The Aggregation Fallacy
by Pater Tenebrarum
We have recently mentioned an article in the WSJ that focuses on a point we have always regarded as very important.
The popular press continues to frame the debate over Europe’s crisis in terms that suggest that ‘austerity’ is the antonym of ‘growth’. In other words, if the government spends less, the economy cannot grow, or so the story goes. You can see similar thoughts expressed in this ‘chart of the day‘ comment at Business Insider. ‘This is what’s crushing GDP!’ Krugman fan Joe Weisenthal exclaims. ‘This’ being a reduction in government’s consumption spending.
So let’s get this straight: an economy can not grow unless the government spends more? Really?
The WSJ article notes: