Monday 5 June 2017

How to spot economic idiot fodder

One of the biggest problems with the world is that stupid people are so often sure of themselves, while the wisest are full of doubt. This isn't just idle speculation, it's proven by the Dunning-Kruger effect.

The Dunning-Kruger effect tells us that the less people actually know about a subject, the more they're inclined to over-estimate their own expertise.

Conversely the more expertise people have, the more likely they are to actually underestimate their abilities relative to the rest of the population (this is caused by the old "the more you know, the more you realise you don't know" problem).

Here's John Cleese explaining the Dunning-Kruger effect in a witty manner:
When it comes to economics, it is very easy to spot people who are suffering from the Dunning-Kruger effect. There are loads of telltale words and phrases that are indicators of profound economic illiteracy, and in this article I'm going to detail five of the absolute worst.

Magic Money Tree

If you've ever heard anyone try to dismiss an investment-based recovery strategy by saying "magic money tree", you know you're dealing with a member of the Dunning-Kruger Club (the first rule of Dunning-Kruger Club is that you don't know you're in Dunning-Kruger Club!).

Anyone with a basic understanding of economics knows that economic investment is a necessary part of a functioning economy. They also understand the concept of returns on investment (or Fiscal Multiplication to give it its unnecessarily complicated sounding official name). Anyone who understands this basic macroeconomic stuff is clued up enough to understand "magic money tree" as the gibberish that it is.

Additionally, the person using "magic money tree" as an argument is particularly stupid if they're using it to criticise a carefully costed manifesto, while the manifesto of the party they support is a total Swiss cheese of more than 50 uncosted policies.

There's also the money creation angle, but I'll address this issue as I explain the next telltale indicator of economic illiteracy.

There's no money left

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Anyone who tries to use "there's no money left" as if it's a serious point is simply demonstrating that they have no idea whatever about where money actually comes from.

Only 3% of money takes the form of coins and bank notes issued by the Treasury. The rest of all money in the UK economy (97%) is electronic cash, most of which is created out of nothing at the moment a private bank makes a loan. The electronic money is then destroyed when the loan is repaid.

This sounds completely mad, but it is the way it is. Don't just take my word for it. Take the Bank of England's.

Another way of creating money out of nothing is Quantitative Easing, which is the same kind of inventing money out of nothing trick as the private banks, but performed by the central bank.

So, anyone who knows how money is created in the modern economy, also knows that the concept of there being "no money left" is lamentable economic baby talk.

Living within our means
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Anyone who uses the phrase "living within our means" as a defence for economically ruinous hard-right austerity dogma is talking in pitiful economic platitudes.

Anyone who has ever run a business knows that you can't make the business recover from hard times by continually cutting investment, selling off your property and tools, cutting wages, and firing staff. If that's pretty much all you're doing in order to "save" your business, you're not saving it at all, you're asset stripping it to cover the running costs.

If you want to genuinely save your business you need to change direction. Yes some defunct machinery gets scrapped, and maybe some staff get laid off, but the recovery comes from investment. Maybe new machinery, new staff, an online marketing campaign ... whatever.

Living within our means is a vacuous and glib synonym for ruinous austerity in its own right, but if the government that the phrase is being invoked to defend is running a £50 billion+ deficit, it's not just glib economically illiterate idiocy, it's also totally inaccurate too because people who "live within their means" aren't still continually borrowing money are they?

Bankrupt Britain
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Bankrupt is a specific legal term with a specific legal meaning. Anyone who has ever described the Britain as having been "bankrupted" is clearly talking absolute economic poppycock.

Remember how the Bank of England can just magic up vast sums of money out of nowhere via quantitative easing? Well claiming that Britain is, or has been, bankrupted is akin to claiming that a guy with a money printing machine in his house could go broke.

Anyone who has ever tried to make what they think is a serious economic point that relied on nonsense like "bankrupt Britain" type claims, is clearly actually a blabbering idiot.

They'll just leave
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The idea that corporations or the mega-rich will just leave the country if taxes are raised is a constant fearmongering tactic 
in the hard-right propaganda rags against progressive taxation.

This point is incredibly stupid for several reasons but I've already written an entire article on it this week, so I won't go into an ridiculous amount of detail here except to say:

  • Anyone who thinks that the rate of corporation tax is the sole determining factor in where a corporation locates is a simpleton. 
  • Anyone who thinks it would be easy and costless for a major corporation like Rolls Royce or Unilever to just shut down production in the UK and shift it overseas is a simpleton.
  • Anyone who thinks that constantly cutting corporation tax rates isn't going to result in a "race to the bottom" scenario is a simpleton. 
  • Anyone who thinks that corporations don't have a responsibility to contribute towards stuff like the infrastructure that they and their customers use, the existence of the legal system and the emergency services, the in-work benefits that are paid to their employees, and the education of their workforce is a simpleton. 
  • Anyone who thinks corporations are going to abandon Britain because Labour puts the Corporation Tax rate up to 26% (still the lowest in the G7) rather than because of the uncertainty and chaos of "no deal" Tory nuclear Brexit is a simpleton.
  • And anyone who thinks a billionaire who is so self-serving that they would just up sticks and leave the country over a slight change in tax rate is not already stashing their cash in tax havens (and therefore unaffected by such a change) is a simpleton.
Common nonsense

The problem of course is that these kinds of words and phrases are littered all over the right-wing press, so someone who spends their time studying the pages of the S*n, Express, Star, Daily Mail, Metro, or even the desperately declining Daily Telegraph will be extremely familiar with them, so they'll genuinely believe that familiarity with a collection of babyish pseudo-economic terms constitutes a good grounding in economics!

They imagine that because they hear these ridiculous words and phrases on a regular basis, these words and phrases must therefore be the correct vocabulary for talking about economic matters!

They think it's common sense, but what it actually is is common nonsense.

Tory politicians

If you've paid much attention to politics recently you'll be well familiar with Tory politicians using these ridiculous tabloidisms to talk about economics:

David Cameron regularly used "bankrupt Britain" and "there's no money left"; Theresa May famously signalled the continuation of Tory austerity dogma by prattling on about "living within our means"; and the "magic money tree" has been a common feature of the 2017 General Election with both the Home Secretary Amber Rudd and the Prime Minister using it in live TV debates!

There are only two possible conclusions from this, both equally horrifying.

Either the politicians who are running the country are a bunch of blethering economic illiterates, or they actually know it when they're talking lamentable pseudo-economic gibberish, but they're assuming that there's more to gain by deliberately appealing to the great mass of unthinking tabloidism rote-learners, than there is lose by horrifying people who have some actual understanding of the economic basics.

The reputable media

We know that the right-wing propaganda rags will never call politicians out for using economically illiterate baby talk, they're the ones who infected the political debate with this lamentable idiot-fodder in the first place. But what about reputable publications?

Why is it that supposedly reputable highbrow publications like the Financial Times, The Economist, The Guardian or the New Statesman never seem to call out politicians for spewing facile and desperately misleading economic platitudes?

Aside from the reputable media, what about the economic experts? Doesn't it make trained economists and academics utterly sick to hear the Westminster political class publicly mutilate their subject?

Why is it just left up to me (and a few other small blogs and independent websites) to call politicians out for continually mouthing all of this offensively illiterate pseudo-economic baby babble?


The mainstream press and academics in the field should certainly do more to combat politicians who spread economically illiterate nonsense, but whether they ever do decide to try and actually hold the political class to account or not, I'll keep at it because I find facile and shockingly misleading economic idiot-fodder so offensive and annoying.

Anyway ...

Try to remember the five telltale bits of economic idiot-fodder I've covered here ("magic money tree", "there's no money left", "living within our means", "Bankrupt Britain", "they'll just run away") and you'll be surprised how often you notice these phrases and their variations coming up in supposedly educated political and economic discourse. And you'll also be able to make your own judgement on whether the person uttering it is doing it for the purposes of deception, or whether they're actually economically illiterate enough to imagine they're making a sensible economic point.

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