POPULAR MYTHS ABOUT THE WORLD-ECONOMY

Many of us ''know'' things that are not true, and we sometimes act, or urge our representatives to act, on our mistaken beliefs. This articl e examines three common myths, or misconceptions, about the internatio nal economy. The author points out that, as with most myths, these emb ody grains of truth, but if accepted without qualification they could lead to grievous policy errors. The author analyzes three common false assumptions: that global competition prevents inflation; that fair tr ade requires equal labor standards; and that small firms cannot profit ably export. Global competition is a weak reed on which to rely for co ntrol of the overall price level, he finds. Far more important are U.S . monetary and exchange-rate policies, whose potency has been demonstr ated many times over. He also argues that the failure to enforce certa in core labor standards, such as a standard prohibiting forced labor, probably lowers a country's productivity rather than affording it an u nfair competitive advantage. And the data on exporting show that relat ively small as well as large firms can thrive while exporting.