10 Pervasive Economic Fairy Stories

Here are some of the most pervasive fairy stories that deceptive politicians love to tell about the economy.

Here are ten of the most pervasive economically-illiterate fairy stories that malicious politicians and their media cheerleaders love to keep parroting.

Government finances are like household budgets

Comparisons between government finances and household budgets are profoundly misleading, not least because governments and central banks create money, while normal households do not have money printing machines.

We also don’t tend to spend the vast majority of our monthly household budget within the four walls of our own houses, while government do almost all of their spending within the national economy.

Alarm bells should start ringing whenever politicians start explaining the economy with comparisons to household budgets, because either they don’t know how national economies work, or they do know, and they’re trying to bamboozle you with deliberately misleading comparisons.

The national debt is like a credit card

Another common economic deception in contemporary political discourse is the insinuation that government borrowing is akin to recklessly "maxing out the national credit card".

Government borrowing is one of the lowest interest forms of borrowing there is, while credit cards have notoriously high interest rates.

Comparing the two is essentially just scaremongering.

If politicians must insist on making comparisons between national finances and individual family budgets (see above) then it would at least be significantly less misleading to compare government borrowing with a fixed rate mortgage, but this wouldn’t serve their purpose of fear-mongering about the public debt, so you’ll rarely, if ever, hear it explained this way.

What makes the credit card analogy so frustrating is that there is actually a form of government borrowing that’s much more akin to reckless credit card spending; the economic alchemy of PFI.

Under PFI schemes governments borrow from the private sector to finance infrastructure projects, then end up paying back many multiples of the actual construction costs over the following decades.

Using PFI economic alchemy to construct a hospital would be like using a high interest credit card to finance a loft conversion, instead of just paying for it upfront, or getting a much lower interest mortgage extension. But somehow Westminster politicians rarely complain about this particular kind of economically insane government profligacy.

Private sector efficiency

For decades politicians have been justifying their privatisation agenda by pushing the absurd fairy story that the private sector is somehow magically more efficient than the state.

There are so many examples of how this is wrong.

Take the 2012 Olympics when the private security company G4S failed to provide enough security despite having had months of notice to get their act together and hire sufficient workers.

In the end the government drafted in public sector workers (police and military) to cover the shortfall at the last moment, because public sector workers are capable of efficiently stepping up to carry the private sector slack at a moment’s notice.

Just look at stuff like rail, energy, and water since privatisation. Bills go up, public subsidies go up, investments in maintenance and new infrastructure go down, service quality declines. Shareholders and greedy executives walk away with £billions, while ordinary people and the wider economy pay the price.

If the private sector is truly more efficient, ask yourself why even the most right-wing governments never started off by privatising something as crucial as the armed services.

It’s because they know that "private sector efficiency" is absolute bollocks, and that the only thing privatisation is actually good for is generating unearned private profits for their fat cat mates.

Austerity

The "let’s cut our way to prosperity" ideology of austerity was, is, and will always be an absolute load of cobblers.

It’s impossible to increase a nation’s wellbeing by mindlessly slashing away at the investments that deliver prosperity in the future (infrastructure, education, public health, modern transport, functional public services, green technology, research and development …).

The lessons of economic history are absolutely clear that governments that invest wisely deliver increasing prosperity, while those that salt the roots of future prosperity with austerity cuts deliver stagnation. Britain’s lost decade and a half since 2010 (failing public services, falling living standards, economic flatlining …) being a case in point.

Crowding out theory

Crowding out is the deceptive right-wing economic theory that government spending "crowds out" private sector investment.

This theory was used to justify the virtual elimination of social house building from the 1980s onwards.

Has taking the state out of the house building sector led to a massive boom in private sector housebuilding? Absolutely not.

Cutting public house building didn’t create a boom in private house building, it actually just delivered a dramatic decline in overall house building rates

Removing the state from house building actually ended up collapsing house building rates to the lowest level since the 1920s by the mid 2010s, despite Britain’s massively increased population since then.

It’s a similar story with privatised infrastructure and services. Privatising energy, rail, and water didn’t generate massive booms in power station construction, rail line openings, and new reservoirs. In fact since privatisation the profiteering water companies in England haven’t created a single new reservoir!

The private sector profiteers prefer to be given publicly constructed infrastructure at a tiny fraction of its real value, rinse it for every penny its worth while paying out obscene dividends, then go crying to the government to finance any investments that they do want to be made.

Lowering taxes boosts growth

Things are never this simple.

If a government lowers taxes on multinational corporations and the mega-rich, the beneficiaries are highly likely to stash a hefty proportion of their gains in offshore tax havens and overseas investments, which takes that money out of economic circulation, reducing economic demand.

If the government makes huge funding cuts to offset lavish tax handouts for the extremely rich, it’s even worse, especially if they end up cutting investment in the drivers of future economic prosperity.

Lowering taxes for poor and ordinary people is much more likely to have a positive economic effect, because they tend to spend any additional income, but is that positive effect enough to outweigh the benefits of strategic infrastructure investment that an unwise government might have slashed to offset the cost of such tax breaks?

Whether tax cuts have beneficial economic outcomes depends heavily on who the beneficiaries of those tax cuts are. And the tried and tested method for stimulating growth isn’t tinkering with the tax code, it’s wise strategic investment in things that generate more economic activity in the long run than they cost to provide.

There’s no difference between left and right

This is a shockingly common claim in modern political discourse.

There are a couple of core differences between left and right:

The left believes in public not-for-profit ownership of economically vital infrastructure and services, while the right believes that it’s better to use these things for private profit extraction purposes.

The left sides with workers and stands up for workers’ rights. The right sides with bosses and undermines workers’ rights.

If a supposedly left-wing government is doing right-wing things like privatising public services and undermining workers’ rights, that doesn’t mean there’s no difference between left and right, it actually just means the so-called left-wing party is a right-wing wolf in sheep’s clothing.

Military Keynesianism

Military Keynesianism is the idea that increasing spending on stuff like military bases and munitions factories is good for the economy because it creates jobs.

It’s true that military spending can create jobs, and increases in local prosperity, but then something as pointless as paying ten thousand people to dig holes in the ground and then fill them in again would also create jobs, and increase local prosperity.

The issue isn’t whether jobs lead to prosperity, it’s how efficiently the money is being spent. Perhaps building a new tram system for the town centre would create more jobs and long-term prosperity than using public cash to build a munitions factory to supply the Third World War that Israel is trying to provoke?

A hugely important part of Keynesian economic analysis involves looking into which areas of public spending create the strongest returns on investment, and targeting public spending there.

It’s profoundly frustrating to watch war-hungry politicians invoke Keynesian economics to justify massively increased military spending, whilst outright ignoring the elements of Keynesian economics that would tell them that there are much better ways that money could be spent.

Maximising economic self-interest

One of the most absurd myths in conventional neoliberal economics is that human beings tend to maximise their own economic self-interest, and that somehow everyone acting in the most selfish and self serving manner possible results in the best possible outcome thanks to the "invisible hand of the market".

Rational self interest is an impossible concept because in situations with multiple choices the number of different combinations of choices grows so exponentially that a fully rational analysis of a complex set of choices (like supermarket shopping) would take thousands of years to complete, so people just use heuristics (educated guesswork) to make their decisions.

A look at the concept of information asymmetry demonstrates how wrong-headed the idea of humans as perfectly rational economic agents is too, because without a perfect supply of information, perfect rationality is clearly impossible to achieve.

Another glaring problem with the concept of people as purely rational self-interested economic agents, is that it conflicts so dramatically with what we know about reality. If we were all perfectly selfish economic automatons, then stuff like charity, empathy, volunteering, philanthropy, and even stuff like hobbies and pass times simply wouldn't exist.

The problem goes further than the fact that humans don't and can't act as purely self-interested individuals. The idea that if only we were all just entirely selfish, then general wellbeing would be promoted is staggeringly backwards.

If only everyone would stop giving to charity, avoid helping their neighbours, quit volunteering in their communities, and give up their hobbies … then the world would magically be a better place?

Who actually believes this drivel?

Impoverishing people makes them find work

This myth is particularly relevant given Rachel Reeves economic assault on disabled people, which has been justified by countless Labour politicians parroting absolute nonsense about "helping people find work".

It’s an undeniable fact that the Personal Independence Payment (PIP) is not a work-related benefit. It exists to help people cover the increased living expenses associated with their sickness or disabilities. Loads of people in receipt of PIP are already in work, and another significant proportion are simply too disabled to work, no matter how much deeper the government pushes them into destitution.

Arbitrary cuts to people’s social security payments has absolutely zero to do with getting people into work, and all the Labour ministers claiming that this is the objective behind their disability cuts are simply lying through their teeth.

But then just think about the practicalities. Does anyone honestly believe that confiscating disabled people’s mobility vehicles, specialised equipment, and specialist support makes them more likely to find work, rather than less?

Loads of studies have found that driving people further into destitution creates more barriers to work, and actually makes them less likely to find employment.

Who cares about what the evidence actually says though. Let’s drive millions of disabled people into destitution, and pretend that we’re seeking an outcome that’s the polar opposite of what both the evidence, and common sense tells us will happen!

Conclusion

If the British public don’t learn to stop believing in these absurd, economically-illiterate fairy stories, and start rejecting the politicians who keep on peddling them, then we’re never going to get away from the path of economic stagnation, falling living standards, failing public services, soaring inequality, needless suffering, and national decline.

It’s impossible for people to make rational decisions if they allow duplicitous politicians and deceptive media hacks to fill their minds with economically-illiterate baby talk.