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Misapprehensions about the economy (Wirtschaftsirrtümer)

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Misapprehensions about the economy (Wirtschaftsirrtümer)
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InfernoContributorUser avatarPosts: 2298Joined: Thu Apr 30, 2009 7:36 pmLocation: Vienna, Austria Gender: Cake

Post Misapprehensions about the economy (Wirtschaftsirrtümer)

There's a new book out called "Wirtschaftsirrtümer" by Henrik Müller. Sadly I can't find his biography, so I can't say anything about him.
I also can't say anything about the book, because I didn't read it.

I did, however, read the "article" (it's 12 unrelated pictures with a bit of text) in the newspaper "Der Standard". The article is called Geld macht doch glücklich: Die größten Wirtschaftsirrtümer, which roughly translates to "...and money DOES make (you) happy: The biggest misconceptions about the economy".
I'll give you the gist of the texts and tell you what I think. I think they're mostly crap, by the way. (NOTE: When I talk about GDP, I mean GDP PPP in $.)

Irrtum 1: Reichtum nützt nur den Reichen

Number one misconception: Money aids the rich (or "the economy only helps the rich)

The text says that the economy would be fucked if we didn't have all those nice rich people paying taxes. You know, who would finance things and how would the economy ever get moving without them? Basically, they say that communism is a load of twaddle.

Now I'm not advocating communism, but then again I'm not advocating a huge divide between the rich and the poor. In fact, and I have to hide my face in embarassment as I lost the source, it has been shown that countries with more equal societies (or with a lower GINI-coefficient) are more competitive than their unequal counterparts.

My second problem with that can be explained with a thought experiment: Let's say we've got two people, Average Joe and Sir Richalot. The former makes 1500$ a month, the latter 1,000,000$. If you give Sir R. 1000$, he'll just deposit them in the bank and not do jack shit with it. Give the same money to Joe and he'll buy better food, better clothes, maybe a bike for his son, a playstation for his daughter... In other words, the money directly benefits the (real! see Stephan Schulmeister) economy.
By making economies more equal, you're more likely to have a more consuming population.

Irrtum 2: Wirtschaftswachstum ist schlecht

Number two: Economic growth is bad

The text tells us that a stagnating economy = less money circulating = less jobs = bad. Therefore, economic growth is good.

Sadly, there are a number of errors in this thinking. Chief among them is the definition of "economic growth". Typically, we mean "more GDP", but there are other ways to calculate growth. Let's agree that the author means GDP growth, otherwise his arguments make no sense.

A growing GDP alone doesn't mean anything, only in combination with other indicators (unemployment rate, investment rate, etc.) do you really get a better picture. Imagine a high unemployment rate and low investment rate but a rapidly growing GDP. This could potentially happen in a post-modern society where goods are produced by robots and half the population lives in poverty.
Basically, a growing GDP doesn't mean anything but that the value of the goods being produced (minus any costs before that production) in an economy in a year has risen. If GDP-growth is the only thing you're going for, you're an idiot.

The next problem is the equivocation of "GDP growth = more employment". In any given year, a GDP-growth of 2% means we won't lose any jobs. We actually rationalize jobs all the time, due to improved machinery or improved working pathways or whatever. Only when you've got a GDP growth of 1.5-2%+ will you maybe possibly see an increase in employment. It's not a given, but it's generally true.

The third problem I have with this "misconception" is that they're basing it on a capitalist, goods-consuming economy. There are possible other examples where a growing GDP would not be a good thing.

Also, a growing GDP doesn't mean that anyone actually benefits from that growth. Again, it just means that the GDP is growing.

Irrtum 3: Politik muss sich um Verteilungsgerechtigkeit bemühen

Number three: Politics need not concern itself with the redistribution of wealth

The text claims that trying to redistribute wealth is a bad thing, because these measures (early pensions, minimum wage, etc.) are not flexible (whatever that means) and contribute only to a higher burden on the individual.

I'll claim off the bat: That's simply nonsense. The article author doesn't explain how the costs rise and I simply couldn't think of a way how the costs might rise. It's utter nonsense.

A minimum wage is, as far as I know, only going to promote social equality and should be implemented everywhere. I know people in the US have to contend with ridiculously low minimum wages (was 10$/h passed?), but in Austria (for example) we have a minimum wage per month of 1000€, which amounts to 14.000€ a year (summer and winter pay!). If anyone could point me to an argument that says "minimum wages don't benefit the poor" or "...make everything more expensive", I'd be only too happy.

Irrtum 4: Alternde Gesellschaften können nicht mehr kreativ sein

Number four: Older populations can't be as creative (or competitive)

This is a straw man as far as I know. The author rants about how African societies should therefore be the most innovative and that made me realize the author is both an idiot and an asshole.

Currently, truly excellent people aren't promoted because they're "young" and older people remain in office even though they're idiots. This is mostly true in politics, but also in some companies.

However, the real argument is this: Older societies cost a lot, through pensions and health care. (They're also a huge and growing market, but let's not complicate things. They're certainly a burden for the state.) There are too few people being born and they can't make enough money to pay for the pensions of the elderly.* This directly harms the young workers and isn't doing the pensioners any favours, either. The whole pension system was conceived in the 19th century (there are older schemes, but most started then) and it's based on a completely different culture: Many young workers, few old people. We're now getting the opposite.

*The weird way most state pension systems work: You don't pay for your own pension, you pay for the pension of the old people right now. When you're old, your kids (or grandkids) will pay your pension. If you've got a large working force and small number of pensioners, then you've got a lot of people paying small amounts of money to a few pensioners, which is fine. If, however, you've got a small working force and a large number of pensioners (the current trend in most "More Economically Developed Countries") then obviously the workers will have to pay huge amounts to keep the system going.

Irrtum 5: Die Ära des Wachstums ist vorbei

Number five: The era of economic growth is behind us

The author says that our ways of calculating are outdated and that the economy will continue growing despite the crisis we had.

That's largely true, but it's also probably true that perpetual economic growth is impossible, unless we also have a perpetually growing population.

Irrtum 6: China & Co. werden den Westen schon bald überholen

Number six: China et al. will surpass "the west" shortly

The text talks about how China won't catch up to us because the crisis in the west also slowed growth in China.

Again it's unclear how to measure this, but I'll assume he means GDP. If we're talking "total", then China surpassing us is inevitable, I'd suggest in the next 10 years depending on growth. If we're talking "per capita", then obviously they're far behind and will remain there for quite some time. I mean really, they're still behind the world average!
The author forgets that China is still growing by roughly 7% per year while most western countries haven't gotten to 2% yet. The US is at 1.9% (2013), so how will China not pass the US?

Anyway, this is all highly irrelevant because there are so many other factors. Will China have a better HDI, GINI, Peace Index, Education System? GDP is, once again, only one measure.

Irrtum 7: Geld macht nicht glücklich

Number seven: Money doesn't make you happy

The text says that money does seem to make people happy, at least it grows with annual income until you reach about 55.000€, then it just stays the same. I'm not going to go into the study here, but let's just say that the title is very misleading.

Irrtum 8: Nur Gold ist noch eine sichere Anlage

Number eight: Only gold is a safe form of investment.

The text explains that gold isn't safe and neither is any other form of investment. This is completely true and it's the first one I won't criticize at all. I would not incourage anyone to depend on their money, because we might have a huge crisis soon and then it'll be worth absolutely nothing. If you have lots of money, fine. If you don't, don't worry, soon we all won't. I would personally suggest buying useful stuff you can use, but that's neither here nor there.

Irrtum 9: Reiche Gesellschaften haben weniger Kinder

Number nine: Rich societies have fewer children

The text explains that there are exceptions to the rule and that other factors (employment of women, reconcilability of job and family, etc.) also play crucial roles.

While that is true, it's also true that there are very few exceptions to the rule. Most countries have not managed good enough policies to promote population growth.

Irrtum 10: Geld ist neutral

Number ten: Money is neutral

The author explains that money is central to our society, without it few things would work.

I'm not sure what is meant by "neutral" and I certainly see other means than money, but this one point would require a huge discussion of its own. Not today.
"Sometimes people don't want to hear the truth because they don't want their illusions destroyed." ― Friedrich Nietzsche

"I shall achieve my objectives through the power... of Science!" --LessWrong
Sat Sep 13, 2014 5:55 pm
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