7 bad economic ideas

Went to a talk by Jeff Madrick, veteran journalist from the New York Times on the bad ideas that mainstream economists have inflicted on the world. Those economists think that:

• labor is paid what it deserves
• prices set by the market are right
• inequality is not an issue - all that matters is opportunity and growth
• inflation is the only worry
• low budget deficit is a priority
• government must be small
• education fully explains inequality

1. The invisible hand - Adam Smith has a lot to answer for.  Smith believed that buyers and sellers left to their own devices will come to an equilibrium.  This simply does not happen. The case of a too beautiful idea that does not work
2. Say's law -which states that savings are automatically invested, so that there cannot be an overall shortfall in demand. A further implication of Say’s Law is that government stimulus can never do any good, because deficit spending by the public sector will always crowd out an equal amount of private spending. This principle has hurt most with governments paying down public debt at times when public investment was most needed
3. Low inflation is all that matters - 2% inflation target is a myth - there is no empirical evidence to support it.  The truth is that low inflation helps the wealthy.  Low inflation has become the only policy of the US Federal Reserve
4. Friedman's folly - Friedman vehemently believed that government should only intervene when the market fails.  As a consequence of this type of thinking economists have completely failed to construct a proper theory of government involvement
5. Efficient markets - Financial markets are so efficient that they can properly assign prices. Since when should stock prices dictate the true value of a company
6. Globalization is always good
7. Economics is a science - it is nothing of the sort