Myths We Teach Our Children

When we teach false things to our students there’s usually an explanation. Thus, today it’s trendy to teach about the “myth of the model minority”. But that claim is itself a myth, as Asian-Americans are indeed a model minority; at least if by model minority you mean relatively successful—and what else could it mean? Presumably there’s an agenda here; perhaps we don’t want other minorities to feel bad.

In economics, we teach many different myths. Here I’ll list a few and then speculate as to what sort of hidden agenda might explain these myths.

1. We teach our students that before the Fed was created, our banking system was highly unstable due to a lack of regulation. Economists such as Larry White and George Selgin have punctured this myth. Less regulated banking systems in places like Canada were far more stable than the US system, and our worst banking panics and depressions occurred after the Fed was created.  Our banking instability was caused by misguided regulations.

2. I’m told that German students are taught that the hyperinflation of 1920-23 led to the rise of the Nazis. Actually, the Nazi party was quite weak as late as 1929, and then soared in popularity during the severe deflation of 1929-33.

Think about the attitude of American intellectuals toward banking regulation, and the attitude of German intellectuals toward inflation, and then think about whether these attitudes might have been shaped by the myths that we teach our students.

3.  Our students are taught that stock prices reached wildly overvalued levels in mid-1929, and that it was inevitable that the “bubble” would burst.  In fact, stock prices were quite reasonable even at the peak of the 1929 stock boom.  Then 71 years later, a similar myth would be created about the stock boom of 2000.  Then 6 years later another myth about a housing price “bubble”.

4.  Our students are taught that FDR produced a rapid recovery from the Depression with a highly expansionary fiscal policy, and that the relapse into depression in 1937 was caused by a tight fiscal policy.  Actually, both events were caused by shifts in monetary policy.  Fiscal policy was not particularly expansionary under FDR (until WWII).

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