, while my wife and I (and daughters) are the former.

[Shankapotomus]

22. Again, as a scientist,

shouldn't you be doing something about this? I mean, it's clearly gotten out of hand now.

[NRaleighLiberal]

25. I try....spreading commendable behavior through gardening!

Actually, we do try - my daughter was in the Peace Corps, I lead a world wide all volunteer tomato breeding project that ends with us giving great new varieties to seed companies that we feel also do the right thing (and of course our varieties have suffered multiple attempts to poach those varieties by those who don't want to help with the work, but make the profit). It's never enough (time to start showing up at Raleigh's Moral Mondays)....

I left big pharma years ago - so my science is applied to my gardening efforts, instead of the corporate grind!

[Shankapotomus]

29. Science should be afforded a bigger role

in government.

There should be a forth branch of government that only scientists are appointed that rules on some policies where understanding the science involved plays a crucial role.

I don't know how a fourth branch of government would upset the power balance but scientists need to be given more power to make final decisions on policies as does the Supreme Court.

[NRaleighLiberal]

31. It is an interesting concept - as a scientist I have this assumption that

using a scientific, disciplined method to think through things makes sense to all - but in discussions with two close former-work friends, they've made it clear to me that a significant portion of the population is highly mistrusting of science and essentially dismiss the findings if it disagrees with their intuition (sound familiar? Kind of like Dubya?). I think that science and the public's perception is not well served by the fumbling way that the media reports on scientific topics, or that it often isn't easy to reduce it to black and white findings or short tweets/sound bites. Short attention span theater, I suppose. Also, the reality that the more something is studied often leads to changing conclusions - think about the effects of different dietary considerations; salt - good or bad? meat - good or bad? It is because we are such complex systems and our individual genetics can profoundly alter things and make sweeping generalizations invalid. Then, of course, mix in lobbyists and it completely muddles the picture - scientific findings are often dismissed because they don't fit the desired paradigm.

Fascinating stuff....now that I am retired (well, I get to spend time writing and gardening for a living, rather than working in the big buildings with unhappy suits), I get to ponder such things often.

I am enjoying this exchange, by the way...trying to get motivated today!

[zeemike]

30. And your science is bearing fruit.

Literally.

[NRaleighLiberal]

32. !!! link below is a sample of one of our new tomato releases

http://www.victoryseeds.com/tomato_dwarf-mr-snow.html

this is our project http://nctomatoman.weebly.com/dwarf-tomato-project-introduction-and-information.html

[zeemike]

35. Nice work.

I have never tried a white or green tomato but I just might next year...and I do love my cherry tomatoes.

[Shankapotomus]

38. Some good lessons you are teaching others

On the one hand, you are re-grounding resource dependency on the earth and natural environment, where it was originally. Thus, teaching people to free themselves from potentially competitive dependence on those who might exploit their relationships. A garden won't try to fight you over its output but an employer will over your wages and benefits.

But at the same time, by example you are maintaining relationships and strengthening the community by sharing that knowledge and skill with others.

To me, that's a proper economy.

[NRaleighLiberal]

39. thanks. telling the story of our project is, hopefully, going to be my follow up book.

I just finished the text for my first book on tomatoes - Storey publishing, December 2014 release date....working through the photography and soon, edits on my first draft. Quite an educational experience (no pun intended!)

[RadiationTherapy]

14. Science is a process of testing and observation with the intent of making predictions

about the processes involved. Economics does little testing and has very little predictive accuracy.

[Spitfire of ATJ]

18. Economics is more dogma than science. Just look at the way people like Krugman are treated...

People at CNBC and on Wall Street can't understand how he got a Nobel Prize. They consider him to be a complete whack job because the things he says are the kinds of things they consider to be a threat to their profits.

[byeya]

28. Science is also about accepting results. The Great Depression proved Keynes correct.

First there were the Hoover "free market" years - disaster
Then, four years of FDR's Keynes rememdy: the economy improved significantly.
Then came two of abondoning Keynes' theories - reversion to depression
Then came years of Keynes prescriptions and the economy once again improved.
Then came the greatest Keynesian spending of all, WW2 and the Depression ended.

If economics were a science, or rather, if economists were scientists, the case would be closed until and unless new evidence were provided.
But No. Austerity "free market" BS is once again being employed and failing.

[Nevernose]

15. That's an excellent point

Economics is a science if economists behave like scientists and its theories are treated like scientific theories. Are they changeable upon valid criticism? Are they exploring a problem or justifying a belief? Is there evidence to support them and -- once again --do the economic theories change when new evidence is presented?

Much of capitalist economics (not all, but a lot) seems to be like creation science: people with "received wisdom" trying to justify that wisdom.

[JHB]

33. I liken it to Lysenkoism (for extra irony)

A theory that had its valid merits and demerits when it was proposed, but thanks to its ideological appeal to those in centers of power it became enshrined, immunized from criticism, and those who tried to hold it to scientific standards were derided and marginalized.

Political- and self-interest prevented more rational examination that should have led to the modification of the theory or (in the case of Lysenkoism) showing it to be invalid.

[RadiationTherapy]

37. Yes. The revelation of capitalism, promulgated by people who "just know" it is correct.

It is exactly like creation science: we KNOW creationism/capitalism is the answer, we just have to get people to ask the right questions.

[Dustlawyer]

13. Under our current situation, we have only a bastardized version of Capitolism!

If our government wasn't a wholly owned subsidiary of big business, we would have broken up the big banks and media conglomerates by now!

[Ikonoklast]

36. Free Markets For You...peons.

Subsidized Payments From Government No Taxes And Guaranteed Profit For Me...ain't Capitalism grand?


Except what we have in this country is so far away from Capitalism anymore it is ludicrous.

Socialism for the Corporate Giants, Feudalism for the rest of us.

[Dustlawyer]

45. That's about it!

[abelenkpe]

16. K&R

[Spitfire of ATJ]

17. Lately the economic models are designed to stroke the egos of the elite....

There is zero consideration towards the desires or even the basic needs of the general public from what are laughingly called "public servants", including those supposedly serving the public in the media.

[NRaleighLiberal]

21. egos....and wallets!

[ananda]

23. I think there could well be a way that the scarcity syndrome is at play now.

There are a lot of people at the top with the power, money, and means
to grab and horde everything they can, as much as they can.

That makes me think of scarcity psychology.

[HenryWallace]

24. Sorry, this is not a particularly compelling article!

It is difficult to get past their initial criticism:

Myth #1 - Economics is not a science because economist don't agree on certain issues.

You would be hard pressed to find any "hard science" field where disagreement was not essential and "scientists" didn't drag preconceived notions of "how things work" into their conclusions.

[Spitfire of ATJ]

40. Economics is treated by many politicians like it's a matter of "mood"....

They talk about "consumer confidence" and "uncertainty".

You know,.......fuck math. You can make everything better with the power of your mighty mouth.

What did you think the first time you heard the term, "Talking down the economy"?

[FarCenter]

26. Economist's theory doesn't work because business is based on deal making, not on markets

The economists market assumes standardized goods and services, public knowledge of suppliers' prices, easy entry by new suppliers, and rational behavior of suppliers and customers.

However, most of business involves small volume and/or differentiated goods and services, incomplete and misleading information about what suppliers' real prices are, barriers to entry, and irrational behavior.

This is true whether you are talking about an airline buying planes from Boeing or Airbus, a real estate agent showing homes, or a salesperson selling smartphones and wireless plans.

[Spitfire of ATJ]

42. A lot of capitalism is about conning the wealthy into thinking they'll be even richer.

[Egalitarian Thug]

34. K&R Good article overall, but it misses quite a few other economic myths and

shortcomings. Economics is not a science. Scientific rigor exposes the weaknesses that the profession ignores. As it has developed, the study of economics has encountered numerous factors and variables which there is no easy way to quantify. Their solution? Just ignore them. That's not science.

[cantbeserious]

44. Thank You For Sharing

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