Economic Facts and Fallacies - Thomas Sowell
Fallacy (def.) = an error in reasoning, based on unsound arguments;
Wikipedia: " (...) the use of invalid or otherwise faulty reasoning in the construction of an argument[1][2] that may appear to be well-reasoned if unnoticed."
In other words they are hard to spot and even after bad consequences follow shortly, many people still don't connect the dots.
CHAPTER 1: The power of fallacies
There are 5 types of general economic fallacies:
- the zero-sum fallacy: "economic transactions are a zero-sum process, in which what is gained by someone is lost by someone else." Why is this wrong? "voluntary economic transactions (...) would not take place unless both parties were better off making these transactions than not making them."
Example: rent control (as a result, owners stop investing in apartment buildings an the shortage of rentals forces people to live in worse conditions).
- the fallacy of composition: the belief that what is true in part is true as a whole. Example: policies designed to attract high-income people, expected to provide more local tax revenue while the displacing lower-income people will be moved to another place, with no benefit to the country overall.
- the post hoc fallacy: "when 2 things are both very striking, and one occurs after the other, then the first is especially likely to be considered the cause of the second." Example: the 1929 stock market crash was believed to be the cause for the Great Depression in the 1930's, overlooking the impact of the government interventions.
- the chess -pieces fallacy: not taking into consideration the individual preferences but treating society as a chess game.
- the open-ended fallacy: limitless goals (health, safety etc.) without taking into consideration the limited resources (whose alternative uses are also valuable).
CHAPTER 2: URBAN FACTS AND FALLACIES
Transportation
- transportation costs: throughout history they played a crucial role in the creation of cities. Land transportation has been by far more expensive than the water one.
- population concentration and dispersion: one urban fallacy is that highly crowded cities are a sign of overpopulation; in some countries more than half of the nation's population to live in a few cities while having vast areas of vacant countryside.
Housing
Fallacy: "affordable housing" requires government intervention.
CHAPTER 3: Male-female Facts and Fallacies
Marriage and parenthood tend to lead to increased incomes for men and reduces incomes for women. Beyond any discrimination allegation there are other factors that need to be taken into consideration (occupational choices, history, context etc.).
CHAPTER 4: Academic Facts and Fallacies
Professors benefit from tenure; having job security often leads to decreased accountability in ensuring the student's educational needs.
Some institutions have a high rejection rate leading to multiple student applications; this shows that the main priority is the prestige rather than the education improvement
Fallacy: "attendance at big-name colleges and universities is virtually essential for reaching the top tier later in life."
CHAPTER 5: Income Facts and Fallacies
Middle-class shrinkage: the number seems to decline because of the fixed definition of "middle-class" in a country that has rising levels of income.
Corporate executive compensation: the belief that the CEO's are unjustly overpaid, not considering the market dynamics. One of the most puzzling aspects is the multi-million dollar compensation packages for CEO's that failed. Similarly, a married person that pays to get a divorce. The author argues that putting and end to a relationship may be just as or even more valuable than the beginning of the relation seemed.
Confusing merit with productivity: people who had to struggle to overcome many disadvantages in order to achieve modest levels of productivity, may show individual great merit versus those born into wealthy families who achieve a high productivity without struggle.
Input is not the measure of value. Results are. Not a question of rewarding input efforts or merits, but securing output at values determined by those who use that output. Example: child movie star whose movies are watched by millions of fans.
CHAPTER 6: Racial Facts and Fallacies
Fallacy: the passage of time reduces the hostility and discriminations that the racial and ethnic minorities face.
Differences between racial groups can stem more from inherited cultural traits rather than racial distinctions.
Chapter 7: Third world Facts and Fallacies
Geography influences development through factors like climate, natural resources etc.
Foreign aid can sometimes boost regimes without any other development.
The terms "Third World" and "Foreign aid" are misleading when talking about economic differences and the support needed for development.