Common errors of the Left

It can be depressing to have to revisit arguments won long ago, but some politicians continue to cling to errors that have been exposed, simply because they wish the world were other than it is.

1. Taxes do not change behaviour

In the real world taxes usually change behaviour. Tax increases put up prices, and people usually respond by buying less of something. Increased taxes on cigarettes might lead people to smoke less, but they also lead people to obtain cigarettes from lower tax jurisdictions, or from bootleggers. The result is that less tax is raised than was anticipated. The same is true for taxes on income. They make work and effort less attractive, and they encourage people to use legal means to shelter income from tax. People talk of increasing income tax "to raise more money," but it will hardly ever raise what they anticipate, and will sometimes even reduce the revenue.

2. Price caps make things cost less

In fact they reduce the price, not the cost, of producing things. If people cannot produce goods profitably at a price others will pay, the goods will not be produced. Price caps usually result in shortages. They might lower the price of current goods, but they will reduce the future supply. Price caps on energy will leave producers less to invest in securing and developing future supplies, and to cease producing energy from sources unprofitable at the capped price.

3. Minimum wages help the low paid

They might help those currently working at low wages, but they will reduce the number of jobs available to those looking for work now or in the future. Some firms have responded to minimum wage increases by reducing the number of hours employees work, some by installing machines such as self-checkout tills to reduce labour, and some have gone out of business because their costs became too high.

4. Corporations pay taxes

The source of taxation is somebody's wallet or purse. Corporations are not people, and they do not have wallets and purses. Their shareholders do, their employees do, and their customers do. This means that Corporation taxes fall upon some or all of those three groups. Studies show that about 60% of its incidence falls upon employees, reducing the wages they would have been paid without it. Of the remainder, some falls on customers as firms raise prices to meet the tax burden, and some falls on shareholders, making investment less rewarding, and less likely to be done, thereby cutting future jobs.

5. Improvements for the poor must be paid for by the rich

This is a version of the Zero Sum Game fallacy, of supposing wealth is fixed, and that gains to one group must come at the expense of another. In fact, wealth is created by trade and specialization and groups can become wealthier through growth, rather than by redistribution. Historically it has been the former, rather than the latter, that has improved the lot of the poor. This is also true internationally. Poor countries have become richer through trade, not through redistribution from richer countries. The UK created its wealth in the Industrial Revolution, and the world's wealth then was a tiny fraction of what it is today.