There has been much discussion here on myths needing busting.
Before I spend time working on them (and I have been asked to do so by some who have to face the media and try to do just that) what are the ones that you think need addressing?
Your top five would be good.
Suggested answers are very welcome as well.
Thanks.
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[…] did not quite expect the question I raised on Saturdaythe question I raised on Saturday to get the reaction it did: there have been 121 response to my request for lists of economic myths […]
Apologies, I come to this list a bit late.
Lots of macro-economic myth busting being put forward already.
But we also need to challenge some of the micro-economic underpinning of current economic (mis) thinking.
It is time we de-bunked the myth of free markets. Free markets only work as means of optimal distribution of resources under a very special set of, non-existent, conditions. These conditions are:
1. No one is a price maker or price taker ie economic agents all have the same power whether they be businesses or individuals
2. There is perfect information about all past, all current and all future events
These conditions do not (and cannot exist) other than in mathematical models. These models do not reflect any known reality.
These conditions lead to a number conclusions that in a free market:
3. There is no asymmetry of information
4. There is an equal level of income and wealth — to ensure no one agent has more buying power than anyone else (see condition 1).
5. Monopolies and monopsonies do not exist (see condition 1)
6. Neither business nor employers can set wages (both are price takers)
Now, if free marketeers (and neo-liberals) truly believed in a free market they would be campaigning for things such as wealth and income re-distribution, the break-up of monopolies and complete transparency and free availability of all information. They would also be campaigning to bring in regulations to limit the powers of monopolies, the wealthy and the information collectors, hoarders and owners. They would do this in order to move the “economy” closer to their ideal of a perfect market.
Now, if I where an engineer and was taught that when designing bridges, you can assume zero gravity and infinite material strength, and I left University with that set of thinking, my bridges would all soon collapse.
All future students of economics need to fully understand the constraints of the economics they are being taught.
In my list
Thanks
I think there are two myths: the myth of competition and the myth of economies of scale, which seem to be mutually contradictory. What I mean is this:
1. We’re told that there needs to be lots of competing businesses to ensure value for money. This means lots of small-scale businesses, otherwise there can’t be lots of them. Well, this doesn’t work for utilities, coffee, music, film, broadband, and so on.
2. We’re also told that, for any individual business, value for money is achieved through economies of scale – making lots of something is cheaper than making one – which means the business has to be large-scale to do this. Well, however big businesses become, the price of their products never seems to fall below those of smaller “competitors”.
These two points contradict each other, since lots of small businesses duplicate lots of functions and don’t have economies of scale, so how can they lead to value for money? Vice versa, large businesses crowd out the competition so how can that lead to value for money since the competition is gone?
It seems to me that these arguments are simply used, like lots of trite sayings are, when someone wants to sound knowledgeable whenever it fits the situation to say them, rather than them offering anything at all useful.
I don’t think either are true, though they sound like they might be. I think what we think things are worth is more to do with marketing and advertising, and information asymmetries (i.e. why Apple can charge £1 for a download that essentially costs them nothing to “produce”, and rentierism of all kinds flourishes) – we simply don’t know the cost to the seller of what we’re buying, and they do everything they can to ensure that we don’t find out.
I’ll add to the list…
It’s come up a number of times, but where money comes from is one that needs explaining again and again. And the related question of “how will it be paid for?”
This came up recently (again) on the BBC’s website – how will we pay for the coronavirus? What struck me was about the purpose of money and the economy – who are they actually for? It reminded me of what you’d said about creating all the money we need until we have full employment and stopping there, since we don’t need any more money at that point. The purpose of money then, is not money, but to make things happen that we want to see happen, and ensure that the effort is acknowledged in doing it. I realised that, when governments spend, and the work is done, then it has already been paid for. So, the question – how will we pay for the coronavirus? – becomes absurd, because it’s saying – how will we pay for what we’ve already paid for? The government have spent money that they created (which is owed to no-one as far as I can see), and then given in exchange for work to others (even if that work is something like being willing to lock down and comply with the social aim of limiting the spread of a disease – worth paying for in my view). So, the government spends money into existence, which means the question of paying it back becomes – how will we reduce the amount of money available for people after the coronavirus? Surely, as you say, whilst some people don’t have enough, and millions have no work, we can expand the supply of money until everyone has enough and all who want/need work have it? Which means that when people lack it or can’t find work, this is political, always political.
You’re right
The question is not ‘how will we pay for it?’
But in the way that is asked is:
‘how will we reduce the amount of money available for people after the coronavirus?’
And the real question is
‘Why would you want to do that?’
Richard. I think that one comeback that we might get from some people when we get to the point of asking them ‘but why would you want to do that’ (i.e. reduce the amount of money available for people after the coronavirus) would be something like this: ‘Because as the normal money-producing system kicks back in (i.e. commercial banks start lending again) there would then be too much money around. So the £ would devalue, import prices would rise and inflation would kick in.
So we would need to have a well-rehearsed, palatable, convincing and succinct argument ready to respond with. The challenge is to realistically combine those three ingredients; and that might be quite a challenge in practice, given the level of understanding that is out there.
Noted Alan….
One thing that I repeatedly keep thinking about in regard to the UK’s monetary system is how little most people understand the history of its development. In particular why the only eventual recourse was to give the monopoly of reserves creation to government in order to ensure stability of the payments settlement system (the life-blood so speak of any ability to trade) because there were so many repeated private bank crashes in the 19th century as production cranked up massively with the Industrial Revolution! Furthermore the lack of understanding that having agreed this monopoly to create reserves it’s also the ability to create the medium of exchange.
The American Dream
Still sold as cover for: fewer holidays, unaffordable healthcare,
Will become relevant here as we sell ourselves out to Uncle Sam, all nicely sown up with a dose of ISDS / TTIP
Rather belatedly, a couple of things:
1. There is a myth that money is intrinsically valuable.
It isn’t — it only has value because it will be taken in payment for things. And something that — I think — follows from this: the total value of all money cannot be greater than the total value of everything that is for sale. (I’m open to a better expression of this relationship)
2. Regarding markets: they can only work if being unable to buy, or to sell, doesn’t matter.
The first is in, and the second tangentially so
[…] have no done some analysis on all the answers to the question I raised last weekend on the economic, and other, myths that need to be tackled on a persistent […]