Introducing the "Onion of Lies"
Modern economics is like an "Onion of Lies", a web of stupidity. It is a pile of nonsense, built on a completely rotten foundation.
It is so bad that I almost don't know where to start to describe its faults.
Trying to correct the faults of conventional economics is like trying to restore an ancient wooden boat. If the timbers are in moderate condition then a restorer can easily replace it piece by piece, temporarily tying the new pieces onto the old pieces that will be later replaced.
However if every timber is completely rotten then this technique is not so good, because the repairer has nothing solid to tie onto. The restorer would be well-advised to completely rebuild from scratch.
Sadly conventional economics is like a completely rotten boat with nothing solid to tie onto. But a complete rebuild is not practical either. Many of the faults in economics come from faults in the English language. Ill-defined overloaded words such as value make up the rotten foundation of economics. The rebuild from scratch is too hard because it would require devising and becoming proficient in an entirely new language for both writer and reader. This is not practical. Instead we can only try to correct it piece by piece, tolerating and ignoring the rotten framework that we must temporarily rely on.
Enough of this general talk, let me give some examples of why economics is an "Onion of Lies" with a completely rotten foundation.
"People need money to live".
Wrong, in order to live people need resources. Most people commonly buy these resources with money.
"The first thing people need is a job".
Wrong. People need resources, such as food, to live. Resources are often bought with money that often comes from wages from a job.
The important difference can be seen by giving an extreme example. Imagine you are shipwrecked on an island and a rescue party will arrive in 3 days time:
Case A - Job but no food. There is a storm coming and your job is to build shelter, but there is no food to eat for the next 3 days.
Case B - food but no job. There is food and shelter for you but no work to do.
Which situation would you rather be in?
This simple example shows that people really need resources such as food, and jobs are a bad thing, albeit often necessary. You might think this example is stupid, but look around you today. The whole economy is to a large extent a giant make-work scheme. In 1960 a man could support a wife and family, now it takes man and wife working to support a family. Of course there are other reasons for this, but a misunderstanding of the role of work is, in my opinion, part of the problem.
"Homeowners will suffer from this latest rise of interest rates".
Wrong. A homeowner is someone who owns a home. They have paid for the home and now own it.
A rise in interest rates will actually cause suffering amongst people who owe money at variable interest rates (not homeowners). It is true that in Sydney most large loans were taken out for the purpose of buying homes, and it is these people who will suffer the most.
Higher interest rates effect money-owers not homeowners. If a person borrows money from a bank as a mortgage and buys a house, this person is not a homeowner. Their ownership of the home slides from 0% up to 100% as they repay the loan to the bank.
"Homeowners are taking money out of their houses, taking out equity to sustain their lifestyle."
Wrong. When a homeowner (or partial homeowner) takes a home-equity loan, they are actually compromising ownership of the house in order to borrow money from another entity.
The term "taking money out of" is nonsense.
For example if Fred borrows $10 from a loan shark and the loan shark says "You better pay me back next week or I'll break your leg". Fred has not just taken $10 out of his leg. He has risked his leg in order to borrow $10 from the shark.
Similarly, if Fred borrows $10,000 from ABC bank and hands his house title to them as security, then Fred has risked the title to his house in order to borrow $10,000 from ABC bank.
"Americans have taken $800BN of equity from their homes".
Wrong, Americans have borrowed $800BN from [mostly] foreigners and have compromised ownership of their homes in doing it.
"The whole US economy is dependant on housing and equity extraction, if equity extraction ceases the economy is in trouble".
Wrong. To an extent the economy is dependant on the $800BN borrowed from foreigners. Or more correctly it is dependant on the imports purchased with the $800BN borrowed from foreigners. If the foreigners cease lending the $800BN, then the US must make do with $800BN less of imports in some way shape or form. It is dependant on the foreign product makers and lenders, not on the US housing used to secure the loans. The economy is already in trouble because it imports more than it exports (based on current world product prices). This situation has problems of sustainability and dependancy.
Summary.
We all must use common language. If I talk about "equity extraction and housing dependant economy and homeowners", then we both know what we are talking about. These terms are fine for everyday use, and indeed we are stuck with them.
However the terms are also wrong to a degree and it is dangerous to base conclusions upon them as if they were absolutely correct. If we do that many times over we end up with the nonsense that is modern conventional economics.
