Many quasi-economic arguments — really pseudo-arguments — involving economic policy stem from Alfred Marshall who founded new classical economics on the premise that what classical thinkers had called "political economy" — the study of the socio-economic system including government — was too complex to handle with any precision. Marshall proposed a new methodological approach that he called "economics" as a discipline limiting the scope of its study to rather narrow aspects of the economy capable of being examined with some precision using mathematics and graphs based on partial equilibrium (like the familiar supply and demand curve), and the representative firm.
Of course, if this method is scaled to include all firms in aggregate, it commits the fallacy of composition. To his credit Marshall himself realized this danger and cautioned others against.
Marshall meant these simple models as aids to thinking about more complex issues, not as models of them. Extending the simple to the complex involves a logical jump, which is an illegal move in the game, owing to the fallacy of composition, for example, and it also involves the fallacy of overgeneralizing. Such sophistical arguments also generally involve straw man arguments designed to make the opposition look foolish. It's just rhetoric made to look like reasoning in order to advance an ideological view under the guise of being "scientific."
Arguments that mainstream economists present to the public are often based on this kind of over-simplification and over-extension of the part to the whole. I suppose they would defend what are doing by saying that to communication with lay people they need to oversimplify. But in so doing, they are essentially misrepresenting the conclusions they are presenting, which do not hold at all.
I suspect that at least some of them know better, and they are simply couching ideological norms in reasoning that pretends to be that of an expert in economics when is just propagandizing or moralizing. For example, can it coincidental that their line of reasoning always fits their political ideology?
But even in their professional work such "experts" are overshadowed by the notion introduced by Marshall that political economy is based on an ineffective method. As result they miss the forest for the trees. Keynes saw through this error and corrected it in his macro approach, the validity of which both neoliberal and Austrian economists deny, since both marginalize the role of government, even though government is necessarily a key component of the economy in a modern developed state.
Unfortunately, both neoliberals and New Keynesians seem to miss this point. For example, Brad DeLong is one of the few professors teaching political economy these days and he is quite well informed about the subject. But when it comes to his own practice of economics, even he seems to ignore political economy or minimize it in his popular presentations about economic policy. As a layperson in economics, I find this curious.
[Originally posted as comment to a post at Bill Mitchell's billy blog. Slightly edited here.]
We need to get back to a contemporary understanding to political economy as a comprehensive socioeconomic approach that includes all relevant factors including government.