Top 10 Economic Myths—BUSTED!

“Tax the rich! They don’t pay their fair share!”

“The rich are getting richer and the poor are getting poorer!”

“Bush killed the economy with massive deregulation! We need more regulation!”

“Beware! The Koch Brothers are transforming this country into neo-feudalism! We’re all going to become wage slaves to our corporate feudal lords!”

Everywhere I go on the internet, I keep running into the same trite economic talking points. Not that these talking points are hard to debunk (on the contrary, they’re easily debunked), but that they keep popping up time and again, and I get sick and tired of debunking them each and every time. So, to do myself and everyone else a service, I have compiled a list of the top ten economic myths, followed by the truth:

Myth #1: The rich don’t pay their fair share in taxes

According to popular misconception, the rich (especially the richest one percent) pay little to nothing in taxes while the middle class and poor carry the brunt of the tax burden. This is hardly the case! The richest one percent pays roughly 40 percent of the country’s total income tax¹ and nearly 28 percent of the total tax burden,² while the top 10 percent pay 60 percent of the total income tax and roughly 57 percent of the total tax burden. In contrast, the bottom 2 percent pays less than 3 percent in total income tax and less than a fraction of a percent of the total tax burden. If the rich don’t pay their fair share in taxes, it’s because they clearly pay more, not less.

Myth #2: Taxing the rich will solve all our problems

Let’s set aside the fact that the rich do pay their fair share in taxes and insist they pay more. Let’s go one step further and suggest confiscating all of their wealth. (After all, filmmaker Michael Moore claims America isn’t really broke: the rich have plenty of money and they’re hoarding it all to themselves!³) If we took all the wealth from the four hundred billionaires in America, we would have $1.3 trillion; subtract that from the $1.6 trillion national deficit, and we would still be short $300 billion—in other words, we would have barely enough to dent our $14 trillion national debt!⁴ Taxing the rich would solve nothing!

Myth #3: The rich are getting richer, and the poor are getting poorer

One of the main criticisms against capitalism is that it allows the rich to get richer while the poor get poorer. While wealth disparity has increased between the rich and poor, as the top income earners have a larger share of national income than they had in the past, while the bottom have a smaller share, income mobility still allows both the rich and poor to get richer overtime—in fact, the poor has been getting richer at a faster rate than the rich! The average salary for those in the bottom 20% in 1975 had increased by over $27 thousand by 1991, while the salary for those in the top 20% only increased by over $4 thousand.⁵ The rich are getting richer, but so are the poor, and at a faster rate than the rich!

Myth #4: New Deal spending ended the Great Depression

Left-wing politicians and economists suggest increasing government spending in order to end the economic crisis, and they point to the New Deal to support their argument, claiming that it helped end the Great Depression. But history tells a different story. Even though government spending increased under the New Deal, unemployment remained above 15 percent during the 1930s.⁶ As FDR's own U.S. Secretary of the Treasury Henry Morgenthau, Jr. said, “We are spending more than we have ever spent before and it does not work...after eight years of this Administration we have just as much unemployment as when we started.” Moreover, in order to pay for this spending, federal taxes were tripled from $1.6 billion in 1933 to $5.3 billion in 1940, hurting both consumers and businesses.⁷ New Deal spending did nothing to end the Depression and everything to prolong it

Myth #5: Bush deregulated the economy

Another popular misconception is that massive deregulation, especially under George W. Bush, caused the economic crisis. In reality, regulation has been increasing over the past several decades.⁸ Investor’s Business Daily claims that over three thousand new regulations are enacted every year, and that “a new federal rule hits the books roughly every 2 hours.”⁹ The EPA alone has increased their federal regulations from over 7 thousand rules in 1976 to over 169 thousand in 2009.¹⁰ As for Bush, who’s admitted to have “abandoned the free market,”¹¹ his administration increased the number of new pages in the Federal Register from over 64 thousand in 2001 to over 78 thousand in 2007.¹² This record achievement makes him the biggest regulator since Richard Nixon!

Myth #6: Deregulation created the economic crisis

Since regulation has been increasing, it is impossible for deregulation to have caused our current economic crisis; in fact, it was one piece of regulation that helped create it. The Community Reinvestment Act of 1977 required banks to lend loans to individuals from low-income areas. In other words, banks were required to give loans to poor people to buy houses they couldn’t afford, thus aiding in the housing bubble, along with its inevitable burst when these people couldn’t pay back their loans. While the CRA may not have been the main cause of the economic crisis, it did play an underlying role in its inception.

Myth #7: Big business lobbies against regulation

Since big business is obviously at odds with government, one would think that food companies would oppose stricter food safety laws, oil companies would oppose clean air regulation, and tobacco companies would oppose regulation on tobacco and tobacco advertising; yet Kraft Foods,¹³ General Motors, and Phillip Morris¹⁴ have all spent millions lobbying for the exact opposite! So why would businesses lobby for more regulation? Think about it! If you were a large multinational corporation, which would you prefer: an even-playing field where everyone (including your competition) has an equal chance to succeed or fail, or one where you can bribe the state to tilt the field in your favor while crushing your competition and preventing new contenders from getting started? The answer seems quite simple.

Myth #8: The market cannot regulate itself

We are expected to believe that, without government regulatory agencies such as the FDA or EPA, businesses would be left unchecked and release unsafe products. This is not the case, as there are several regulatory agencies not run by the government. One example is Underwriters Laboratories, a non-profit organization which, for over a century, has been testing the safety of products including hair dryers, televisions, Christmas lights, fire extinguishers, air conditioners, ATMs, etc. Any product that doesn’t have its seal of approval is not carried by any of the major realtors. This is all done without the slightest of government intervention. According to the Mises Institute, "Many government regulations, especially at the state level, merely mimic…[those] of the Lab."¹⁵

Myth #9: The Koch Brothers are taking over America!

David and Charles Koch, both whom have spoken out against big business,¹⁶ have been accused of buying politicians in order to transform America into a plutocracy. In reality, their company Koch Industries has only donated over $9 million in political contributions over the past 30 years, ranking them as 85th of the top political donors in America.¹⁷ Of the top ten political donors, six are labor unions including the American Federation of State, County & Municipal Employees (over $45 million), the Service Employees International Union (over $37 million), the National Education Association (over $36 million), the International Brotherhood of Electrical Workers (over $33 million), the Laborers Union (over $31 million), and the American Federation of Teachers (over $31 million). If we have to worry about anyone buying politicians, it’s clearly not the Kochs!

Myth #10: Free Market Capitalism has failed

A free market, as its name implies, is one which is free of state intervention and control. Under a free market, there are no bailouts to companies considered “too big to fail.” There are no subsidies to oil companies and large farms. There are no corporations lobbying for regulations to tilt the playing field in their favor and crush their competition. There are no politicians bribed to pass legislation in favor of special interest groups. In short, America does not have free market capitalism, but rather “crony” capitalism, or corporatism.

Endnotes

1. Historical Effective Federal Tax Rates: 1979 to 2005. (Congressional Budget Office, Dec 2007)
2. “Table T07-0294 - Distribution of Federal Taxes Under Pre-EGTRRA Individual Income and Estate Tax Law, By Cash Income Percentiles, 2007.” (Tax Policy Center, Aug 2007)
3. America Is Not Broke. Michael Moore. (Huffington Post, Mar 2011)
4. Michael Moore’s National Resources. Mary Katharine Ham. (Daily Caller, Mar 2011)
5. Data overlook upward mobility. Steven G. Horwitz. (Atlanta Journal-Constitution, Jan 2011)
6. New Data, Same Result: New Deal Never Solved Unemployment. Conn Carroll. (Heritage Foundation, Jan 2009)
7. How FDR's New Deal Harmed Millions of Poor People. Jim Powell. (CATO Institute, Dec 2009)
8. Ten Thousand Commandments 2011: An Annual Snapshot of the Federal Regulatory State. Clyde Wayne Crews. (Competitive Enterprise Institute, Apr 2011)
9. Regulation Without Representation. Clyde Wayne Crews and Ryan Young. (Investor's Business Daily, Feb 2011)
10. Environment and Strategy Update. William L. Kovacs. (Environment & Energy Committee, May 2011).
11. Bush says sacrificed free-market principles to save economy. (Breitbart, Dec 2008)
12. Bush's Regulatory Kiss-Off. Veronique de Rugy. (Reason Magazine, Jan 2009)
13. Millions Spent Lobbying Food Safety. Laurel Curran. (Food Saftey News, Aug 2010)
14. Big Business and Big Government. Timothy P. Carney. (CATO Institute, Jul 2006)
15. What Keeps Us Safe? Mark Thornton. (Mises Daily, May 2009)
16. Why Koch Industries Is Speaking Out. Charles Koch. (Wall Street Journal, Mar 2011)
17. Top All-Time Donors, 1989-2012. (OpenSecrets, Apr 2011)