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The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas…. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil…

I use Chapter 17 of Economics for Dummies to smash ten really bad pieces of economic thinking---or, rather, misthinking.  I choose these particular ten because they come up all the time in the media and because they often pop out of the mouths of politicians----who often, I suspect, know better, but who nevertheless use them to fool people into supporting the policies that the politicians are trying to advance.

Here are the ten fallacies and some links for each one.

The Lump of Labor Fallacy

Here is a rather T'd off Bruce Bartlett poking holes in this fallacy and how silly the French are for making it a cornerstone of their national economic policy.  And while you're at it, read this other article by a kinder, gentler Mr. Bartlett on the fallacy.

The World is Facing an Overpopulation Problem

Ever since Thomas Malthus published his Essay on the Principle of Population about 200 years ago, dismal people have been arguing that the world is facing an overpopulation crisis.  Why?  Because Malthus proposed a theory of population growth in which the population would tend to grow faster than the food supply---thereby constantly forcing us to live at subsistence. 

Fortunately, he was wrong.  While it is true that the population did grow fast for awhile as modern medicine and sanitation became available and death rates dropped, it turned out that birthrates quickly followed suit anywhere those innovations became widespread.  This change to a situation of low birthrates is called the Demographic Transition. 

It has now led to the historically unprecedented situation that in the developed world (and soon in the developing world) women are having far fewer children than is necessary to replace the population.  Put differently, the world population should max out no later than 2050 at about 8 or 9 billion people before rapidly declining--as you can read about in this article that was published in Nature, as well as the independently generated estimates produced by the United Nations.

These low birthrates are going to cause a big mess for economic policy in coming years.  Here is a nice recent IMF study (as a pdf file) reviewing the likely economic consequences of the coming population crash---especially the problems that countries are going to have fulfilling their retirement benefit promises to senior citizens when there will be very few workers paying the taxes necessary to pay finance those benefits.

The Fallacy of Confusing Sequence with Causation

Here's a nice article on this fallacy that's posted over at the Skeptic's Dictionary.

Protectionism is the Best Solution to Foreign Competition

Here's a nice skewering of the protectionist argument by Thomas Sowell.  And here's an article by Larry Kudlow.  And of course, here is the eminent Jagdish Bhagwati tearing protectionism to shreds, but doing it politely.

The Fallacy of Composition

Here's a page on this fallacy put up by the Adam Smith Institute.

If it's Worth Doing, Do it 100%

Here is Thomas Sowell tearing to shreds the idea that if something is good, you should do it as much as possible.  Because of diminishing returns, such a policy is very stupid.

Free Markets are Dangerously Unstable

Here's an excellent essay by Kevin Dowd explaining how financial instability is not the result of free markets but rather the result of interferences with free markets.  (It's a pdf file.)

Low Foreign Wages Mean that Rich Countries Can't Compete

Here is the only article you'll every have to read about this by the indispensable Thomas Sowell.

Tax Rates Don't Affect Work Effort

Here's a Bruce Bartlett piece with lots of nice links; the essay summarizes the case that lower taxes lead people to work more. And here's a Larry Kudlow piece summarizing the arguments that lower taxes spur work effort and economic growth.

Forgetting the Policies Have Unintended Consequences, Too

Thomas Sowell has a whole book on this problem: Applied Economics: Thinking Beyond Stage One.  Here's a nice review of the book by Dutch Martin; it summarizes just what Sowell is getting at in the book, the idea that people too often make economic policies to fix one problem without considering if their "solution" will create other, even bigger problems, too.

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