The Fallacy of Composition

February 1, 2022 Cryptocurrency Yanis Varoufakis Evgeny Morozov

A publication called The Crypto Syllabus has a lengthy interview with the Greek economist (and my idol of the European monetary crisis of the mid-2010s) Yanis Varoufakis.

In conversation with Evgeny Morozov, Varoufakis discusses cryptocurrency, NFTs, and the politics surrounding it—all worth a read. But my biggest takeaway goes way beyond those (admittedly very of-the-moment) topics, something that Varoufakis describes as a tendency to extrapolate from the personal realm to the macroeconomic one”.

To say that if something is good for me — if a practice is sound at the level of my family, business, etc. — it must also be good for the state, government, humanity at large. For example, yes, parsimony is a good thing for me, personally. If I can’t make ends meet, I need to tighten my belt; otherwise, I shall sink more and more into debt. However, the exact opposite holds for a macroeconomy: If, in the midst of a recession, the government tries to tighten its belt as a means of eliminating its budget deficit, then public expenditure will decline at a time of falling private expenditure. And since the sum of private and public expenditure equals aggregate income, the government will be — inadvertently — magnifying the recession and, yes, its own deficit (as government revenues fall). This is an example of one thing (belt-tightening) being good at the micro-level and catastrophic at the macro level.

This idea, of course, goes way beyond economics: The past two years of pandemic have demonstrated both the prevalence of this fallacy and its shortcomings. Imagining that what works for you must work for society at large” is at the core of many people’s beliefs as to how a society should function and why they get upset at solutions that don’t mirror their very own experience. It’s what makes it so hard to act together, as collective solutions might very well be completely different from those that work on the personal level.

Update: It also goes the other way, as Steven King expressed during a speech on censorship in 1996:

Push them a little further and they’ll invoke family values”, a phrase that more and more frequently makes me feel like falling to the floor and projectile vomiting. Censorship and the suppression of reading materials is rarely about family values and almost always about control. Who is snapping the whip, who is saying no”, and who is saying go”. Censorship’s bottom line is this: if the novel Christine offends me, I don’t want to just make sure it’s kept from my kid, I want to make sure it’s kept from your kid as well. And all the kids.

This bit of intellectual arrogance — undemocratic and as old as time — is best expressed this way: If it’s bad for me and my family, it’s bad for everyone’s family.

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