Do you ever hear someone say something in a political conversation that is so amazingly wrong that your internal gears grind? I hear them a lot. They grind my gears a lot. Since people believe them I thought it would be worthwhile to address 10 of them here.
1. “Corporate stock buybacks are bad”
I’ve heard progressives (and some on the right) complain about corporate stock buybacks for years. But here’s the thing, they aren’t bad. On the contrary, corporate stock buybacks are good. Essentially, buybacks happen when corporations believe (1) their stock is undervalued– and therefore will rise in the future– and (2) their current investment options are inferior to those they have in the future. So, instead of wasting their money now, they purchase their stock and sell it in the future to take advantage of a better opportunity. Furthermore, the money used to buyback stocks doesn’t disappear but is reinvested by investors in other companies. Essentially, buybacks allow better investments in the economy to happen now and in the future.
2. “America spends more on healthcare than other countries”
It seems like everyone believes this. I used to believe it. Turns out it’s wrong. Or at least very misleading. When it’s claimed we spend more on healthcare than other countries they are talking about healthcare spending as a share of GDP but the problem is national income does not determine healthcare spending. Healthcare spending is a function of individual choices and individual choices are determined by how much money those individuals have. A country’s healthcare spending is determined almost solely by the income of that country’s residents. 94% of the variation of a country’s healthcare spending is determined by household disposable income adjusted for purchasing power. The United States has significantly higher healthcare spending than other countries because it has significantly higher incomes than other countries.
3. “We just need more competition in healthcare”
I see this from conservatives and libertarians. Like number #2, I used to believe it and it’s not completely false. There are certainly places in healthcare that need more competition. Occupational licensing for healthcare workers is an obvious example. But there are many other places where competition isn’t feasible. If your heart is failing, lungs need to be replaced, or you have a rare disease you don’t have the opportunity to comparison shop. There isn’t a Walmart model for brain surgeons. The healthcare system needs to be able to deal with this.
Related: 10 hard questions for progressives
4. “American incomes have stagnated since the 1960s and 1970s.”
Like number #2, this seems to be believed by people all over the political spectrum. Unlike number #2, it’s utterly false. The real (yes, that means inflation adjusted) median personal income was $24,569 in 1974. The real median personal income is now $33,706. That’s nearly a 40% rise in real incomes since the 1970s. I would hardly call that “stagnation”.
5. “The middle class is shrinking”
Another seemingly bipartisan myth. This myth is interesting because it’s completely true, strictly speaking, but it misses a massive detail: why. While middle class households fell from 54% of the US to 41%, lower class households also fell from 37% to 30%. That means the only income group that rose was high income households– from 9% to 29%. So yes, the middle class did shrink but it shrank because households got so rich they were no longer middle class.
6. “Immigrants depress wages and cause unemployment”
This is part of conservatives and libertarians basic “understanding” of economics. They read about supply and demand and apply it in an excessively simplistic way. Yes, when immigrants come to a country they cause the labor supply curve to shift to the right and that does decrease wages and cause unemployment. But that’s only a partial equilibrium. Everything except labor supply is not held constant. Immigrants also purchase goods which increases demand in the economy and thereby shifts the labor demand curve to the right also which increases wages and causes employment. This theoretical analysis is confirmed by a meta-analysis of 27 studies which found an increase in the share of immigrant workers by one percent had no statistically significant impact on native wages.
7. “If immigrants help America then why can’t they help their home country?”
This argument is another example of faulty logic and bad economics. This argument is usually used toward immigrants from poorer countries. The simple truth is, a worker is not equally productive in a poor country as they are in a rich country. That’s because the productivity of a worker is not just dependent on the worker but the capital–ie tools– they are given. For example, a carpenter in Mexico may be only able to use hand tools while if that same carpenter was in the US he would use machine tools. That would obviously dramatically improve the productivity and thereby ability to contribute value to the economy.
8. “If hard work makes people rich, then why are people who work labor intensive jobs poor?”
Because not all work is equal. When it’s said hard work makes people money, “hard work” isn’t meant to equal labor intensive work. Rather, “hard work” is meant to equal productive work. Work that creates value. Yes, digging a hole with a shovel, filling it, and doing it over and over again is hard work but it’s not productive work. The value it generates is little to none. On the other hand, creating a free messaging app used by millions of people around the globe is very labor “unintensive” but it creates a lot of value. The relevant question isn’t who worked harder but who created more value. Because of this value generation difference, the app developer will become rich while the hole digger will not.
9. “America doesn’t make anything anymore”
Just because what America makes doesn’t come with a little “made in America” sticker doesn’t mean we don’t make anything. America makes a lot. America makes more today than it ever has in history. America today makes twice as much as it did during the end of the Reagan administration, four times more than it did during the Johnson administration, and twenty times more than it did before the Great Depression.
10. “Wealth inequality is increasing”
I’ll give you a hint: if Bernie Sanders says something it is almost certainly wrong. There is research to suggest wealth inequality is rising. The problem is it almost all comes from the same three economists– Emmanuel Saez, Gabriel Zucman, and Thomas Piketty. And as I outlined here, their results were always suspect. Simply put, there are many questions about how they did their research and many economists researching wealth inequality have found drastically different results. One recent study even took their methodology, made a slight improvement, and found wealth inequality was actually stable.