Obama Stimulus Check

Continued from Economic Myths Part1 , Economic Myths Part 2, Economic Myths Part 3, Economic Myths Part 4 and Economic Myths Part 5

“And why has there been an increasing use of credit to supplement a drop off in purchasing power of the average American?” he triumphantly declares. Because, my cretinous friend, of the fallacy of the stable price level2 which took root in the 1920s. Most economists now believe that a falling price level is deflationary and must be averted if business is not to contract. But if this were true then the British economy would have been in recession from 1874 to about 1896 because prices steadily fell during that period. Prices fell, however, because productivity outstripped the gold supply (Britain was on a gold standard) causing real wages, and money wages, to rise as output rose and the gold supply lagged.

According to my critic: “You must replace your highest cost of production, labour, with that of the most easily amortizable cost, technology, to drive down your cost of production. Basic law of motion of capital.” (Now he thinks he’s the Isaac Newton of economics). Production costs are driven down by an expanding capital structure embodying new technology and which is fuelled by savings. It’s this process that also raise real wages. In simple English, this twit is completely confused about cause and effect.

He finishes, finally, with: “Get it straight…the last Depression was due to the failure of capitalism to address its most basic paradoxes.” I dealt at great length with the cause of the last recession3. Much as it pains me, I have to say that getting it straight is something way beyond the dismal intellectual capacity of this blustering would-be intellectual. On a moment’s reflection I retract the last part of that statement. There is every possibility that he, she or it really is an intellectual.

Why do I bother? Because some fallacies and myths are so pervasive and destructive that they should never be allowed to go unchallenged.