Common Fallacies of Conservative Economists

Exposing how conservative economists abuse statistics to push a pro-capitalist agenda

A problem for many liberals and socialists is that they are poorly schooled in economics. Thus when debating conservative economists advocating free-wheeling capitalism they often don’t have well thought out responses.

I’ve noticed over time a common set of tricks conservative economists employ to obscure the significant problems with free-wheeling capitalism, which I like to cover.

A lot of my examples will be comparisons between Norway and the US, for the simple reason that those are two societies on the opposite side of the scale with respect to inequality, capitalism and socialism which I actually know very well, being a Norwegian who has lived and traveled a lot in the US and married to an American. They are also both western countries which make them more sensible to compare than say the US and Japan, or the US and Venezuela.

Of course Norway and the US are profoundly different in size, which means some comparisons don’t make sense. You cannot compare the best university in Norway with the best in the US e.g. because a larger country will naturally have a better university. However you can compare things like average quality of schooling.

Likewise you cannot compare raw immigration and emigration numbers between Norway and the US, because a larger country will naturally be able to absorb far more people, by offering far more job opportunities than a smaller country. However one can make comparison of percentage of immigrants compared to total population.

First some examples of how they spin it to make inequality look good.

Fallacy 1: Inequality has been reduced, because the rich pay a higher percentage of total taxes now

Let me explain why this assertion is so deceptive. Let us imagine a toy example where the total income of society is 12 coins of some imaginary currency. The rich get 2 of these coins and pay 50% in taxes, so 1 coin.

The poor then get 10 of these coins. Say they pay 4 coins in taxes, so 40%. Total taxes paid is thus 4 + 1 = 5. The rich pay 1/5, which is 20% of the total taxes.

Now say we give a tax break to the rich and they are able to grow their income at the expense of the poor. So now they get 6 coins, and the poor get 6 coins of the total income of 12.

The rich now pay say 2 coins in taxes (33%) and the poor pay 3 coins in taxes. Total taxes are still 3 + 2 = 5. However now the rich pay a larger share of 2/5 corresponding to 40% of all taxes.

According to conservative logic society has now evolved into a more egalitarian society and the rich are contributing more because they pay a larger share of the taxes.

This is of course a ridiculous argument, because as I’ve shown any policy causing a rise in inequality will cause the rich to pay a larger fraction of the total taxes, even when their tax rate are dropped.

This sort of arrangement will tend to just perpetuate more inequality. The rich paying the bulk of the taxes will find in unfair that they should contribute to social programs.

It is why in more egalitarian societies public services tend to be of higher quality, because everybody in society feels they have a stake in them. Everybody feel they are a contributor and a beneficiary.

Fallacy 2: A Norwegian moving to the US makes on average more money in the US, thus American society is better organized

This is a logical fallacy as it conflates value and price, or in particular salary in this case.

Norwegian society is more egalitarian, meaning the wage structure is compressed. That means high paid jobs in Norway such as CEOs are paid less than in the US, while low paid workers such as McDonalds workers are paid significantly more. If GDP of the US and Norway was roughly the same, we should expect a random sample of Norwegians moving to the US would on average make no more or less money than if they stayed in Norway.

However a random sample of Norwegians never move over. A McDonalds burger flipper would be a moron to move to the US and see his/her salary dropped to less than half. However a high skilled worker will benefit. Thus there is naturally a selection of workers with the highest wage potential moving to the US.

One should in fact expect that a high skilled worker moving from Norway to the US doing exactly the same job, producing exactly the same goods and services, should in fact make considerably more in the US.

Thus Norwegians making more in the US is not proof of superiority of how American society is organized, but rather proof of a higher level of inequality. Of course we cannot know if either case is true without looking at the data in detail. However my point is that this is a more plausible explanation than the conservative assertion.

Fallacy 3: American free wheeling capitalism is superior to Europe, because of higher GDP

Before getting into the numbers, let me talk a little bit about why GDP is such a bad number.

GDP is a measure of the value of all good and services produced in a country. The measure does not consider whether these are services or good improving the well being of the population.

For instance if crime increase and police has to do more work, this will show up as a higher GDP, because the police is producing more police services.

If a country arrange itself so that the people over-consume junk food, then that will improve GDP, because more junk food is produced. More goods, means higher GDP. If this causes a need to visit hospitals more frequently, buy more pills and go more to the gym, that will also increase GDP.

Higher military spending will also increase GDP, even if having more bullets and tanks does not make the life of any citizen any better.

Also important to note is that GDP only measures things, one actually pay for. If I pay somebody to put together my IKEA furniture that will increase GDP, but not if I assemble it myself. Thus two counties outputting exactly the same goods and services can have different GDP.

Anyway let us do some comparisons of European and American GDP. We have two choices, either using nominal GDP or GDP at price parity (PPP). It is common to use PPP because exchange rates between counties can vary a lot.

If we look at IMF numbers for GDP at PPP and compare them with hours worked per year for a selected few countries.

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What you can see from this table is that most of the difference in GDP between European nations and the US, is due to Europeans generally working a lot fewer hours.

Conservative economists tend to try to wave this important data away by claiming Europeans are able to work as many hours at they want. That would be a convenient narrative for pro-capitalist conservatives. There is however to my knowledge no known surveys proving this. However there are plenty of anecdotes and personal experiences suggesting something different: Consumption and materialism is valued higher in the US, while leisure and work-life balance is valued more in Europe.

I can certainly attest to that myself from my own experience living both places. When I had vacation days available, I preferred to travel, while my American friends preferred to work extra so they could buy more stuff. You can also see the same sentiment reflected by many American youtubers living in Europe detailing their experience. Almost without exception most of them reflect upon starting to value enjoying life and working less while living in Europe.

The problem with any statistics of course is that it may miss numerous nuances of real life. That is why I always like to complement statistics with less formal knowledge I have about various countries.

The dutch have considerably less work hours than the Swedes. Why is that? Is it because dutch people value leisure more?

This in fact has a lot to do with how families and child care is organized. In Scandinavian countries such as Sweden, there are long maternity leaves, extensive subsidized childcare services.

The result of this is that women choose to stay home or work part time to a greater extent in the Netherlands than in Scandinavian countries. Child care is too expensive for it to be economical for women to work full time.

Thus all the women’s part time work, drags down the dutch average. A typical employee in the Netherland in contrast tends to work longer hours than in Scandinavia.

The same kind of difference is also masked between Scandinavia, France and the US. Due to lack of affordable child care and paid maternity leave, American mothers tend to stay home or work part time, dragging the number of work hours in the US down. Yet work hours in the US is still significantly above that of Europe. Why?

Because fathers or people without families work a lot more than what is common in Europe in particular in Scandinavian countries.

Thus America is reaching its high GDP with a significantly overworked male population, while Europeans are favoring spending more time with family and leisure. Thus it is somewhat absurd to use GDP as proof of a superior of free-wheeling capitalism, when it is often just a reflection of different priorities and values.

Fallacy 4: American College Education is of Superior Quality Because it Increases Salaries More

This is somewhat of a circular argumentation as I will try to explain. As mentioned before the wage structure in Scandinavian countries is compressed, that means education will not give you as high reward as in a more unequal society. Likewise not getting an education will not carry as big of a penalty.

The problem when people analyze this in market economic terms is that they assume salaries are a direct reflection of the value of that work as well as supply and demand. Reality is far more complex. How a society is organized and the laws and regulations of that society, dramatically influence salaries.

Scandinavian countries have had very strong unions and labour movements for almost 100 years. For a long time up to 80–90% of the population was unionized. In addition a large portion of the company boards were elected by workers. Thus workers have had a strong bargaining position from which to push up their salaries. The US in contrast has a history with much weaker unions and much lower unionization rate. Today unions are almost eradicated. Thus the bargaining power, especially among low wage earners is weak. Consequently their salaries are lower.

The attitudes towards CEO salaries have also been entirely different causing them to rise rapidly in the US while staying more moderate in Scandinavia.

There is also a supply and demand argument to be made here. If you make a product such as education more expensive, then the supply will be reduced. With reduced supply of educated individuals, the salaries they can charge in the market will increase.

This is in particular the case with medical professionals. Medical school is extremely expensive in the US. Those getting a medical education thus assume a large financial risk, unlike medical students in Scandinavia. In economics, high financial risk tends to demand high financial reward. It is thus not strange that a medical professional would get a higher salary in the US.

It is thus somewhat absurd to argue that a product is more valuable in a market because you have pushed up the price through artificially limiting the supply of the product.

We can thus summarize why higher education pays less in Scandinavia:

  1. The relative bargaining power of the less educated is stronger, thus they get a larger piece of the pie at the expense of the higher educated.
  2. Supply of higher education is less constrained thus not commanding a premium.

Thus egalitarianism, not quality is the reason why higher education pays less.

There are numerous ways one could check what the quality of education is. If we look at adult skills across multiple countries with things such as literacy, numeracy and problem solving. The US is ranked considerably below Nordic nations in most areas.

This is not all that different from PISA rankings, which also does not look good for the US.

But perhaps the most convincing argument against superiority of American education is this article written by economist Bryan Caplan. He show data demonstrating that most of the value in terms of salary you get form a university degree is not from acquired skills but rather from signaling.

By signaling we mean that companies will hire you because they assume you are smart, because you finished some difficult education. The skills you may have acquired, may not matter to the company at all.

To be fair this is not American education in particular, but rather on the utility of higher education in any country.

Fallacy 5: Measure Quality of Health Care In Terms of How Much of It is Consumed

Basically the argument was that in terms of value, Americans consumed more health care, hence they were better provided for.

It is such an astonishingly absurd argument, that I am not entirely convinced I have to address it, but I will try anyway.

Any economist ought to know that the quality of a service is not directly proportional to its cost. Sure increasing quality of a service tends to cost more money, but it does not mean that you can go in reverse and claim something is of high quality simply because it is expensive.

The second issue is the assumption that more health care services is always better than less. If too little food is bad, it does not follow that more food is always better. You need the right amount.

There are many examples from the US where health care consumption has a detrimental effect on people’s health. In the US pharmaceuticals view patients not as patients but as consumers they want to sell as much to as possible. One of the ugliest results of this was the opioid crisis, where a large number of Americans have died from overdose.

For those people in deep pain, an opioid is naturally a net positive. But when you start pushing too high doses to, too many people, that does not represent an improvement. Higher consumption does not reflect better health care.

We see the same with surgery, where the US performs significantly more appendix removals and c-sections without any clear health benefit. Same goes for overuse of antibiotics. If you are not seriously sick and consume antibiotics, then they are more of a detriment to your health than a benefit. Antibiotics can mess with your gut bacteria and affect your overall health. Likewise surgery is a burden to the body. You don’t want to do it unless you actually need to.

The New Yorker, writes about the amount of procedures and tests administered in American health care which have no proven need for the condition being treated.

The researchers called it “low-value care.” But, really, it was no-value care. They studied how often people received one of twenty-six tests or treatments that scientific and professional organizations have consistently determined to have no benefit or to be outright harmful. Their list included doing an EEG for an uncomplicated headache (EEGs are for diagnosing seizure disorders, not headaches), or doing a CT or MRI scan for low-back pain in patients without any signs of a neurological problem (studies consistently show that scanning such patients adds nothing except cost), or putting a coronary-artery stent in patients with stable cardiac disease (the likelihood of a heart attack or death after five years is unaffected by the stent). In just a single year, the researchers reported, twenty-five to forty-two per cent of Medicare patients received at least one of the twenty-six useless tests and treatments.

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.

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