Fallacies

Fallacy of Assumption Fallacy of Composition Fallacy of Subjectivity Fallacy of Post hoc procter hoc Fallacy of Syllogism Fallacy of black, white and grey Fallacy of Broken window

 Fallacy of Assumption: We often come across situations where general economic theories do not hold good for all situations since the underlying assumptions do not hold equally good for all cases. Which is true for someone may not be true for all. That is there as on why most economic theories are probabilistic and deterministic. The assumptions that because of the bailout package all industries would revive is not necessarily to be true. Some companies product may be a failure or it may be a hit. The actual industrial growth rate also may not be true. GDP would grow or fall, interest rate would fall or rise. Fallacy of subjectivity: Liberalization and Privatization was a disaster in USSR but it turned out to be fruitful for India and China. Therefore wrong in one may be right for others.

 Fallacy of Syllogism: To call all Engineers would be good managers then when we say Rohit is an engineer need not mean to say that Rohit would be a good manager. When we say deficit financing is good for developing economies and India also being a developing economy deficit financing need not be good for Indian economy where as it may be good for Bangladesh. Because of so many structural differences between the two countries. For example, luxuries must be taxed, so cars must be subjected to heavy sales tax. But what is the guarantee that cars are luxuries? Much would depend on who uses the car and for what purpose. Fallacy of Black, White or Grey: We often tend to assume that if a particular statement is not true then its opposite one must be true. There is no middle ground between these two extremes. On a foggy day, someone asks, Is it raining ? You reply, No . Then he may retort, You mean it is sunny , but, of course, it may just be foggy. The wise observer of the economic score is the one who sees the grey in their proper shadings not the one who sees everything as black or white, true or false. In pursuing economic analysis, one must learn not only to accept or reject hypothesis, but also to continue with it, if necessary. Like if we say that the Indian economy is not in recession, then it does not automatically mean that the economy is booming.

Fallacy of Composition: The general tendency on our part to assume that what is true for one part(Micro) is true for the whole(Macro) is not correct the fallacy of composition at times. Increase in savings is good for the economy, it may be true partially but if it continues for whole it may be dangerous. This is the famous Paradox of thrift . What is true at the micro level need not be true at the macro level. What works for one does not works for the crowd. Increase in salary without productivity may not be blessings for all. It may bring inflation, affect on interest rate, savings and economic and social chaos. The PCI concept is also not true. Fallacy of Broken Window: This fallacy is closely related to the concept of opportunity cost and its estimation for things which cannot be marketed and therefore do not have a market price. Like calculating the price of clean air, sea side view, etc. does not bear real price and cost.

Fallacy of Post hoc Procter hoc: It means after that; therefore; because of that. Suppose there is demand recession . The government decides to provide tax concessions. A few months later, sales starts reviving. Was the government decision the cause of the revival? Many people would say Yes. But may be the revival was on its way anyhow and the tax concessions did no good at all. The observed evidence merely tells us that the tax concessions may have caused the recovery. But the mere fact that one event precedes another does not necessarily mean that the first caused the second. Both may have been caused by the third factor. To assume that causation can be determined so simply is the fallacy of post hoc, propter hoc after this, therefore, because of it. Economists often rely on this sort of reasoning, especially in analyzing economic problems and policies. You may catch cold and afterwards get fever. You may have caught cold and got fever because of your general weaknesses. Fever followed cold. This does not mean that cold causes fever. After 9/11 attack in US, India went into recession, but that should not lead anyone to conclude that India went into recession because of it as because our exports to the world is not that huge. Failure of a student may be because of other factors rather than the tough course content. Please read the two cases given in the text book EASY.