Economics in One Lesson by Henry Hazlitt

Henry Hazlitt(1894–1993) was a public intellectual of Austrian school/thought of Economics. He was a "journalist, literary critic, economist, philosopher", and a co-founder of the Mises Institute.

The book "Economics in One Lesson" was published in 1946 and is probably more relevant today than when it was published.

The book is "an analysis of economic fallacies" that are prevalent among major governments, and economists. The book is an "effort is to show that many of the ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors".

The author Henry Hazlitt also says that his analysis and refuting the prevalent economic fallacies is not new: "unblushingly “classical,” “traditional,” and “orthodox”". The book is still relevant as "There is not a major government in the world at this moment, however, whose economic policies are not influenced, if they are not almost wholly determined, by acceptance of some of these fallacies."

It is an easy to read book: "simply and with as much freedom from technicalities as is consistent with reasonable accuracy..." so it could be "fully understood by a reader with no previous acquaintance with economics".

It is essential read for everyone as we all are exposed to constant onslaught of win-win ideas, proposals and policies that seem to do good. This book trains our mind to look beyond the optics and short term gains for special interest groups at the longer term "inevitable implications" of those policies for everyone.

What is the Economics in One Lesson?

"Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson."

The author acknowledges the opposite is also possible where focus on long term effects only "resulted in a certain callousness toward the fate of groups that were immediately hurt by policies... but comparatively few people today make this error."

Economics is "the science of tracing the effects of some proposed or existing policy not only on some special interest in the short run, but on the general interest in the long run."

It is about "recognizing inevitable implications" of our policies.

"For many things that seem to be true when we concentrate on a single economic group are seen to be illusions when the interests of everyone, as consumer no less than as producer, are considered.

To see the problem as a whole, and not in fragments: that is the goal of economic science."

Why is Economics in One Lesson ignored, why are bad policies more popular?

In a democracy, optics and short term sensationalism is what wins. Presentation, and emotionally manipulating the audience wins. Proposing quick, cheap, simple fixes wins.

"bad economists present their errors to the public better than the good economists present their truths.

It is often complained that demagogues can be more plausible in putting forward economic nonsense from the platform than the honest men who try to show what is wrong with it. But the basic reason for this ought not to be mysterious. The reason is that the demagogues and bad economists are presenting half-truths".

Some spend their time on learning, and others spend time on perfecting their presentation. The public and the politicians are almost always influenced by presentation than content. Public and politicians generally don't have the time or intellect to know what is good for them.

People "see only what is immediately visible to the eye". "The overwhelming majority of the people, therefore, would probably suffer from the optical illusion".

Sound proposals are ignored. Policies with better "optics" and visible short term gain are adopted.

The second reason Economics in One Lesson is ignored, and bad economics more popular is the special interest groups(farmers, corporations, Military-Industrial-Complex) influence the decision makers to pass policies that benefit them at great cost to everyone else.

This is the well known "problem of concentrated benefits and diffused costs".

It also "lead to favoritism: to the making of loans to friends, or in return for bribes. It would inevitably lead to scandals."

"When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business. "

The author gives example of "frequent proposal of this sort in Congress is for more credit to farmers."

"Government “encouragement” to business is sometimes as much to be feared as government hostility." We are reminded of the words of former President Ronald Reagan "The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help."

The "special pleading of selfish interests," has to be ignored. It is not easy in a democracy focused on optics and short term sensationalism.

The Third reason bad economics is more popular is because "economists who in turn are full of schemes for getting something for nothing."

These proposals by economists are driven by "Positive psychology" and uplifting talk of win-win economics. Their enthusiasm brushes all logic and questions aside. "shallow wisecracks pass as devastating epigrams and the ripest wisdom."

"shallow wisecracks" is also how we see the rise of dangerous Killer Clowns. They are "extravagant buffoons" - oligarchs, intellectuals, politicians and bureaucrats - that use cheap humor to hide dangerous policies. The public, and compliant media focus on the "shallow wisecracks". The real danger lurking behind the facade is rarely exposed.

It is not just economists but bureaucrats who are just as damaging. "needless bureaucrats are mere easygoing loafers. They are more likely today to be energetic reformers busily discouraging and disrupting production."

Government help, aid, loan, money-printing, are no different to theft. This is the biggest white collar crime: "printing money is the world’s biggest industry".

The Fourth reason bad economics is more popular is because of intellectual laziness. "lesser men get lost in complications".

"a little economics can easily lead to the paradoxical and preposterous conclusions we have just rehearsed, but that depth in economics brings men back to common sense."

Examples

The author provides several examples, and devotes full chapters to explaining several of them.

Public Works Mean Taxes, and Taxes Discourage Production: public projects are not free. Money is taken via taxes or inflation from the public. This leaves the public with less money to grow or spend or invest.

Disbanding Troops and Bureaucrats: Reducing size of army or government is good as it puts people to more productive use.

Who’s "Protected" by Tariffs?: Almost no one is protected by tariffs. Tariffs are bad for consumers and producers in general, but a very specific interest group may get short term benefit.

Saving the X Industry: does not work, and merely reallocates money and resources from successful growing part of the economy to a less successful and less relevant part of the economy.

Minimum Wage Laws: Not required as employers are good at discovering the market value of labor they employ.

Do Unions Really Raise Wages: they don't but have value in ensuring workers get prevailing market wages with their collective bargaining power.

The Mirage of Inflation: Government creates inflation. Inflation creates inequality as "process of inflation is certain to affect the fortunes of one group differently from those of another", and "in the long run it brings disastrous consequences to the whole community". Once inflation in money supply is started by the government, "The political pressure groups that have benefited from the inflation will insist upon its continuance".

Call to Action

Think deeply about the "implications" of any economic policy or action on everyone, rather than just a special group. "things that seem to be true when we concentrate on a single economic group are seen to be illusions when the interests of everyone, as consumer no less than as producer, are considered".

Think deeply about the "implications" over long term rather than just the short term.

"To see the problem as a whole, and not in fragments: that is the goal of economic science."

The "special pleading of selfish interests" has to be ignored.

We have to make effort to avoid intellectual laziness, "lesser men get lost in complications".

Positive psychology, enthusiasm, and uplifting talk of win-win economists brushes all logic and questions aside. Their "shallow wisecracks pass as devastating epigrams and the ripest wisdom". Public loves their simplistic view of the world, and media promotes them. Beware of these extravagant buffoons and Killer Clowns.


Tweet

Related articles

Why Government Is the Problem by Milton Friedman

Why Nations Fail: The Origins of Power, Prosperity, and Poverty

External Links