Sunday, September 09, 2012

Exploding Economic and Political Myths

One reason our political economy is so unstable is that there are many economic and political fallacies that are widely accepted in political circles and the press and continue to be propagated because they are challenged by only a relative few recognized economists and public policy advocates. Among these fallacies are the following:

1) Governments should behave like households regarding their budgets.

2) Deficits are bad, surpluses are good.

3) Government borrowing crowds out private investment.

4) Inflation is inherently bad.

5) Money for government spending must come from the private sector.

6) Government is the problem, not the solution.

7) Governments with their own currency can become insolvent.

8) The value of a country’s currency is an indication of its economic health.

9) The national debt can reach levels that can’t be sustained

10) Government debt is a burden handed from one generation to the next.

11) Unemployment is necessary

12) Unemployment is mainly a result of structural considerations, not lack of demand.

There are more, but I’ve gone on too long already.

My intent is not to write a tome on all of these fantasies but to present a few sources that introduce the reader to the nature of the problem. The first entries in the list are the most fundamental, later entries more verbose, detailed and complicated. The subject is complex, but getting into it slowly will ease the journey.

Seven Deadly Innocent Frauds of Economic Policy

New Sense, Common Sense

Modern Money Mechanics

Fifteen Fallacies of Financial Fundamentalism

Understanding the Modern Monetary System

And, if you don’t like to read . .

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