It’s possible readers will come up with some economic myths that are even stupider than the three I will mention here, but these are the three rattling around in my brain right now.
1)We need to bail out Greece to help poor Greeks. This has to be the stupidest, but it is everywhere. No, the people who are getting the bailouts are rich bankers and the European Central Bank. The people who will suffer are the poor and middle class Greeks and of course any Greek taxpayers.
You have seen the rioting in Greece on TV, right? Why are they rioting? Well, many are anarchists who just love an opportunity to riot, but there are some people who are very upset over the Greek austerity plan. The reality is that Greek has a lot of debt for the same reason we do: government is too big and has been promising too much for too long to too many people. But the dirty secret is that the European Central Bank, and other private bankers, are the real people getting the bailout. The ECB may be exposed to about half of Greece’s total $500 billion in debt.
Sorry folks, when you loan somebody money you are taking a risk they will default and not pay. You need to take responsibility for that risk. The debt needs to be renegotiated, and the bond holders need to take a haircut, meaning they lose some money. But the ECB does not want to do this because they took the risk and there are worries about the ECB going bankrupt.
The real losers are the Greek people. Their only solution is to tell the ECB to take a hike, default, renegotiate the debt and take some short-term pain (austerity, big cuts in government) for long-term gain (clearing the markets, economic growth again). Bonds at 15 percent mean economic pain in the long run for Greeks whose taxes will have to pay off those bonds later on. (Bonds are at that level because nobody would buy a bond at a lower yield given the Greek debt levels). So, today Europe is bailing out bankers and rich people on the backs of the poor and middle class Greeks. Not so good.
2)“China is raping this country.” This statement from Donald Trump has to be one of the stupidest things ever said by an American public figure and potential politician. If anything, China is saving our behinds. China is lending us money by buying our bonds because nobody else will. China is making stuff less expensively so it can be sold at low prices to people at Wal-Mart and elsewhere. China is a fierce competitor in some areas, which is good for American business because competition makes us stronger.
If anybody has a complaint, it is China. We are the ones who have sent troops to areas near the Chinese border (Vietnam and North Korea). We are the ones to threaten to invade China (MacArthur). We are the ones who interfered in China’s internal affairs during their civil war by siding with Chiang Kai-Shek. Meanwhile, China has sent us some of their best people to build our railroads and to be great engineers, businessmen and doctors.
Over time, China has made reforms that have helped lift literally hundreds of millions of people out of poverty. China has opened to U.S. industry and now buys $90 billion worth of U.S. stuff a year (in 2010). Yes, we have a trade deficit with China, but our trade deficit with Germany is also out of control, yet nobody says Germany is raping this country.
China’s currency is manipulated by the government, and the complaint is that this prevents fair trade. But how about the U.S. policy of buying our own debt and encouraging inflation, which is destroying the U.S. dollar and making our products artificially cheaper? This policy also ensures that Chinese bond holders suffer because the inflation rate is higher than the yield on their bonds. We are technically defaulting on our bonds with China already because they are losing money on them (compared to the inflation rate). All of this can be directly traced to U.S. monetary and fiscal policy.
Don’t get me wrong: I am not defending all Chinese policies. There are reasons to be concerned about Chinese expansionism, and it is silly for China to continue to prop up the North Korean regime. Nobody can defend the forced abortions and political prisoners in China. But at the end of the day, these are internal Chinese issues. China is a growing trading partner and competitor. This is good for everybody.
3)Obamacare will lower the deficit. I don’t think anybody actually believed this, but of course this was a main selling point for Obamacare during 2009 and early 2010. The idea that a new entitlement would be free and actually save money was so silly as to not be taken seriously except by the worst partisans, but nevertheless we heard this a lot during the Obamacare debate.
Hopefully we can finally put this canard to rest. Here is one explanation. The bottom line: Obamacare was “scored” over 10 years in which the taxes came first and the benefits came later. This accounting trick forced the CBO to calculate costs and benefits in ways that skew the numbers. Obamacare is also supposed to be funded with taxes that are very likely to be repealed by later Congresses because they are unpopular even with Democrats and unions (such as the tax on Cadillac health plans, which are primarily given to union members).
A report released by the CBO just a few days ago shows that medical costs are exploding and Obamacare does absolutely nothing to stop the trend. Meanwhile, we are supposed to provide health insurance to tens of millions of new people and think we are somehow lowering health care spending?
If you favor Obamacare, you are on safer ground arguing in favor of health care for more people. But I’d be willing to bet what you really want is a single-payer system, not Obamacare. Just as I said repeatedly during the Obamacare debate, it solved absolutely nothing it claimed to solve. As the years roll by, we will see that health costs continue to soar and people continue to complain about the system. And now with Obamacare and more government involvement, we get more debt and the likelihood of fewer and fewer doctors as they leave medical care at the worst possible time.