The Fallacy of Composition

7 Fallacies of Economics

The Fallacy of Composition

While Economics is considered a science, it is plagued by many fallacies, which by definition, is a deceptive, misleading, or false notion, belief, etc. The “7 Fallacies of Economics,” written by Lawrence W. Reed, investigates the driving factors behind flawed economic conclusions. Mr. Reed states that these flaws essentially derive from seven fallacies that have permeated throughout economic philosophy. The importance of exposing these misconceptions lie in the notion that if economists understand what bad economics looks like, they will have a greater probability of arriving at accurate conclusions.

Good economists, according to Mr. Reed, treat individuals like they have unique human actions, avoid projecting a certain outcome of one individual onto the aggregate of society, understand that a nation’s wealth derives from the ability to supply consumer demand, believe in concurrently altering supply to changes in demand, take into account that all expenses come with a cost attached, look beyond stage one of a situation to determine all consequences of a particular action, and believe that a planned economy lacks the individual incentives that a market economy provides.

Expanding on one fallacy in particular, “The fallacy of composition,” we can observe several instances where projecting one’s outcome onto everyone would result with an inaccurate assumption. Thomas Sowell, author of “Basic Economics” offers a great example of how the media in the 1990s focused reporting massive layoffs to certain industries in the United States. However, at that time, there had never been more jobs available in the history of America and the rate of unemployment was relatively low. Mr. Sowell’s explanation was that “What was true of various sectors of the economy that made news in the media was the opposite of what was true of the economy as a whole.” Sowell, Thomas. "The Fallacy of Composition." Basic Economics: A Common...