Post Hoc Ergo Non Propter Hoc

Ever hear of post hoc ergo propter hoc? It's a Latin phrase describing a logical fallacy: "after therefore because of." But of course just because one thing follows another doesn't mean one caused the other. It's a common mistake, especially in macroeconomics where it's so hard to determine causation. Yesterday Paul Krugman reminded me of a relative: "post hoc ergo non propter hoc" or "after therefore not because of this" (this was assembled via Google Translate so its Latin might be off). Here he is questioning calls for lower taxes on the wealthy:

When John F. Kennedy was elected president, the top 0.01 percent was only about a quarter as rich compared with the typical family as it is now — and members of that class paid much higher taxes than they do today. Yet somehow we managed to have a dynamic, innovative economy that was the envy of the world. The superrich may imagine that their wealth makes the world go round, but history says otherwise.

No where does he say why taxes on the wealthy shouldn't have hamper economic growth. Indeed, he seems to argue that it would enhance it!

Macroeconomics is very, very hard, especially when you draw on history. JFK's America was very different than our own: trade, technology, local and global politics, demographics, etc. etc. All of which have major economic implications. To say nothing of the fact that we are actually much wealthier now than we were 50 years ago.

There Is No Such Thing As Wrongful Abandonment

Alex Tabarrok rightly defends a company's ability to fire someone for virtually any reason noting there are no restrictions on the reasons why a person can quit their job. Some might be skeptical of this analogy: being unexpectedly fired causes immense financial harm to the employee. Unexpectedly quitting causes no such harm to the firm.

Both are only true sometimes. If you've saved smartly and adjust your consumption, being fired won't be financially devastating. It's why folks like Suze Orman suggest you have 8 months expenses in liquidity at all times. Sadly, few people meet this benchmark; sometimes it is their fault, sometimes not.

It's harder to see the risk of an employee quitting, but it can be immense. If the employee is working on a project, leaving the company will cause the project to stall or even fail. Just as a person can be overly reliant on their job, a company can be overly reliant on a particular project, whether it's creating a new product, securing a big account, or reworking its internal structure to cut costs. Again, it's foolish to put too many eggs in one basket but sometimes that's all you can do.

Even if an employee isn't crucial to some project, quitting creates costs for the employer. They have to go through reams of CVs. They have interview applicants. They have to pay for background checks, fill out paperwork, take days to train the new guy, all while other employees work extra hard to fill the gap.

If an employee leaves for a silly reason, no one sues anyone. It never seems to cross anyone's mind. We have laws against "wrongful termination" but not against "wrongful abandonment." This is a good thing--my point is we shouldn't have laws against either--but one must wonder, even hope, that if we had more firms suing on the grounds of the latter on the basis of equal treatment, we'd have fewer opportunities to do either.