Introduction
The book “Economics in One Lesson” aims to discuss economics from a different perspective than that which is widely accepted by economists. The goal of the author is to discuss and analyze various economic fallacies that have been present for so long that they are now part of many governments’ economic policies. The fallacies have not been accepted as economic principles because they are self contradictory and as such contain numerous flaws.
Their application to real life situations causes more harm than good. The author notes that the fallacies are so widespread that they influence the policies of all governments in the world to certain degrees. The author aims to introduce readers to economics by identifying economic fallacies and showing their weaknesses as well as applications by governments. He is only concerned with the fallacies that governments use to create and implement policies.
The author desists from attacking economic thinkers and their theories. Instead, he focuses on presenting fallacies and showing how they influence economic policies around the globe. Economic fallacies emanate from the self-interests of a specific group that tries to fight rival groups by implementing policies that favour their economic operations. This results in implementation of policies that only benefit a minority and neglect the majority.
The few who benefit support the policies by making their explication highly complex or hire intelligent people to convince the public of the policies’ benefits. Another source of economic fallacies is the propensity to focus on the short-term effects of policies while neglecting the long-term effects. In addition, the problem originates from focusing on a policy’s effects on a selected group of individuals with selfish interests. Secondary consequences are ignored in favor of primary consequences.
The presence of fallacies divides economists into two groups that include good and bad economists. Good economists focus on the long-term, direct, and indirect effects of a specific policy while bad economists focus on the short-term and direct effects only. The most common fallacy is that of concentrating on the short-term effects of policies and ignoring their long-term effects on all people. Bad economists triumph because they present half-truths that show the short-term effects of policies on a specific group that are usually positive. Their arguments are augmented by the people’s unwillingness to go through long and arduous chains of reasoning needed to reveal the fallacies.
Summary of chapter 4 and 5
In chapter 4, the author discusses the issue of taxation and government spending. Government spending is widely regarded as the best solution to economic problems that plague countries. For instance, unemployment and stagnation in the private sector are handled by increasing government spending to revamp these sectors. However, this creates more problems because governments get their money from taxes. The consequences of such approaches include national insolvency and inflation that ruin a nation’s economic wellbeing.
The fallacy that economic problems can be solved through government spending has its foundation in the ignorance of the fact that government money comes majorly from taxes. Taxes used to fund public works are necessary in order for any economy to thrive. However, funding public works that are aimed at creating employment and enriching communities contributes towards the proliferation of the aforementioned fallacy. Taxes should be used to fund public projects that are necessities and not “luxuries.” For instance, commissioning the building of a bridge for the sole purpose of creating jobs in economically unwise. The bridge will only benefit the few workers who labor to construct it.
However, it will financially affect the majority who will have to contribute the money to build the bridge in the form of taxes. The creation of jobs destroys several other jobs in an indirect way. The money used to build the bridge destroys jobs in other economic sectors. On the other hand, public housing projects are part of the fallacy. Proponents of public housing argue that it creates employment and wealth.
However, they ignore its adverse effects on the people who pay taxes in order to fund the projects. Proponents win because the results of public housing are seen and tangible while the jobs destroyed through public housing projects are intangible and unseen. Therefore, arguments and policies in favor of public housing seem economically sound. A thorough scrutiny of public housing reveals that such projects adversely affect taxpayers.
In chapter 5, the author argues that taxes discourage production and government spending destroys more wealth than it generates. A minority of any country’s population is responsible for paying the largest percentage of tax, which is supplemented by other types of taxes. Government taxes discourage some employers from creating more job opportunities because of tax policies that affect their financial statuses negatively. On the other hand, others desist from becoming employers because of such tax policies. Taxes discourage manufacturing companies from expanding and improving their operations in fear of incurring unnecessary costs due to government taxes.
This leads to low quality and expensive products due to the unwillingness of such companies to implement changes that might attract additional taxes. These effects are long term and affect wages. Taxes levied on personal income also have negative effects on productivity because people desist from using their capital to create new jobs. The author notes that taxes are indispensable in the proper functioning of governments.
However, high taxes on personal income discourage the creation of new jobs and lower productivity. The government should safeguard production by providing incentives that encourage the creation of more job opportunities. High taxes originate from high government spending in projects that are aimed at creating jobs and wealth. However, the effects of high taxes are more severe than the benefits that originate from government spending.
Conclusion
In the book’s preface and first chapter one, the author mentioned the prevalence of fallacies in government policies. He named two common sources of fallacies that include a focus on the short-term consequences of policies and the effects of these policies on a small group of people rather than their effects on the whole population. Chapters 4 and 5 are related to chapter 1 and the preface because they talk about fallacies that are prevalent in government policies around the world. For instance, chapter 4 discusses the fallacy that it is economically sound to use government spending to solve economic problems in a country.
This is a fallacy because government spending results in more problems and only creates benefits in the short-term. In chapter 5, the author discusses the issue of taxation and its effect on productivity. Governments thrive on taxes that are predominantly levied on personal income. These taxes only affect a small group of people. Their adverse effects include decreased productivity and the destruction of job opportunities. Government spending and taxes are common fallacies that create more harm than good.