It’s no crime to be ignorant of economics,” said Murray Rothbard, “but it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.
Unfortunately, democracy gives everyone an equally loud opinion in the voting booth, and economically ignorant voters have elected equally ignorant politicians time and time again over the past century.
These widely believed lies have brought the global economy to the brink of crisis once again, and the cycle of booms and busts won’t be broken until enough individuals see that the Emperor has no clothes. Here is a list of the ten most destructive lies in the market:
#1 – Without government, we’d have monopolies
The case for government regulation of markets is based on the preposterous notion that, in the absence of coercive regulation, a single company would grow to monopolize a vital economic resource, thereby allowing that firm to dictate prices. We’re all taught in public school that the government saved America from the monopolists and robber barons of the early 20th century by passing anti-trust laws and other regulations to promote competition. But the truth is that regulations are typically written by the industrialists they’re alleged to regulate – such as in the case of the Federal Reserve.
The true definition of a monopoly is an exclusive privilege to carry on a business, traffic, or service, granted by a government. Government created the AT&T monopoly, and as a result, almost all phones were black rotary dialers until 1986 – just think how much phone technology has improved since!
The government itself is a monopoly on the supposedly “legitimate use of force” within its territory. It monopolizes several industries, most notably law, courts, and defense. We’re taught in public school that monopolies are bad, but the monopoly of the government itself is never called into question.
#2 – Deregulation caused the financial crisis
Progressive social-democrats and their right-wing doppelgangers performed a post-mortem on the financial crisis and decided that the whole thing could have been avoided if only markets had been more thoroughly regulated. Not only that, but the deregulation of the prosperous 90’s was the cause of the meltdown of 2008 – or so the mainstream authorities allege.
The truth is that government intervention was the cause of the financial crisis – just as it was the cause of the Great Depression and of all previous and future financial panics. By first assuming authority over monetary policy and then delegating that authority to the pseudo-private Federal Reserve, the U.S. federal government set the country on the path to an unending sequence of booms and busts. Here’s how it works:
First, the Fed inflates the money supply and pushes down interest rates. Then businesses increase their borrowing and spending, investing in projects that are profitable at the artificially low interest rates, but wouldn’t be otherwise. As the boom phase continues, banks must expand their lending to less credit-worthy borrowers, and eventually the whole thing goes bust and liquidates. Finally, the free market takes the blame.
#3 – The New Deal brought America out of the Great Depression
“It ain’t what you don’t know that gets you into trouble,” said Mark Twain. “It’s what you know for sure that just ain’t so.” Another lie taught to schoolchildren by government union employees is that FDR’s Works Progress Administration and other New Deal programs lifted America out of the unregulated horror that was the Great Depression – this, however, just ain’t so. Nevertheless, this lie is destructive because a huge portion of the population continues to agitate for more government spending to solve all of our problems – just like it did in the history books!
#4 – War is good for the economy
Some conservatives counter the idea that the New Deal lifted the U.S. out of the Great Depression with the even more preposterous notion that entering World War II is what did it – this is an even more destructive lie!
Wars are incredibly costly affairs, which is why they were much rarer and smaller until the 20th century. Citizens were unwilling to undergo the necessary hardships to finance major wars, and they’d resist the taxation, regulation, and conscription that went along with them. But with the advent of paper money, kings and other rulers could just print to finance conquest, and while this resulted in inflation, Americans in particular have been very slow to appreciate the declining purchasing power of their currency.
The global economy is interconnected, and there’s no way destroying property in one part of it could be good for the whole. In the absence of war, all of the efforts directed at destroying people and property could be harnessed for the good of humanity. War is the ultimate expression of government, and it’s the market – not government – that produces prosperity.
#5 – Free trade is unfair
Using the term “fair trade” is like openly declaring your economic ignorance to anyone within earshot. Trades only take place when all parties involved think they’ll be better off as a result of the trade. Trades of “equal value” – what the “fair traders” declare “fair” – are pointless; people only trade when they think their situation will be improved by making the trade.
I might trade you four quarters for a dollar bill, but that’s not a real trade. A real trade would involve you agreeing to trade me two oranges for a dollar bill, and that trade would mean that I valued the two oranges more than I valued the dollar bill, while you valued the dollar bill more than the two oranges. If either of us thought we’d be worse off as a result of the trade, then we wouldn’t make it.
Once this simple economic concept is understood, it becomes clear that any intervention between voluntarily consenting traders can only result in the destruction of value.
Only individuals can determine how much they value what’s being traded, as everyone’s preferences and situations are different. The wider the sphere of trade, the more economic specialization; and the more economic specialization, the more stuff gets produced. And, because of the concept of comparative advantage, even the poorest and least-skilled individuals benefit from more expansive trade.
#6 – Outsourcing and immigration are bad for America
People oppose companies outsourcing jobs to cheaper labor markets on the grounds that it “takes away American jobs.” In reality, outsourcing helps create American jobs, since it allows small businesses to operate profitability that otherwise wouldn’t be able to. For example, freelance computer programmers can be hired at $10 an hour to work remotely from India and the Philippines, while that same work would cost $100 an hour or more using U.S. labor. Without outsourcing, many small businesses could never get started, and many of those businesses grow to hire more Americans in time.
Research shows that increased immigration would be of further benefit to the U.S. economy.
Immigration is sort of the opposite of outsourcing – it insources human labor to complete labor tasks domestic workers are unwilling to perform at the wage rates being offered. Immigrant laborers willing to perform these jobs help keep prices down for middle-class and low-income consumers, and immigrants stimulate domestic demand for the products and services they consume, too.
#7 – We owe the national debt to ourselves
The national debt is nothing to worry about because “we owe it to ourselves,” says the old lie. Or if it’s not a lie, the “we” and “ourselves” are two separate groups of people, as Murray Rothbard pointed out.
More than 34% of U.S. debt is held by governments, institutions, and investors of foreign origin – not “we.” This accounts for more than $5.5 trillion, while the U.S. Treasury has only $48 billion in its coffers. Yikes!
The rest of the government’s $16.3 trillion in debt is of domestic origin, but still the “we” and “ourselves” aren’t identical, so the truth is we owe it to some of ourselves, along with some others, which doesn’t make a very catchy slogan.
Debt originates when the government spends more than it collects in taxes and must issue bonds to make up the shortfall, and last year, the federal government ran a deficit of $483 billion. What’s more, the government’s unfunded liabilities for Social Security and other welfare benefits stands at an astounding $205 trillion. There’s no way the government is ever paying down its debt, and there’s no way it will be able to keep accumulating it forever, either.
Stein’s Law says “if something cannot go on forever, it will stop,” and the U.S. debt machine can’t go on forever. Believing in pithy slogans like “we owe it to ourselves” doesn’t change this reality.
#8 – Minimum wage laws are good
Profits and losses provide natural self-regulation of the market economy. In a 100% free market, all transactions would be voluntary, and profits would only be possible through serving one’s fellow man. To the extent that there’s anything wrong with profits in the real world, it’s a result of government interference with the natural order.
Unprofitable practices are unsustainable in any kind of market. Therefore, businesses cannot pay employees more than their marginal product of their labor – i.e., if an employer doesn’t generate at least $10 of profits every hour he works for his employer, then his employer will not be able to sustainably pay the worker a $10 hourly wage. If the minimum wage were set at $10, then only laborers with the skills to generate $10 of marginal utility each hour would be hired. Thus, the minimum wage is actually a program to ensure unemployment for low-skill workers.
#9 – Money equals wealth
It’s amazing how childishly simplistic most economic pundits are: They honestly believe the government can get out of any economic jam by just printing money! But money is only valued for its purchasing power, and the more dollars that are printed, the less value each one coming off the printing press has. Also, since the U.S. dollar is a debt-based currency, new dollars are only printed when someone takes on a debt obligation – this is hardly the path to prosperity.
Fiat money must be imposed by central governments – it could never emerge naturally. Gold and silver, by contrast, emerged as the preferred moneys of many cultures across the world and throughout history, as traders in economies with sufficient division of labor began accepting goods for later exchange, rather than for later use. Gold and silver make good moneys because they’re valued for their own sake, they’re easy to trade, and governments can’t control them. Real wealth is measured in real assets, not paper, and it’s important to keep that in perspective.
#10 – The government can save us
Most Americans don’t spend much time learning about or analyzing the global economy because they trust the government to save them from whatever calamity is right around the corner. The truth is that the government couldn’t save us if it wanted to, and it doesn’t want to anyway. Only you can save yourself, and it starts with accumulating intellectual capital. The Internet is an unprecedented educational resource – it should be used for more than just looking at cute animal pictures, but if you’re reading this, you already know that.