Fallacy of Composition: Income vs. Leisure
Economists are sometimes confused between friends and foes. For instance, Gregory Mankiw proposes “the Trade-off between Work and Leisure” ( Principles , Ch.18): Alas, one of the three capitalized words is misplaced. As far as the rest of us understand, “Trade-off” is a choice between two competing benefits or two opposing costs . Are Work and Leisure competing? Sorry, we don’t think so: With no hesitation at all, we do unanimously vote for “leisure.” See, work is a “pain” while leisure is a “pleasure.” According again to Gregory Mankiw, incidentally, “The Cost of Something is What You Give up to Get It” (Ch.1). “Something” being beneficial, the Cost must accompany a Benefit. Eureka, a benefit and the cost are friends! On the flipside, we cannot eat the cake and have it too. Eureka, a pleasure at present and another in the future a...