Paul McCartney is dead! The feds want to tax emails to prop up the U.S. Postal Service! The moon landings were faked! Urban myths like these are mostly entertaining or annoying, and typically do no real harm. But when urban myths take root in economics—propelling a dubious theory or faulty analysis into a widely held belief about an important issue—it can lead policymakers to draw incorrect conclusions with costly consequences.
Sadly, as Rob Atkinson writes in The Washington Post, that is the world in which we now live: In many areas of economic policy, initial studies turn out to be incorrect, yet they take on a life of their own, being quoted, cited and tweeted to such an extent that few people bother to question their veracity. Cognitive scientists refer to this as the “truth effect,” which occurs when people believe something simply because it is widely repeated.
Four prime examples of urban myth economics in action are:
- “Small businesses are the font of job creation!”
- “Technology is destroying jobs!”
- “Top earners are making off with all the income gains!”
- “Monopolies are jacking up prices!”
Demonstrably wrong though these myths may be, they have had a very real impact on policy.
