AS I SEE THINGS: Weeding out economic myths
IN 1977, WORLD RENOWNED ECONOMIST MILTON FRIEDMAN, delivered a powerful lecture at Utah State University on the topic Myths That Conceal Reality. This great economist identified and expanded on what he categorised as the Robber Baron Myth, the Great Depression Myth, the Demand for Government Service Myth, the Free Lunch Myth, and the Robin Hood Myth.
What is most alarming to me is that several decades later these remain myths in the minds of so many students and practitioners of our beloved economics discipline.
Even worse, in a modern world that features vast improvements in technology, making access to data and information easier and more affordable, many of us continue to live in a bubble and behave as if we are the sole proprietors of wisdom and knowledge.
Consequently, whether in parliamentary debates on budgetary and financial proposals or in writings of an academic nature, or even in press conferences held by senior public officials to bloviate on important economic and financial matters, personal beliefs are presented as facts, which, when subjected to close scrutiny, can only be considered as economic myths.
Friedman said this: “There has been a shift in the philosophy and attitudes of the public from a belief in individual responsibility, from a belief in a society in which the role of government was an economic umpire, to a belief in a society in which the emphasis is on social responsibility and the role of government as Big Brother and protector of the individual. As always when such shifts arise in public opinion, they are largely produced and reinforced by the development of myths about prior experience.”
“Someone once wrote, and I am not sure who it was, that a myth is like an air mattress: there’s nothing in it, but it’s wonderfully comfortable.”
Those, indeed, are what I consider robust words of wisdom because they suggest to me basic guidelines that we all can employ especially when delivering statements in public domains that are likely to have profound implications for those listening. For example, from time to time, in order to justify the economic performance of a country, those in authority are often quick to cite other countries’ experiences, whether the chosen share any similar physical or economic characteristics to the referenced country. That practice should end immediately, period!
To illustrate my point, take an economy with GDP of $1 million in 2013 and $2 million in 2014. Clearly, that economy would have grown by 100 per cent in 2014. Take another country with GDP of $10.57 trillion in 2013 and $11.11 trillion in 2014. Now, the growth rate for 2014 is a mere 5.1 per cent. But, the first country only generated $1 million in new economic activity during the twelve-month period. The second country generated $540 000 million.
The moral of this story is that the smaller the economy, the easier it is to achieve higher growth rates. Put differently, a country with a high GDP will always find it more challenging to generate economic growth from year to year.
Therefore, for anyone to take comfort in the idea that the inability of Barbados to record more than one per cent of economic growth is acceptable because the United Kingdom or even the United States’ economy fails to grow by that amount, is simply misleading all of us.
In short, such a comparison can only be deemed an economic myth.