A lot of people think they are a financial expert just because they read the Wall Street Journal or peruse Yahoo! Finance. Financial misinformation gets circulated around the Internet and repeated ad nauseam on cable news. Here are the five biggest economic myths of 2011.
1. Rich people create jobs. This is a favorite line of certain politicians, but it’s not really true–unless you count the hiring of a few English butlers and undocumented gardeners. The people who create jobs are middle class consumers.
Investors and entrepreneurs do create small companies. But even with all the capital in the world, a small company will not succeed without customers to buy its products. The largest portion of customers, by far, is the middle class, which spends most of what it earns. In contrast, the super rich save a lot of their money and store it in banks and non-productive assets like art or real estate.
2. Social Security is dead. Social Security has started paying out more than it takes in from the payroll tax, especially now that the employee portion of the tax has been lowered from 6.2 percent to 4.2 percent. But according to the latest reports, Social Security will be able to pay all of its obligations for the next 26 years. After 2037, it will still be able to pay 78 percent of promised benefits, and that’s assuming no change to the system. Congress has more than two decades to make adjustments that will keep the system whole, such as raising the retirement age, increasing the salary cap on the payroll tax, or changing inflation adjustments.
3. College is too expensive. Tuition has climbed to over $50,000 a year at many private universities, leaving many students deeply in debt. But, on average, graduates from these expensive universities also earn more money. One survey of Ivy League students from the 1970s and 80s found that graduates earned 15 to 40 percent more than their counterparts from less competitive, and less expensive, schools.
But not all graduates of prestigious colleges earn more than students from state universities or community colleges. A lot of a person’s earning power depends, not on the size of the college tuition, but on the choice of major. Students majoring in engineering, business, and management are the top earners. Those majoring in education, religious studies, and fine arts earn a lot less. College is only “too expensive” if you go to an exclusive private school and major in a subject with little economic value.
4. Saving the environment costs jobs. Research says that environmental regulations make production more expensive, thus reducing demand and costing jobs. However, studies have also shown that environmental technology creates even more jobs, ranging from blue-collar construction jobs to high-paying scientific research jobs.
One 2009 study concluded that solutions to climate change including investing in renewable energy sources, building high-speed rail, and creating a smart-grid infrastructure could generate over 1 million jobs. Another study calculated that a $100 billion decrease in oil imports would create 900,000 new jobs.
5. The U.S. economy is a white elephant. Despite recent financial problems, the U.S. still boasts the largest economy in the world, accounting for a quarter of the globe’s economic activity. The U.S. is the largest trading nation, provides the most reliable reserve currency, and is home to more major international corporations than any other country. Even with relatively high unemployment, America attracts the most foreign investment, and its net migration is among the highest in the world. The U.S. also ranks near the top in the global competitiveness index produced by the World Economic Forum.
Experts project that China’s economy will catch up to the U.S. by 2020, but not because the U. S. economy isn’t growing. It’s because China has more than four times the population of the U.S. So even then, the average American will be a lot richer than the average Chinese person.
Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement, and other concerns of baby boomers who realize that somehow they have grown up.