Top economic misconceptions of the lay people you wish you could correct?

by on August 21, 2008 at 4:17 am in Economics | Permalink

That was the first request.

Economic misconceptions interact with values to skew overall judgment, but the value judgments are usually the main problem.  Consider how "anti-foreign bias," to borrow Bryan Caplan’s term, often causes people to oppose free trade.  The main problem isn’t bad economic understanding, though that often is present.  Rather the person has an emotional commitment to whatever economics, and other positive arguments, make the protectionist position sound higher status and more justified

Consider an analogy with political scandals.  It’s not quite right to pinpoint "mistaken beliefs about John Kerry’s wartime record on Swift Boat matters" as the main problem, even though the beliefs are indeed mistaken. 

Better thinking may do us more good than "better economic understanding" per se.

Both Alex and I have blogged that nationality (or sometimes
ethnicity or regional background) is often the best predictor of a person’s economic views and yes that includes among economists.  Given the diversity of economists’ views across nations, we are part of the problem too, thereby again illustrating the essential unity of mankind.

Still, I do believe in right and wrong and that means that the viewpoints of some nations (grossly construed) are better than others.  So the top economic misconception out there in the world is "unjustified dislike of the United States," noting that there are also justifiable reasons to dislike many aspects of this country.

1 cato August 21, 2008 at 5:29 am

thats where rational patriotism might come in.

if you are patriotic for one of the best nations, like australia, new zealand or the usa, then this might be a reasonable position given that most people identify with a nation and that most international relations is conducted between nations (tautology notwithstanding)

2 Anonymous August 21, 2008 at 6:58 am

Given the diversity of economists’ views across nations, we are part of the problem too, thereby again illustrating the essential unity of mankind.

I am not surprised that Tyler does not consider himself a philosopher king. Now if only some of the commenters, and the world’s most obnoxious blogger (“right here in River City”), would be as humble.

3 Andrew August 21, 2008 at 8:06 am

I re-reviewed your “justifiable reasons” and I think many point to one thing that stems from another.

Americans are ignorant because the division of labor allows them to be. It’s this same division of labor that allows the prosperity.

We don’t want to think about raising food, teaching kids, or the prisoners once we lock the cell. We don’t want to think about the poor and disgruntled in the rest of the world. We want them squared away, so we can be experts in making pinheads (no pun intended).

So, the leftist argument is that this leads to the downward spiral of striving to be the lowest cost provider and the attendent exploitation of externalities. However, when they discuss factory farms etc., why not just the externalities? Why do they bring up contamination, hormones, etc.? Because, intuitively, they know there is also competition and differentiation on quality.

And who is the biggest monopolizer of differentiation based on quality? Is there some entity that gives its stamp of approval on quality, essentially saying to the division of labor-minded, “these are all about the same, so you don’t have to worry about it.”

P.S. As for hatin’ on guns, try living out here in the boonies and not bein’ terrified, forget happy.

4 Philip Hunt August 21, 2008 at 8:38 am

I think the two vmost common (and most damaging) misconceptions about economics are the broken window fallacy, and the lump of labour fallacy.

5 liberty August 21, 2008 at 9:05 am

I was very excited to see what you think the most common fallacies of economics are in your view – of the people and of economists. I very disappointed to see you push it ALL off on bias. hope you return to the main question (or link to where you’ve addressed it).

to a comment:
“We don’t want to think about raising food, teaching kids, or the prisoners once we lock the cell. ”

What if there is profit to be had in these areas? Currently these areas are all subsidized or government run.

6 nyongesa August 21, 2008 at 9:31 am

Excellent Subject Tyler, a question as fascinating as it gets. I too have pondered the question of the depth of antipathy towards the U.S. and despite my many, many, many (down from at least five, and up one, since bush II’s reign began) misgivings about the country, it strikes me that very low weighting is given to key beneficial systemic effects upon the world from the American century, and very heavy weighting given to symbolic and political issues that parallel closely with group or tribal social responses.

Some basic examples; I once stood in a room of 400 people “enjoying” a vehemently anti-american musical experience, with every single one of us, like billions of others worldwide, sporting a 1″ inch patch of dead skin on our arms, evidencing a U.S. inspired and funded vaccination campaign, that has saved more lives from the most effective mortal enemies of humanity than all the military campaigns in all of history.

I can rattle off literally dozens of examples of this bias away from far more powerful but abstract, or not easily quantifiable, agents of positive transformation, and towards simple negative imagery. In economics, the role of the U.S. dollar as an anchor currency during the post bretton woods accords. it can be argued that a global reserve currency has done more to transform the lot of the citizens world in many small but profound ways, by example facilitating world trade, than most grandiose economic projects. We maybe ripe for a basket now, but that has come about by that key role.

Without the massive economic prosperity of the west in the post WWII era how much deeper would world poverty have been, and how much larger the world population.

In culture, the spread of revolutionary culture around the world has been one of the most profound. I know their will be howls of protest to this one, but where I come from, and more relevant than ever i think, is the ease with which the enlightenment ideals took hold at the center of American thought and continue to threaten systems of control worldwide. The feminist and civil rights movement, are deeply entrenched in the American system. If you watched enough American originated cultural output you would be exposed to a litany of rather liberating concepts.

I think relative perspectives are what escape most people. had a negotiated peace with Nazi Germany or imperial Japan taken place how would the world look. What where the alternative models to the current order. One of my pet peeves is the extent to which the world in general and Russians in particular have never reconciled the extraordinary damage done to Soviet Client states from their relationship to that Union. There are thousands of books, lectures and papers, on America’s dirty wars, and much hand wringing within America of it’s darker periods in the cold war. There is not a person who has not graduated from an American institution of higher learning that is not aware of this history. Yet take a simple look at every single soviet client state in Africa for example, and look at the enormous hole they have had to climb out of. You cant find a single Russian who is contrite. They are just victims apparently.

I geuss people have an aversion to authority figures, especially ones who are somewhat hypocritical. Sorry for the polemic, but the subject drives me nuts.

7 floccina August 21, 2008 at 9:46 am

I would like to convince people that when some one says that such and such (alternative energy is a common example) will create jobs that that is not a good thing.

8 John Dewey August 21, 2008 at 10:11 am

Andrew: “We don’t want to think about raising food, teaching kids, or the prisoners once we lock the cell.”

Who is this “We”, Andrew? Do you really think the majority of parents in this nation are unconcerned about the quality of education their children receive? Do you know many realtors? Most would tell you that quality of school systems is a big a factor as any in home-buying decisions. That’s true even for childless couples and empty nesters, who are concerned about the resale value of their homes.

How Important Is the School District? provides some answers from blog commentators about just how important education is to home buyers.

If Americans did not care about the teaching of their kids, why would issues such as creationism and evolution remain important political questions?

9 jrandomamerican August 21, 2008 at 11:14 am

It would cause a golden age of wealth if we could eliminate the general misconception that systematic soldiering aids the trade in general by providing more jobs to do the same work.

10 odograph August 21, 2008 at 11:41 am

Ha! Tom got trolled.

11 Tom August 21, 2008 at 11:59 am

Did I misread?

12 odograph August 21, 2008 at 1:25 pm

Coincidently, I’m sure: IndyMac Swift Boaters Strike Back!

13 Caliban Darklock August 21, 2008 at 1:53 pm

“Cause and effect are commutative.”

I cannot count the number of people who simply get cause and effect backwards. Speculators begin speculating when they see a highly volatile market where you can make a lot of money fast. Then the media come along and go “OMG, the market is so highly volatile, what is causing it?” – and they look over and see bunches of speculation.

So they say speculation causes price volatility.

It would take a much longer post to explain why I don’t identify this as “correlation is not causation”, but the short version is that when you reverse the cause and effect, people don’t understand the difference. If you suggest the volatile prices have actually caused the speculation, they stare at you blankly and say “that’s what I just said”.

14 Happy Camper August 21, 2008 at 4:55 pm

Obama raps McCain for ignorance of his own houses

By MATT APUZZO, Associated Press Writer

“I think — I’ll have my staff get to you,” McCain told Politico when asked Wednesday how many houses he owns. “It’s condominiums where — I’ll have them get to you.”

Later, the McCain campaign told Politico that McCain and his wife, Cindy, have at least four in three states — Arizona, California and Virginia. Newsweek recently estimated the two owned at least seven properties.

Last week McCain cracked that being rich in the U.S. meant earning at least $5 million a year. With most Americans feeling the pinch of a worsening economy, the remarks allow Democrats to suggest that McCain cannot relate to ordinary voters.

It’s also another example of how McCain, nearly 72, can be fuzzy and forgetful on some facts.

15 David J August 21, 2008 at 6:36 pm

I think the biggest mis-conception of many people is that greater access to wealth makes for a happier life. Interestingly, protectionist ideas would seem to imply and understanding of the fallacy of that statement since protectionism, reduced to the extreme, means that a person can be happy and comfortable living off of the fruits of their own labor without the need for any external agents. To prove that the division of labor has made society a “better” place is arguable (better relative to pre-existing options as well as all possible labor/social constructs). Bias plays a large role when making these judgements.

Andrew: “We don’t want to think about raising food, teaching kids, or the prisoners once we lock the cell.”

John: “Who is this ‘We, Andrew? Do you really think the majority of parents in this nation are unconcerned about the quality of education their children receive?”

I don’t speak for Andrew but personally I see a difference between a parent’s desire to provide an education to their children (John’s comment) and parents willing to take on an active role of teaching their children (Andrew’s comment). The very fact that nearly all children are in (and required to attend) structured education facilities confirms this fact. The fact that people so vehemently oppose the teaching of evolution (and even creationism) in the schools further reinforces the fact that (at least those) parents are in fact afraid to have to teach in addition (or opposition as the case may be) to what the schools are teaching.

16 Bob Murphy August 21, 2008 at 8:21 pm

So the top economic misconception out there in the world is “unjustified dislike of the United States”…

Tyler I’m surprised by this answer. Are you saying, e.g, that if a billionaire gave you a big chunk of money and said, “You have to use this to debunk one and only one economic myth,” you would teach people to like the United States?

17 Mr. Econotarian August 22, 2008 at 4:28 am

“I think the biggest mis-conception of many people is that greater access to wealth makes for a happier life. ”

Work by Daniel Kahneman, Alan Krueger, Norbert Schwarz, Arthur Stone and Prof. Schkade show that “While reported life satisfaction and household income are positively correlated in a cross-section of people at a given time, increases in income have been found to have mainly a transitory effect on individuals’ reported life satisfaction.”

So being rich enhances personal satisfaction, and getting richer has at least a transitory enhancement on satisfaction.

18 Bob Murphy August 22, 2008 at 9:32 am

Bob Murphy, you are ridiculous.

True, but so was Tyler’s answer, if I understood him.

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