[FOUNTAIN]A fallacy in economics

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[FOUNTAIN]A fallacy in economics

“Everything is made up of atoms, and atoms are invisible. Therefore, everything is invisible.” This seemingly flawless syllogism reaches the wrong conclusion.
Assuming that a property of a part is a property of the whole, or claiming the whole is right if a part is right, is called the “fallacy of composition.” Another common example of the fallacy is the view that “I can see the show better if I am standing on my chair, so if everyone gets up everyone can see better.”
In economics, the fallacy of composition is explained as the difference between microeconomics and macroeconomics. For an individual to become rich, saving is very important. But if everyone were to start saving and refrain from spending, the economy would slump.
It might be reasonable for an individual company to restructure in a sluggish economy, laying off unnecessary workers so it can survive. But can a nation follow a restructuring plan like a company in a bad economy? The result would be a disastrous economic decline.
Individual households and companies are economic entities that make up the national economy, but economic activity that benefits each entity might not necessarily be favorable for the overall economy. Macroeconomics is not a simple sum of companies and households but an outcome of an organic synthesis.
If a doctor diagnoses an illness based on the independent symptoms shown by different body parts and prescribes remedies for each ailment, a person’s overall health can be harmed.
This is arguably one of the most turbulent years in Korea’s modern history. Some complain that the economy is in worse shape than during the East Asian economic crisis in 1997. The political climate is unpredictable and no forecast can be made.
Interest groups contribute to the chaos by acting for their own benefit. Each group advocates seemingly reasonable points, but their demands have put a brake on nearly all government projects. The government has responded to each and every intercession by the interest groups and has failed to pursue major projects as planned.
Economics scholars say that for a macroeconomic-level entity such as a nation, a different set of principles and rules than microeconomics should be applied in order to avoid the fallacy of composition. Does the Roh Moo-hyun administration have principles and rules that fit the national-level economy?


by Lee Se-jung

The writer is a deputy business news editor of the JoongAng Ilbo.
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