–Economic myths, false beliefs and fairy tales

An alternative to popular faith

The U.S. and the world, lurch from boom to bust in seemingly uncontrollable waves. Popular faith holds that recessions and depressions are an unavoidable part of the natural economic cycle. I suspect these “natural” cycles occur because actions (or lack of actions) are based on false beliefs.

Economics has engendered an amazing number of myths, most based on what some feel is logic. But it’s the same degree of logic that says the earth must be flat, else we would fall off. Here is a list of myths, false beliefs and fairy tales. If you disagree with any item on this list, please let me know, and I’ll explain why it’s there.

• Money and debt are two different things.
• A growing economy does not need a growing supply of money.
• Federal surpluses help the economy grow.
• The federal debt is too large.
• The federal debt is the total of federal deficits.
• The current level of deficits is unsustainable.
• Federal taxes help pay for federal spending.
• Federal borrowing helps pay for federal spending.
• The federal government spends taxpayers’ money.
• Our children and grandchildren will pay for today’s federal deficits.
• A balanced federal budget is more prudent than a federal deficit.
• The federal debt/GDP ratio measures the government’s ability to service its debts.
• Each of us owes a share of the federal debt.
• Federal earmarks, pork barrel spending and waste hurt the economy.
• The single biggest cause of inflation is excessive federal deficit spending.
• Inflation is too much money chasing too few goods.
• Consumer saving helps the economy grow.
• In fractional reserve banking, banks keep a fraction of deposits and lend the rest.
• The best way to cure inflation is to increase taxes or cut federal spending.
• State, county and city governments are financially similar to the federal government.
• FICA taxes pay for Medicare and Social Security.
• The government cannot afford to fund Medicare or Social Security.
• The U.S., like the EU nations, can go bankrupt.
• Without increases in taxes or decreased spending, Medicare and Social Security will go bankrupt.
• Without tax increases, the federal government cannot afford to increase support for education, infrastructure improvements, bailouts for states, counties and cities, the military, research and local police.
• Gold is safer and more prudent than “paper” (fiat) money.
• The federal government needs to borrow to pay for deficit spending.
• Federal borrowing reduces the availability of lending funds.
• The two main reasons for the recent economic collapse were low interest rates and lack of federal credit supervision.
• Low interest rates stimulate the economy; high rates slow it.
• Taxing the rich does not hurt the poor.
• Cutting payments to doctors and/or taxing “Cadillac” health insurance plans, is one good way to help pay for improved health care.
• The federal debt ceiling has a beneficial function.

Rodger Malcolm Mitchell