Economic Fallacies In Economics

In economics, there are many fallacies that exist. In relation to economics, a fallacy is a policy or theory that can be misleading if based on faulty reasoning yet is still accepted by many as fact. Economists attempt to use information based on statistics and facts in order to hypothesize relevant theories. Due to the fact that economists and others that are involved in making decisions on economic policies are human, human error can occur. As a result, policies put in place that seemed logical initially can have negative impacts when instituted. When this occurs, it is known as an economic fallacy.
Economic fallacies can develop for many different reasons. In some cases, information being used by an economist or policy maker may be misinterpreted.
According to Hazlitt, it is true that a particular group of bridge workers may receive more employment than otherwise, but the bridge has to be paid for from taxes on the private sector. For every dollar that is spent on the bridge, a dollar will be taken away from taxpayers. If the bridge costs $1,000,000, the taxpayers will lose $1,000,000. Those funds spent on the bridge will be not be available to spend on things that may be needed more than the bridge. For every public job created by the bridge project, a private job has been destroyed somewhere else. The only thing accomplished is a diversion, jobs shift from one field to another due to the project. Instead of employing more automobile workers, radio technicians, clothing workers, or farmers those people are instead employed working on the bridge project. (Hazlitt,
Hazlitt uses the example of a manufacturer of clothing in order to explain the fallacy that machines do not cause employment. The manufacturer learns that by installing new machinery, clothing can be produced more quickly by the machinery than the workers can produce it. By installing the machines, the manufacture is able to reduce his labor force by half. At first glance, it appears that this is clearly a loss of employment due to the addition of the machines, but when you take a closer look you realize that in order for the machinery to exist, workers had to perform the labor to make it which will offset some of the jobs lost by the workers due to the new machinery. Once the costs for the addition of the new machinery is offset, the clothing manufacturer will now have more profits which can then be used to invest in other industry, expand his own business, or use the profits for his own consumption. Any, or all of these uses of the increased profits, will increase employment. “In brief, on net balance machines, technological improvements, automation, economies and efficiency do not throw men out of work.” (Hazlitt,