Our country is beset by a large number of economic myths that distort public thinking on important problems and lead us to accept unsound and dangerous government policies. Here are ten of the most dangerous of these myths and an analysis of what is wrong with them.
Myth 1: Deficits are the cause of inflation; deficits have nothing to do with inflation.
Myth 2: Deficits do not have a crowding-out effect on private investment.
Myth 3: Tax increases are a cure for deficits.
Myth 4: Every time the Fed tightens the money supply, interest rates rise (or fall); every time the Fed expands the money supply, interest rates rise (or fall).
Myth 5: Economists, using charts or high-speed computer models, can accurately forecast the future.
Myth 6: There is a tradeoff between unemployment and inflation.
Myth 7: Deflation – falling prices – is unthinkable, and would cause a catastrophic depression.
Myth 8: The best tax is a "flat" income tax, proportionate to income across the board, with no exemptions or deductions.
Myth 9: An income tax cut helps everyone; not only the taxpayer but also the government will benefit, since tax revenues will rise when the rate is cut.
Myth 10: Imports from countries where labor is cheap cause unemployment in the United States.