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April 23, 2007 | by  | in Opinion |
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Everything You Know is Wrong

We depart a bit from out typical theme of abolishing the state this week, and write about common fallacies that befuddle people’s thinking and political thoughts. However, we maintain that if they weren’t befuddled, then they’d probably want to abolish the state.

“The war pulled us out of the depression by stimulating demand;” or “War is good for the economy.”

Usually the fallacy of this idea can be shown by simply asking “Well, if wars are so good for the economy, then why don’t we pretend that we’re going to war against Australia tomorrow, and simply bury all the weapons that we make?”

This had relative success when I used it, until someone agreed that that would work and started talking about their great new idea. At the root of this fallacy is what is known as ‘The parable of the broken window.’ The fallacy is that we look only at what we see – we’re spending money on guns, tanks, planes – but we don’t get to see the invisible costs – the opportunity costs. We don’t get to see all the things that would have been created, and people would have bought, but for the war. In other words, wars merely divert demand. Bastiat showed us the same thing with the broken window – people go “Great, more work for the glazier, it isn’t so bad” – but they miss the fact that more work for the glazier is less work for the butcher, the baker, and in rare circumstances the candlestick maker.

“We should support New Zealand first before we buy from overseas.”

Parties like the Greens say this all the time – but when has the road to prosperity ever been by passing another law? (answer: never) Does anyone honestly believe that? If you do, why don’t you stop buying coffee and instead make it yourself, so that you get richer than the café employee? Why do you buy paper, when you’d be far richer if you grew your own trees, cut them down (you’d have to make a saw first – good luck), then make some paper? People don’t get rich from not trading – it’s the opposite – it’s the people who trade and use the skills that others have who grow prosperous.

“We shouldn’t care so much about growth.”

Yeah, we should. When National say we’re slipping behind Australia it’s easy to shrug off – but when we realise that growth is essentially our standard of living, of course we want more. It’s not just totally sweet cars. It’s more health products and services, more wealth and technology to use to protect our environment (that’s why the environment in poor countries is so rubbish – they can’t afford to keep it pristine when they have more basic needs, like survival). But you shouldn’t lambaste totally sweet cars either – if you don’t want one, don’t buy one, but don’t deny others the ability to get one. Moreover growth compounds, so if we grow our GDP at 4% a year your grandchildren will be 4 times richer than you. If we can get 6%, they’ll be 27 times richer than you. If you support policies that get in the road of growth, you need to ask why you hate your grandchildren so much.

“Communism is good in theory, but never works in practice.”

If I came up with an idea that never worked, I think most people would call that a pretty shit idea. Surely any theory has to take into account human nature? If a theory doesn’t, and if you have to go to the extremes of horror to try to compel others to live by your ideas of what is just, then at some point you have to move on – both in practice and in theory.

“Some companies earn profits which are unjustifiable.”

Profits are so important. Profits are the payback for entrepreneurs who risk a lot of their money and time setting up risky ventures. It’s odd actually, but people watch businesses come and go – yet they also think that all businesses are profitable. They’re not. Many lose money. We’re not at the end of a market process where all surviving businesses will necessarily succeed – that process is occurring now.

If profits didn’t exist – or were lower – why would you want to set up an enterprise? This confusion spreads more broadly. Governments presume that increased taxes won’t lower the incentive to produce. In fact, Government-owned businesses make a similar mistake – Tranzrail, if they’re running at a loss, says things like “Well, we might have to increase prices.” What is it that makes them think that increased prices means greater profitability? It may deter some customers – it may turn off more paying customers than is made up by those who stay and pay more.

The three ways to avoid all of these fallacies are:
1) Assessing policies by analysing their effects, not their intentions
2) Assessing policies based on how they affect all groups – not the one at which they’re targeted
3) Assessing policies for the long- as well as the short-term.

To paraphrase Milton Friedman, it is unfortunate that the soft-hearts of welfarists far too often spread to their heads. It’s easy to repeat a platitude you’ve often heard – or to argue for a point of view you hope is true, rather than one you believe in. And because it’s easy to do that, and hard to write ‘Brothers in Anarchy’, the chances are we’re right.

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