Thursday, August 18, 2011

The Fallacy of Composition

Paul Krugman:

The point, of course, is that all such arguments amount to committing the fallacy of composition. Or, if you prefer, they’re saying that we can solve the jobs problem through Lake Wobegon economics, creating an environment in which every state, every age group, and every occupation offers wages that are below average.

The essence of macroeconomics is understanding why such things are a fallacy, why what happens if one group does something is not at all what happens when everyone does it. And it’s a sad commentary on the state of economics when tenured professors at famous schools don’t get that distinction.

I've been thinking that a lot of the economics-based school reform strategies are making the same error, without knowing what it was called.

For example, closing and otherwise disruptively reconstituting an individual "persistently low performing" school makes sense, but at what point do schools in general come to be seen as unstable, transitory entities instead of community institutions. What's the impact of that?

Or the idea that a perfectly efficient and transparent market for teacher labor would not systematically disadvantage the poorest communities.

I could go on...

Also Dean Baker:

Keynes' point is that changes that could increase any individual's chance of employment (e.g. improved education or accepting lower wages) would not necessarily lead to lower unemployment in general. In other words, if all workers could instantly get a college education then the main result would be that we would have more unemployed college grads.

This story would seem to be supported by two basic facts about the downturn. First, huge numbers of people who had the skills and desire to work before the collapse of the housing bubble, now do not have jobs. It seems difficult to explain the sudden loss of millions of jobs as a supply side phenomenon. The other basic fact is that unemployment has risen across the board in every major skills grouping and geographical location. This is very hard to explain as a supply side story.

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