Uncovering popular fallacies in economics
Sometimes, politicians and campaigners start out with the best of intentions but end up making things worse. This can happen when their policies are driven by emotions and moral outrage, rather than logic. People cling to mistaken beliefs, and, ultimately, do more harm than good.
One such fallacy is the idea that in each economic transaction there must be a winner and a loser. Their exchange is a zero-sum one. In other words, if someone did very well for themselves, it must be at the expense of someone else.
The key message here is: The idea of zero-sum economic outcomes is a fallacy.
The zero-sum fallacy is at the heart of some well-meaning, but ultimately damaging, economic policies. Take rent control. People who subscribe to the idea of zero-sum transactions think that renting is a transaction in which one side always profits: the property owner. So, they say, there needs to be something that protects the renter. What’s the solution? Rent control.
It’s been implemented in the past, and landlords and builders almost always find the terms unacceptable. This means that landlords stop renting, and builders stop building. Eventually, accommodation becomes scarce, and that hurts people who need to rent. For example, when rent controls were implemented by the Australian government after World War II, for years afterward not a single new apartment building was erected in Melbourne!
People who subscribe to the zero-sum view of the economy simply cannot see renting as beneficial for both parties. Their actions – as we’ve seen – can be counterproductive.
Another area where the zero-sum fallacy appears is international trade. Some believe that the “winners” are invariably rich, highly-developed countries, while the “losers” are poorer and less developed states. They believe that more powerful countries have profited from the vulnerability of their poorer counterparts.
But those who believe this are letting sanctimony cloud their judgment. Above all, they’re missing how trade has brought prosperity to many of these poorer countries. Those like South Korea, Hong Kong, and Singapore have only flourished since they opened themselves up to investment from wealthy Western countries.
The result was anything but a zero-sum outcome: both parties seem to have done very well from the exchange.
Economic Facts and Fallacies (2008) takes some common assumptions about economics and politics and reveals them as fallacies. It’s only by facing uncomfortable truths, the book argues, that we can begin to solve the problems in front of us.
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Blink 3 von 12 - Eine kurze Geschichte der Menschheit
von Yuval Noah Harari
