Economic Nonsense: 10. Government spends more efficiently than private individuals

This is not only untrue; it is laughably untrue.  Sometimes supporters of big government spending claim that government is more efficient because it doesn’t need to make profits.  Sometimes they say it doesn’t need to spend on advertising.  Sometimes they say it can borrow more cheaply than private businesses because it has taxpayer backing.  The facts show that even with profits, advertising and higher borrowing costs, the private sector is vastly more efficient.  The UK’s nationalized industries were ailing giants that gobbled subsidies when they were state-owned.  When they were privatized they became profitable private companies that paid taxes instead of collecting subsidies.

Private investors are more careful because it is their own money at risk.  The public sector corresponds to the fourth quarter of Milton Friedman’s quadrant:  they spend other people’s money on somebody else.  The private sector is competitive; it has to attract funds competitively.  It has to anticipate future demand to avoid investing unproductively.  Private projects seek ways to curb costs, to employ people efficiently, and to keep as close as they can to a timetable.

Public projects are notorious for cost overruns, for over-manning, and for being completed years behind schedule.  Private projects are undertaken in response to market signals; they are subject to commercial pressures.  The aim is to produce items that will meet future demand and generate profits.  Public projects, by contrast, are subject to political pressures.  They are often undertaken with a view to electoral popularity.  The projects chosen, their scope and their location are often undertaken to secure the backing of various interest groups and localities, in the hope that this will translate into electoral support.  None of this makes for efficient spending by governments.

Economic Nonsense: 9. International agreement on tax rates would benefit everyone

International agreement on tax rates would hurt everyone except those who collect and spend taxes.   Governments have little restraint on the degree to which they can take the money earned by their citizens and spend it on overblown projects designed ultimately to buy votes and secure their re-election.  They meet some resistance as they increase their tax take, but people can do little except grumble.  Very often there is little difference between the major political parties, or between the tax rates they levy while in office, so democratic restraints are minimal.

The one effective restraint is the ability of people to move to another jurisdiction.  This is especially true of modern economies which place considerable value on the talents of high-achieving individuals.  Government is restrained on what it can tax them by their ability to move.  When faced with punitive tax rates, they can relocate to somewhere more favourable.  High earners in France, and those with aspirations to become so, began to leave the country in significant numbers when faced by government plans to levy a top income tax rate of 75%.  Similar effects have been observed elsewhere.

What is true of individuals can be true of companies.  They, too, can choose to relocate to areas where tax rates are friendlier.  The Republic of Ireland found its low 12.5% rate of corporation tax attracted companies to base themselves within its borders.  High rates of corporation tax elsewhere added to Ireland’s attraction.

Those who support high taxes dislike this restraint and many of them call for international harmonization of tax rates.  The aim of this is to make it pointless to relocate, and to remove the one curb on over-large and over-costly governments.  They dislike what they call ‘tax competition.’  But relatively low taxes on high earners and business constitute a business-friendly environment and are conducive to economic growth.  Those who call for harmonization are in effect saying they do not want any countries to be more business-friendly than others.  Denied an escape to less oppressive tax regimes, people become the helpless prisoners of rapacious governments.

Economic Nonsense: 8. The world is running out of scarce resources

Curiously, the opposite is true: so-called ‘scarce’ resources are actually becoming more plentiful.  Our technical ability to extract resources, including things like copper, zinc, chromium and manganese, is increasing faster than the rate at which we are using up existing ‘reserves.’  We use the term ‘reserves’ to denote the supply which can be extracted economically with current technology.  For most of these resources our reserves are increasing.

We can measure the relative availability of these resources by looking at their price.  For many of them it has been going down over several decades, indicating a relative excess of the supply of them over the demand for them.  Julian Simon won a famous public wager with Paul Erlich, predicting lower prices for an agreed basket of resources, and Erlich duly paid up when he lost.

If any resource does become genuinely scarce, the price rises, and this signals to people that they should use less of it, turning to substitutes where they have become more economic to develop.  It also tells people to produce more of the scarce resource, with the higher price making previously marginal sources now more economic to develop.  The price mechanism thus acts to counter their scarcity by reducing demand and augmenting supply.

Oil and gas were long thought to be exceptions to this trend, but even here technology has given us access to new supplies.  Hydraulic fracturing (fracking) has made available sources of oil and gas from places less volatile politically than those we previously depended upon.  Prices have tumbled, and cheap shale gas is enabling us to shut down coal-fired power stations and switch to much cleaner gas-powered ones.  Some estimates put the supply of shale gas as sufficient to supply projected needs for the next 200 years.  Long before then, however, photovoltaic technology will have allowed solar power to overtake gas in its cheapness.  Contrary to what doomsayers claim, we are running out of neither resources nor energy.

Economic Nonsense: 7. New technology destroys jobs

This is partly true, but in a misleading way.  New technology has often displaced people from their traditional occupations, but in doing so it has created the wealth that has enabled vastly more jobs to be created than were lost.  Agricultural technology meant far fewer jobs for farm workers, but it also meant cheaper, more abundant food that left people able to afford things sustained by newer jobs.  A similar effect occurred with early textile technology.  Spinners and weavers were displaced, but cheaper, mass-produced textiles enabled people to afford other things that led to other jobs.

This is how economic progress is made.  People develop new products and new processes that people prefer over what they were doing before.  Jobs are lost and more are created as part of that churn.

Voices are often raised against the change, especially by those affected, with calls for restrictions to be imposed on new technology in the name of protecting jobs.  Sometimes it has led to violence.  The Luddites smashed machinery, while the Saboteurs were named from throwing their wooden shoes (sabots) into the machines to wreck them.  This was done in a vain attempt to halt the march of progress.

New technology can bring hardship upon those affected by it, and some of those displaced can find it hard to secure alternative employment.  Governments, rather than attempting to stop new technology, sometimes try to ameliorate some of its effects by funding schemes that help retrain and if necessary relocate those most affected by it.

Sometimes people will ask where the new jobs will come from if technology displaces traditional ones.  The question cannot be answered because the future is inherently unpredictable.  New technology makes things cheaper, and that leaves people richer, with more money to spend on other things.  We don’t know what those other things will be, but we do know that they will involve new types of jobs.  New technology, in making manufactured good cheaper, has left people with more to spend on services industries, and there are more jobs in total than there were.  This is how new technology works.  It destroys some jobs and creates more.

Economic Nonsense: 6. The rich are growing richer, the poor poorer and the gap is widening

Sometimes this is asserted on a world scale, and sometimes claimed to be true within individual countries.  Not only is this nonsense; it is also false.  The rich have indeed grown richer, and the poor have also grown richer.  It matters more to poor people.  Extra wealth to the rich might mean more luxuries; to the poor it can mean the difference between starvation and survival.

The last few decades have witnessed the greatest advance in living standards for the world’s poor than ever before in human history.  More than a billion people have been lifted above subsistence.  The poor have not become poorer, they have become richer to a spectacular degree.  India and Chine have made astonishing advances, but it has not been confined to them; other countries have seen their poor become wealthier, and it is still happening.

Within rich countries the poor have become richer.  The yardstick that matters is the one that tells us how much they can buy.  In terms of the hours of work needed to buy goods, they are much better off than they were decades ago.  In some cases what used to take weeks of work to buy now takes less than a day.

Those who make this false claim are concerned with equality rather than wealth.  If the poor gain wealth, but the rich gain more, then under their perverse way of regarding things, they regard the poor as having become poorer.  If achieving twice the spending power is called “becoming poorer,” then words have lost their meaning.

On a world scale decades ago there were a handful of rich countries with the rest dirt poor.  Since then many poorer countries have climbed the ladder to wealth, and others are doing so.  Globalization and the spread of market economics have brought an explosion of wealth that has been widespread and beneficial, and promises to continue being so.