Macro Notes. Random Reading:

“Basic Economics” by Thomas Sowell

*Note: For those who can find this book to borrow from any library, please do since it explains basic economics terms and issues by MERE WORDS without any graph analysis. It’s simple, precise, logical yet extremely interesting. Maybe knowing a lil bit about its author, Thomas Sowell- a great economist, social theorist and political philosopher- would make you consider reading it more =]

This is my short note taken from the book. Hope everyone, including those who have no interest in economics, finds this little piece of information helpful ’cause this is also not far away from any basic principle of living, thinking and working.

THE FALLACY OF COMPOSITION:

the mistaken assumption that what applies to a part can automatically applies to the whole.

Eg.:

–       An individual can double his money to get richer but a nation can’t print twice as much money to be richer

–      This is also wrong to add up all individual investment to get the total investment of the country. Why ? Because when individual buys government bonds, it’s their own investment since the government won’t gain any extra factory nor building , etc. These individuals’ additional assets are tax payers’ additional liabilities which cancel out of the country as a whole

–       Non-economic example:

In a sport event, it’d be great for a few individual to stand up and view the game BUT if everyone stands up, no one will see better.

Or in case of fire, one can runs to get out faster BUT it’d be disaster for everyone to rush into the exit without order to escape

Or “m&ms are made up of atoms, it follows m&ms are colourless. These are examples are fairly obviously cases of invalid inferences.(MANDM)” =]]

CONCLUSION:

“What is at the heart of the fallacy of composition is that it ignores the interactions among individuals, which can prevent what is true for one of them for being true for them all”