Economics For Dummies, 4th Edition

Chapter 19

Ten Seductive Economic Fallacies

IN THIS CHAPTER

Avoiding logical fallacies that sucker intelligent people

Steering clear of bad economic reasoning

In this short chapter, I outline the most attractive and compelling incorrect ideas in economics. Some are logical fallacies. A few are myopic opinions that don’t consider the big picture. And others are poorly thought-out examples of economic reasoning. All are to be avoided.

The Lump-of-Labor Fallacy

The argument that there’s a fixed amount of work that you can divide up among as many people as you want is often presented as a cure for unemployment. The idea is that if you convert from a 40-hour work week to a 20-hour work week, firms will have to hire twice as many workers. France once reduced its work week to 35 hours hoping that firms would hire more workers and cure the country’s unemployment problem.

It didn’t work. Such policies have never worked. One problem is that hiring workers involves many fixed costs, including training costs and health insurance. So two 20-hour-per-week workers cost more to employ than one 40-hour-per-week worker. What’s more, two 20-hour-per-week workers don’t produce more output than one 40-hour-per-week worker.

So if laws were passed that forced firms to move from a 40-hour work week ...