5 Myths Many Economists Believe
They fail public choice and basic price theory
Gary Bryant, in an e-mail, asks:
What is [the] most ridiculous economic fallacy that is believed by a significant number of professional economists?
Wow. Good question. There are many such fallacies, and it’s difficult to rank-order them according to their ridiculousness. My list and rank-ordering, of course, reflects my own understanding of economics (which is Hayekian-Alchianian-Coasean-Buchananite-McCloskeyan) and my subjective assessment of ridiculousness.
But Mr. Bryant’s question is fun, so here’s a list of five:
(5) The idea that government-subsidized health care will lower the cost of health care.
(4) The notion that government must have monopoly control over the money supply in order to ensure sound performance of the economy.
(3) The belief that large differences among people in monetary incomes or monetary wealth reflect some “market failure” that ought to be “addressed” by the state.
(2) The blind faith that government officials in democratic societies can be trusted to exercise power over people who economists do not trust to make choices for themselves.
(1-b) The notion that welfare payments (other than EITC) “subsidize” employers by pushing workers’ wages lower.
(1-a) The notion that the minimum wage is, or can practically be, a boon to all low-skilled workers.
Each of these notions reflects not only an ignorance of history but also an utter failure to grasp basic price theory.