We all know what cognitive dissonance is: it’s having two thoughts that are in conflict with each other, and feeling uncomfortable about it because you’re starting to recognize there’s a problem.
Regarding macroeconomics, a lot of people believe things that inconsistent with each other: they don’t seem to have any sense of cognitive dissonance at all. Here’s Mark Perry:
He drew this from a post Don Boudreaux made at Café Hayek:
… I had a pleasant if brief conversation with a Danish-American woman. A fair summary of her views about government-provided welfare is the following:
(1) It’s a “right-wing myth” (her term) that generous unemployment and long-term disability compensation payments from government diminishes work effort. “People’s economic decisions are more complicated,” she insisted, than “right-wingers” believe them to be.
(2) A (the?) chief cause of crime is inadequate income. Welfare payments reduce criminal activity.
These two positions are widely held, and are typically held simultaneously by the same person – as, for example, they are held simultaneously by this woman. Yet there is a fierce – although largely unnoticed – tension between (1) and (2). (1) says that people don’t respond very much to monetary incentives; (2) says that people respond very much to monetary incentives. Put differently, according to (1), the prospect of receiving money from government does not significantly diminish the amount of effort people exert to get income from non-governmental sources, while (2) says that the prospect of receiving money from government does indeed significantly diminish the amount of effort people exert to get income from non-government sources.
Either incentives matter, or they don’t. But they can’t matter when it’s convenient to you, and not matter when it isn’t.