Gary Bryant, in an e-mail, asks:
What is [the] most ridiculous economic fallacy that is believed by a significant number of professional economists?
Wow. Good question. There are many such fallacies, and it’s difficult to rank-order them according to their ridiculousness. My list and rank-ordering, of course, reflects my own understanding of economics (which is Hayekian-Alchianian-Coasean-Buchananite-McCloskeyan) and my subjective assessment of ridiculousness. But Mr. Bryant’s question is fun, so here’s a list of five:
(5) the idea that government-subsidized health care will lower the cost of health care;
(4) the notion that government must have monopoly control over the money supply in order to ensure sound performance of the economy;
(3) the belief that large differences among people in monetary incomes or monetary wealth reflect some market failure that ought to be ‘addressed’ by the state;
(2) the blind faith that government officials in democratic societies can be trusted to exercise power over people who economists do not trust to make choices for themselves;
(1b) the notion that welfare payments (other than EITC) subsidize employers by pushing workers’ wages lower, and
(1a) the notion that the minimum wage is, or can practically be, a boon to all low-skilled workers.
Each of these notions reflects not only an ignorance of history but also an utter failure to grasp basic price theory.