Over at Econlog, I have another post that touches on reasoning from a price change. I must have already done a hundred such posts. And yet every day I see more examples of this EC101 error in reasoning almost everywhere I look. Not just among the uneducated, but in elite newspapers like the WSJ, NYT, Economist, etc. Here’s a new example from the FT:
Loose monetary policy led to share buybacks that enriched mainly the wealthy
One of the great ironies of the 10 years following the financial crisis is the way in which low interest rate monetary policy — which was designed to get Main Street USA back up and running and to help people buy homes and start businesses — has bolstered share prices and the markets more than it has helped ordinary Americans.
This is just embarrassing, and yet it happens all the time. Is there any way to make people see that this is flat out wrong? We teach students in EC101 not to reason from a price change, but people don’t seem to get the message. What are we doing wrong? Is there any way to explain this that I haven’t yet tried? Lots of you commenters are closer to people with “average opinion” than I am. Some of you may have recently learned not to reason from a price change. So what works? What allows people to see that low interest rates are not a loose monetary policy?
PS. A few reporters such as Caroline Baum warn against the fallacy of reasoning from a price change, but most don’t seem to get it.