The Fallacy of Composition

Bill and Elizabeth Kelly apply an economics principle to President Obama’s plan to give free community college to everyone.  According to the Fallacy of Composition, what is good for one person may not be good if lots of people do it.  In this case, if the supply of community college degrees goes up, their value goes down.

From Bill Kelly and Elizabeth Sawyer Kelly: Obama and the ‘Fallacy of Composition’ – WSJ:

The Super Bowl on Sunday presented a useful illustration of an economic term called the “fallacy of composition.” If you were at the University of Phoenix Stadium and stood up to watch the action early in the first quarter, you would have improved your view as other fans settled in to enjoy the game. If you stood up during the thrilling last minute of play, you would have simply been standing like everybody else.

The spirit behind President Obama ’s recent proposal to make community college free is understandable, but he has fallen victim to the fallacy of composition. He has made the mistake of believing that if one person benefits from an action, then everyone else who takes the same action will also benefit. Economics teaches us otherwise.

Although getting an associate degree or some college education at a community college may benefit any one person, in the aggregate a policy that increases the supply of people with associate degrees can backfire unless it has been designed to fill an existing excess demand. Otherwise such a policy will merely exacerbate an existing excess supply of labor with that level of educational attainment.

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Can you think of other applications of this principle?