Monocausality

Much of the bad thinking in the world come from monocausality: thinking that every event just has a single cause.  Once in a while, this happens, but it's pretty rare.

Conservatives tell us that if we raise the minimum wage, unemployment will spike and the economy will decline--because if the price for employers goes up, demand will go down.  Yet, in literally thousands of practical experiments, not only has this never happened, but in quite a few of them, the economy and employment situations have actually improved significantly.  What must be happening is that some other factor--for example, perhaps, the extra disposable income of low wage workers that the hike provides--is stimulating the economy enough to overcome the downward pressure on low wage employment that the wage hike is causing.

Another popular example is the claim that the reparations after WWI caused WWII.  While this is certainly a large factor, there are others.  A big one that doesn't get much recognition is that large german businesses allied themselves with Hitler when they realized he intended to create a large mass of extremely cheap workers and violate the weapons limitations agreed to at Versailles.  Hitler's policies were great for them...for a little while.  There were lots of other factors too, of course.

Another example is that it is claimed that printing lots of "fiat currency" will surely cause hyperinflation.  It did in Weimar Germany, Zimbabwe, Argentina, etc.  But it didn't in the US during either the great depression or the recent "great recession."  It hasn't in Europe either.  Non economists and "classicals" insist there must be something else going on, such as the currency being un-backed, for example by a Gold Standard.  But this also has near perfect track record of failure.   Keynes explained this:  It's not the backing or the ultimate supply of currency, it's demand relative to supply.  If there's very high demand for currency but not for goods and services, the value of the money will stay high while accompanied with little inflation or even deflation.  Those who can, will hoard currency.  In the recent recession, this is exactly what happened.  Investors suddenly flipped from being hot on subprime and other high debt instruments, especially those based on real estate, to being terrified of them...including the ones they'd bet on heavily, and wanted to sell them and move into cash.

Another example is the so called Laffer Curve.  The concept predates Arthur Laffer by at least a century but he advised the Reagan administration when it became very popular.  Simply put, it's that taxes put a downward influence on the economy.  This is surely true, but the empirical data that we have tells us the almost exact opposite.  Reduced taxation almost always correlates with downturns and increased with upticks.  What's probably happening is that the spending that's done with the tax money is significantly more stimulative than the taxation is de-stimulative.  For most people and business, this seems to go right up to 70% taxation and higher...the 91% marginal tax rate they were paying didn't cause Howard Hughes or J Paul Getty or Henry Kaiser to pull out of business.  The Laffer curve may well be correct, but conservatives seem to only look at the part to the right of the peak...the part that would justify their tax cuts...but we're not dealing with that part.  To left of the peak says that taxes should be higher.

There are lots more examples.  The causes of these events are numerous and interact in complex ways.  In mathematics, we call these sort of equations "equilibrium" equations and they are generally not trivially solvable and tend to end up having several solutions or a solution which itself is a fairly complex equation.   Simplifying models, such as Hick's IS-LM and the Phillips and Laffer Curves in economics can be very useful--provided you actually look at these curves correctly and understand them and their limitations.  They're not a perfect answer by any means, but trying to solve these complex problems by ignoring important--perhaps dominant--factors is unhelpfu.

added 26 Apr 2015
Greg Mankiw argues here , astonishingly, that there is only one pertinent point of the proposed trans pacific trade agreement and that is that freer trade is is better.  What if, for example, the freer trade causes millions of job losses (through, for example, outsourcing) and the new trade only generates a fraction as many new opportunities?  What if the freer trade grants patent violators the right to sell cheaper products competing directly against those that funded the R&D with impunity?  Of all people, Mankiw should understand that nothing is ever so simple.