international-trade, politicsI am curious to see whether such a question will get closed or not, I guess the best way to find out is to try… I hope no one gets offended. Please leave a comment and I will delete the question myself, if necessary.
Economics is a field of study, which unlike for example physics, most people have an opinion about and will discuss furiously even though they have no expert knowledge. Also throughout history philosophies like mercantilism, have shown how much such flawed philosophies can destroy wealth creation. In this context, my question is: What is the current piece of conventional wisdom about economics currently causes the most harm in international politics? My most harm, I mean that it destroys the most wealth.
The Lump of Labour Fallacy is a good start:
the contention that the amount of work available to labourers is fixed
This has been used to justify fixed retirement ages, anti-immigration laws, anti-globalisation and anti-offshoring. It similarly ties into ideas of wealth distribution, that if the rich are very rich then the poor must - as a result - lose out.
Another useful one is the Lerner Symmetry Theorem which can be summarised as "a tax on imports is the same as a tax on exports":
The Lerner symmetry theorem is a result used in trade theory, which states that, based on an assumption of a zero balance of trade (that is, the value of exported goods equals the value of imported goods for a given country), an ad valorem import tariff (a percentage of value or an amount per unit) will have the same effects as an export tax. The theorem is based on the observation that the effect on relative prices is the same regardless of which policy (ad valorem tariffs or export taxes) is applied.
Then, Opportunity Cost. Described by Friedrich von Wieser in 1914, but best explained by Frederick Bastiat in his 1850 work, That which is seen, and that which is not seen:
Whence we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end — To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."
However, remember to counter this (where necessary) with Joseph Schumpeter's theory of Creative Destruction, described earlier by Werner Sombart in 1913:
Again, however, from destruction a new spirit of creation arises; the scarcity of wood and the needs of everyday life... forced the discovery or invention of substitutes for wood, forced the use of coal for heating, forced the invention of coke for the production of iron.
Implying that sometimes you really do have to deliberately allow established industries to fail in order to allow in the new. There are economic consequences to this (job losses), but controlled destruction, in which assistance can be offered to the losers, is better than chaotic and unexpected breakdown.
However, now I'm straying into the normative, so I'll stop.
All content is licensed under CC BY-SA 3.0.