Nine-tenths of the economic fallacies that are working such dreadful
harm in the world today are the result of ignoring the lesson that all policies taken in the past or the present will have a very strong and powerful impact on future groups. Those fallacies all stem from one of two central fallacies, or both: that of
looking only at the immediate consequences of an act or proposal, and
that of looking at the consequences only for a particular group to the
neglect of other groups.
It is true, of course, that the opposite error is possible. In considering a
policy we ought not to concentrate only on its long-run results to the
community as a whole. This is the error often made by the classical
economists. It resulted in a certain callousness toward the fate of groups
that were immediately hurt by policies or developments which proved to
be beneficial on net balance and in the long run.
But comparatively few people today make this error; and those few
consist mainly of professional economists. The most frequent fallacy by
far today, the fallacy that emerges again and again in nearly every
conversation that touches on economic affairs, the error of a thousand
political speeches, the central sophism of the “new” economics, is to
concentrate on the short-run effects of policies on special groups and to
ignore or belittle the long-run effects on the community as a whole. The
“new” economists flatter themselves that this is a great, almost a
revolutionary advance over the methods of the “classical,” or
“orthodox,” economists, because the former take into consideration
short-run effects which the latter often ignored. But in themselves
ignoring or slighting the long-run effects, they are making the far more
serious error. They overlook the woods in their precise and minute
examination of particular trees. Their methods and conclusions are often
profoundly reactionary. They are sometimes surprised to find themselves
in accord with seventeenth-century mercantilism. They fall, in fact, into
all the ancient errors (or would, if they were not so inconsistent) that the
classical economists, we had hoped, had once and for all got rid of.
It is often sadly remarked that the bad economists present their errors
to the public better than the good economists present their truths. It is
often complained that demagogues can be more plausible in putting
forward economic nonsense from the platform than the honest men who
try to show what is wrong with it. But the basic reason for this ought not
to be mysterious. The reason is that the demagogues and bad economists
are presenting half-truths. They are speaking only of the immediate
effect of a proposed policy or its effect upon a single group. As far as
they go they may often be right. In these cases the answer consists in
showing that the proposed policy would also have longer and less
desirable effects, or that it could benefit one group only at the expense
of all other groups. The answer consists in supplementing and correcting
the half-truth with the other half. But to consider all the chief effects of a
proposed course on everybody often requires a long, complicated, and
dull chain of reasoning. Most of the audience finds this chain of
reasoning difficult to follow and soon becomes bored and inattentive.
The bad economists rationalize this intellectual debility and laziness by
assuring the audience that it need not even attempt to follow the
reasoning or judge it on its merits because it is only “classicism” or
“laissez faire” or “capitalist apologetics” or whatever other term of abuse
may happen to strike them as effective.
We have stated the nature of the lesson, and of the fallacies that stand
in its way, in abstract terms. But the lesson will not be driven home, and
the fallacies will continue to go unrecognized, unless both are illustrated
by examples. Through these examples we can move from the most
elementary problems in economics to the most complex and difficult.
Through them we can learn to detect and avoid first the crudest and
most palpable fallacies and finally some of the most sophisticated and
elusive.
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