By Bryan Caplan
While I think we have a duty to believe what is true, it’s possible for widespread errors to have good consequences. Attempting to murder someone doesn’t cause your head to explode. But the world would be a better place if everyone falsely believed that it did.
In the real world, though, the most beneficial errors are probably those that cancel out the bad effects of other errors. Consider these two examples:
1. The public underestimates the inequality of wealth. But as I recently told journalist Drake Bennett, this underestimate balances out the public’s lack of appreciation for the social benefits of wealth inequality.
2. The public probably overestimates the short-run effects of taxation on labor supply. But this overestimate helps balance out the public’s neglect of the long-run effects of taxation on career choice – as well as the public’s enthusiasm for big inefficient programs like Social Security and Medicare.
Another example that I used to like was the public’s overestimate of the economic costs of inflation. In standard models of central banking, this mistake delivers a free lunch: lower inflation without loss of outcome. Since 2008, I’m not so sure.
Other examples? Please show your work.