Reality of economics often shrouded in fallacies, myths

I have been teaching economics since 1967. Just as Galileo’s law about the independent influence of gravity on falling objects has not changed, neither have the fundamental principles of economics. Economics is fun and simple. It’s made complicated by some economics professors. Let’s apply some simple tools of economics to reveal outright myths, lies and tricks.

Who is punished by tariffs on imported goods? Let’s go through the steps. The Canadian government imposes high tariffs on American dairy imports. That forces Canadians to pay higher prices for dairy products and protects Canada’s dairy producers from American competition.

What should be the U.S. government’s response to Canada’s screwing its citizens? If you were in the Trump administration, you might retaliate by imposing stiff tariffs on softwood products used by U.S. homebuilders. In other words, the U.S. should retaliate against Canada’s harming its citizens by forcing them to pay higher dairy product prices, by forcing Americans through tariffs to pay higher prices for wood and thereby raising the cost of building homes.

Many politicians, pundits and some economists would have us believe that corporations pay taxes, but do they? Economists distinguish between entities who ultimately bear the tax burden and those upon whom tax is initially levied. Just because a tax is levied on a corporation doesn’t mean that the corporation bears its burden. Faced with a tax, a corporation can shift the tax burden by raising its product prices, lowering dividends or laying off workers. The lesson here is only people pay taxes, not legal fictions like corporations. Corporations are simply tax collectors for the government. Similarly, no one would fall for a politician telling a homeowner, “I’m not going to tax you; I’m going to tax your property.” I guarantee that it will be a person, not the property, writing out the check to the taxing authority. Again, only people pay taxes.

Here’s a question: Are natural or man-made disasters good for the economy? Dr. Larry Summers, top economic adviser to President Obama, said about the Kobe, Japan, earthquake: “(The disaster) may lead to some temporary increments ironically to GDP as a process of rebuilding takes place. In the wake of the earlier Kobe earthquake, Japan actually gained some economic strength.” After devastating hurricanes in Florida, it’s not uncommon to read newspaper headlines such as “Storms create lucrative times,” or “Economic growth from hurricanes could outweigh costs.”

One would never hear my colleagues in George Mason University’s economics department spouting such insanities. Just ask yourself whether the Japanese economy would have faced even greater opportunities for economic growth had the earthquake also struck Tokyo, Hiroshima, Yokohama and other major cities? The belief that a society benefits from destruction is sheer lunacy.

French economist Frederic Bastiat (1801-1850) explained it in his pamphlet “What is Seen and What is Not Seen.” He said, “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” That’s why my George Mason University colleagues are good economists.