The difference between good and bad economics is that bad economics focuses on short term benefits and ignores long term consequences. The reason that this has continued to prevail is because bad economist are better at defending their errors than good economists are at convincing the public of the truth. This fact is further aggravated because the public is easily dissuaded from listening to the long, important but downright boring arguments which consist of the truth, thereby making it easier for the bad economists to get them to simply assume that the policies being laid before them is to their advantage. Perhaps, in the short term, this is true. And, also perhaps, there are also benefits in the long term. But what the public fails to see is that the benefit is only for one group at the expense of everyone else. Below are the fallacies that the public has been made to swallow and the truth behind such fallacies.
The role of government in public works and taxation
Public works and taxation are just two of the many examples of bad economics. People are convinced to fund the construction of public works under the notion that it will make their lives more convenient, along with other benefits. People are convinced to pay taxes under the notion that their money will be used for the development of their welfare, their protection, along with other benefits. But what is not pointed out to the public is the freedom they would have had to dispose off their income as they see fit, had the government not compelled them to shell out the amount for its own projects.
The role of government in lending and the overlap on taxation
Private lenders are more stringent in their lending policies and, consequently, have to turn down some high risk borrowers. This is where the government comes in. The government is willing to lend these borrowers the money they need for capital to carry out their businesses. These borrowers will then be able to acquire the resources they need to produce what they need. What is overlooked at this point is the fact that, because these high risk borrowers were able to get what could have been acquired by low risk borrowers from private lenders, the resources ended up in the hands of less efficient producers who may not be as productive as the producers who qualified for private lending. Furthermore, the money being lent by the government came from none other than taxpayers’ money. In effect, they are lending to people private lenders would not – another example of a practice to the benefit of a few at the expense of everyone else.
The synergy of technology, production and employment
Many labor unions exist to argue against the need for self sufficient machines as this is a threat to employment. What this argument ignores is that these machines are the results of technological advancements that have made lives easier for the majority and has made production more efficient. This higher production in turn has contributed to higher wages and standards of living – the economic goal of any country. This argument overlooks the fact that full production equates to full employment in the sense that everyone has something to do within the time they are employed. It further overlooks the fact that there are many people within the government who are fully employed without being fully productive.
The role of tariffs in industries
Tariffs are intended to protect local industries by discouraging importation of goods. But importation of goods is necessary for other countries to have the money to buy the goods produced by local industries. But, on another note, tariffs do protect a country’s net balance. This net balance remains stagnant and so do the employment, wages and standards of living of the people working in local industries – the people sought to be protected by tariffs.
The misuse of bailouts and the selfish expansion of industries:
Bailouts are necessary to save some dying industries. In the process, the resources that could have been used to further develop thriving industries are being allotted to those industries which won’t be able to attract investors anyway.
Another factor that hampers the growth of industries is the priority given to 1 industry while ignoring the development of others. This priority is created by businessmen who decide by looking at what will reap the most profit for them, and abandoning industries which wail to meet this requirement even when they leave behind customers who are unsatisfied with what they have paid for.
The domino effect of price fixing and control
Governments intervene and impose a maximum price for goods, under the pretext that such intervention is temporary, and necessary for the rehabilitation of some industries. The effect of this is greater demand but not a greater supply due to lack of capital. If demand for a certain product cannot be met, the public will start turning to substitutes. It will only be a matter of time until these substitutes will be pressured to produce more due to increased demand, and the government will find another excuse to intervene and fix their prices too. As government intervention widens, so will the rationing of wages, labor and raw material. The end of the line is an entire economy at the mercy of the government. Price fixing and control should be nipped in the bud so both sellers and buyers can be free to negotiate and compete on the amount one is willing to sell at and the amount the other is in a position to pay for.
Pressures imposed on minimum wages
There are two forces pushing minimum wages – legislation and labor unions. But both these forces ignore the fact that they cannot impose a price for labor that employers cannot pay for. The driving force for wages is production and employers cannot afford to pay for labor that does not produce. Even if employers were to succumb to the pressure of law and unions, they will end up sacrificing the development of the business which, in the end, will equate to the lack of growth in the labor industry. Legislation imposing minimum wages and labor unions operate under the presumption that there are limited resources which need to be shared. This presumption ignores the fact that the amount of production which drives one industry creates a demand for the production of another industry. If this fact were able to operate unabated, there would not be a need to force industries to give what they cannot afford because then they will be able to well afford beyond the minimum wage.
Determining factor for profit
The lack of a free market kills profits because there is no chance of negotiation for wages, costs and prices. At the same time, commodities of the same nature need to be sold at similar prices otherwise they will not find buyers. In the end, the seller who profits the most is the one with the lowest cost of production.
Inflation in black and white
Inflation results from the printing of more money than there are commodities available for purchase. Inflation is used to justify the need to expand industries and provide full employment. The obvious consequence is the increase in prices due to a lack of commodities. The people who are spared from this brunt are those who succeed in convincing their employees they need a raise, while those who fail at this task need to bear with lower wages as a consequence of higher costs. But no consumer really benefits since the people with the higher wages also end up paying just as much as the people with the same wages. The benefit are for the hoarders of currencies and stocks who hold such goods until they can exchange or sell them for the most favorable prices.
Why saving is good
Saving is discouraged because of its adverse effect on the demand for the goods produced by industries. What this argument ignores is that what people do not consume goes into buying capital goods. Savings is also the demand for more capital. On this note, there is an assumption that the amount of needed capital has a ceiling. The truth is that standards for countries and businesses continue to increase. And, so long as there are countries and businesses which are not as technologically advanced as their neighbors and competitors, more capital will always be a necessity.
As implied in the earlier part of this paper, these fallacies arose due to the failure to consider long term consequences of decisions made. What is recommended now is a need to thoroughly examine and debate proposed economic decisions before they are implemented. There is a need to revive the dying free economy. It is dying because it is being choked off by too much government interventionism. Yet, the necessity for some form of interventionism cannot be ignored without repeating the chaos that Wall Street experienced in late 2008. Governments need to learn from the mistakes of history and open their eyes to these fallacies.
Today, inflation continued to be at an all time high, the minimum wage battle continues, and governments continue to provide welfare support for all at the expense of the few.
The challenge for governments is in one word – balance. They need to intervene just enough to make sure that the rights and interests of the majority are protected, and at the same time allow enough freedom to make sure that investors are not being discouraged to put their money in industries due to controlled earning potential.