Mythonomics: Ten Economic Myths that Demonstrate America’s Decline

By JOEL D. JOSEPH

American economic myths are first and foremost myths. Most of us believe that these myths are actually true. Most of them sound good and were pounded into our heads in college. But nonetheless they are false and are causing great harm in this country and around the world.

It is the great educational institutions of this country that perpetuate these economic myths. Many famous newspapers, liberal and conservative, including the New York Times, the Wall Street Journal, the Washington Post, the Chicago Tribune and the Los Angeles Times perpetuate these myths, because by and large, their editorial boards were well-educated at these same institutions.

One of the well-known writers who is promoting these economic myths is Thomas Friedman, of the New York Times. Friedman resides in Bethesda, Md., a wealthy suburb of Washington, D.C.

Mr. Friedman is the head cheerleader for a clique of naïve writers, liberals and conservatives, who uncritically and universally praise globalization. Friedman, who studied Arabic and Middle Eastern Studies, appears to have taken Econ 101 without further training in economics. Friedman is not alone in his uncritical support of more and more “free trade agreements.” Howard Kurtz, a Fox News commentator and a former writer for the Washington Post, said, “The national press was unabashedly pro-NAFTA.” Kurtz added, “From George Will and Rush Limbaugh on the Right to Anthony Lewis and Michael Kinsley on the Left, most of the nation’s brand-name commentators are cheerleading for NAFTA.”

Washington and its nearby suburbs never manufactured products and has not suffered the job losses that have been suffered in my native Ohio. Friedman looks around and sees nearly all of his neighbors driving Lexuses (Lexi?) and Mercedes and thinks everything is just fine. I observe the same things and think that our country has gone mad, buying overpriced, imported luxury cars that so many cannot afford.

Friedman also claims that the US is the biggest beneficiary of globalization. This too is completely false, and the opposite is more likely to be true. The US has been the biggest loser to globalization. Look at General Motors, Ford, Chrysler, Boeing and the film industry. We are losing our two biggest exporters, aircraft and film, due to unfair competition. Airbus Industries, the recipient of billions of subsidies of Euros from European countries, has stolen market share from Boeing. Canada has stolen market share from the US film industry with illegal subsidies. Ireland has taken over our pharmaceutical industry with low tax-haven rates. Our government has failed to respond because of the myth that free trade will cure all ills.

A subsidiary myth of the “free trade is good” myth is that NAFTA was a win-win-win situation, when actual studies have shown that it was not the case. The US has lost more than two millions jobs to Canada and Mexico, while no one can show that the US gained anything from NAFTA. Friedman ignores NAFTA — it doesn’t even rate a listing in the index to his book, “The Lexus and the Olive Tree.” Trump’s NAFTA 2.0 is no improvement on the original.

Another myth is that trade with China will bring about democracy and freedom in the Middle Kingdom. Religious freedom, and all other freedoms that we cherish in the US, will not come to China via globalization. The State Department found that “the [Chinese] Government’s respect for freedom of religion and freedom of conscience remained poor, especially for many unregistered religious groups and spiritual movements such as the Falun Gong.”

Is China becoming more free and democratic? Ask the Falon Gong. Ask Richard Gere. Ask the Dali Lama of Tibet. Ask any resident of Hong Kong. And ask the workers in China who are arrested when they protest layoffs, pollution or any other problem.

Ask Harry Wu how China is doing. Mr. Wu was imprisoned in China for 19 long, hard years before he landed in the United States. He returned to China to report how China was selling products made by prison and slave labor on world markets and that the profits are going to the Peoples Liberation Army.

The Ten Economic Myths:

Myth Number 1: “Free trade is good for every nation that enters into it.”

Barack Obama, George Bush Sr. and Jr., Bill Clinton, the Wall Street Journal, the Washington Post and the New York Times all agree that free trade is good. A little knowledge of economics can be dangerous. The above-listed “authorities” undoubtedly took Econ 101 but few other economics courses, which explains economic theory with a quick superficial assessment of free trade. In theory, free trade may be good, but in reality it causes a lot of harm to the United States and other advanced nations.

The author of the world’s leading textbook used for Econ 101 is the late Prof. Paul Samuelson, the first American to win the Nobel Prize for Economics. Samuelson found that this first myth is false. See his article in The Journal of Economic Perspectives, Spring, 2004. Samuelson believed that advanced nations, like the United States, are often losers in the free trade game.

Myth Number 2: “Every developing nation, just like the United States and the United Kingdom, must go through a period when there are sweatshops.”

Like a college fraternity explaining hell week, where frat pledges are made to do unthinkable acts, the seniors continue the tradition by saying that since they had to endure hell week, so do the new freshman pledges. Developing nations can skip the sweatshop period. Advanced nations can help by establishing a global minimum wage for exporting companies.

Myth Number 3: “Raising the minimum wage increases unemployment.”

As an economics major in college, I subscribed to this myth. It is true that for a brief period after minimum wages are hiked by mandatory legislation a few jobs may be temporarily lost. Recent studies have shown that California’s minimum wage hikes have not caused increases in unemployment. In a 2019 study, economists Anna Godoey and Michael Reich at the University of California, Berkeley, found no evidence that large wage hikes lead to significant job losses or fewer work opportunities.

Another meta-analysis was published in the Quarterly Journal of Economics by economists at the University of Massachusetts, University College London, and the Economic Policy Institute. They studied data from 138 cities and states that raised the minimum pay between 1979 and 2016. The conclusion was that low-wage workers received a seven percent pay bump after a minimum wage law went into effect, but there was little or no change in employment numbers.

By injecting more money into the economy via increased wages to low-income workers with a high propensity to spend, higher minimum wages actually increase economic activity.

This is why we should raise the minimum wage in the US from $7.25 per hour to $15.00 an hour, gradually, so that workers are not thrown out of work, even for short periods of time.

Myth Number 4: “The American Dream is that next generation will be better off and have more opportunities than their parents.”

Reality, massive student debt and the recessions of 2008 and 2020 demonstrate that this myth is false.

Myth Number 5: “The United States is the richest country in the world. We cannot learn from other nations, only teach them (or dictate) to them.”

Per capita income is the only real measure of economic wealth. The United States is the 13th richest country in the world, based on income per capita, behind Ireland, Norway, Luxembourg, Switzerland and Singapore. Ireland is now one of the richest countries in the world because of its low corporate income tax rate. Ireland has effectively taken most of the US pharmaceutical industry because it is a tax haven for wealthy corporations.

Myth Number 6: “If we trade with China, it will become more democratic.”

Tienanmen Square and the recent crackdown in Hong Kong have proven this to be false.

Myth Number 7: “Outsourcing is good for America.”

If we have learned anything from the pandemic of 2020, it is that the United States along with other countries are far too dependent on China for too many products. This has been especially evident with our lack of medical equipment, medical supplies, masks and ventilators. The over-outsourcing of these products has caused states to bid against each other and overpay for masks and other supplies. In addition, most of our prescription drugs and their components come from China, many from factories that are not sanitary.

Myth Number 8: “America is a working democracy.”

If we take a look at our infrastructure, pot-hole-filled roads, poor rail service and obsolete airports, diminishing life expectancy, our failing court system and the bumbling United States Senate, it is abundantly clear that our democracy is not working very well.

Myth Number 9: “In the United States there is the rule of law.”

The rule of law involves economics because businesses rely on the legal system to enforce contracts and other obligations. The courts are heavily tilted in favor of corporations because of Supreme Court rulings requiring arbitration, waiving jury trials and preventing class actions, demonstrating that the rule of law is a myth.

The rule of law has been deteriorating in the US for many years. Attorney General Barr and President Trump have crushed whatever we had left of the rule of law, by claiming that the President is above the law and does not have to respect Congressional subpoenas, firing inspectors general and preventing oversight. The rule of law requires that the three branches of government respect each other and balance each other.

Without the rule of law we become more like a dictatorship, where the law becomes more arbitrary. Dictatorships do not have the rule of law, they have dictates.

Myth Number 10: “If we (Americans) work hard and for long hours, we will become rich.”

This is so obviously false, especially after the recessions of 2008 and 2020, that it need not be debunked.

Joel D. Joseph is the author of 15 books, including “Black Mondays: Worst Decisions of the Supreme Court” and “Inequality: 10 Causes and 10 Cures.” A lawyer (Georgetown University) and an economist (Northwestern University), Joseph founded the Made in the USA Foundation in 1989. Email joeldjoseph@gmail.com. Phone 310 MADE-USA.

From The Progressive Populist, July 1-15, 2020

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