Good Economists Seek Long Term Benefits: Reviewing Hazlitt’s Economics in One Lesson Essay
Good Economists Seek Long Term Benefits: Reviewing Hazlitt’s Economics in One LessonEconomics has the popular image of being either being a “boring” or “difficult” subject. This negative feeling about economics is often accompanied by numerous fallacies about it, according to Henry Hazlitt, aside from just being a tedious and complex subject. In his book Economics in One Lesson, Hazlitt acknowledges the importance of interest groups in the political economy of a democracy.
He opens his text with the idea that “economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in say, physics, mathematics or medicine — the special pleading of selfish interests” (p.15).Why does the subject of economics suffer from an apparent conflict between personal observation and scientific truth compared to most other sciences? It is primarily because of the very nature of the system of division of labor and monetary exchange. Every participant in the economic system is a specialist, aware of the effect of things on his own specialization.
We Will Write a Custom Essay Specifically
For You For Only $13.90/page!
As a rule, he does not stop to consider their effect on other specializations as well; nor, as a rule, does he consider what their longer-run effect on him might be were he to change his specialization. As a result of this, people have come to believe such things as that improvements in production, which can in fact necessitate the shrinkage or total disappearance of employment in any particular branch of the division of labor, are economically harmful (Reisman, 1990, p. 33).Good Economist vs. Bad EconomistAs Hazlitt pointed out many fallacies about economics, one fallacy that Hazlitt pointed out is “overlooking secondary consequences.” He elaborated that “the whole difference” exists “between good economics and bad”, where the bad economist view “only what immediately strikes the eye” and the good economist “looks beyond.
” Moreover, he further exemplified that the “bad economist sees only the direct consequences of a proposed course” and “the good economist looks also at the longer and indirect consequences.” As such, in analyzing the effects of economic policies, “the bad economist sees only what the effect of a given policy has been or will be on one particular group” while the good economist make inquiries about the effect of these policies will be on all groups (p. 16).First published in 1946, Hazlitt hoped to dispel the myths behind Keynesian economics and activist government policy. As we now face the era of information and globalization, the struggle against economic ignorance still continues.
In Hazlitt’s words, the “lesson” is that “economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups” (p. 17). To make things simpler in subject perceived to be difficult or boring, Hazlitt stressed that people should be looking at long-term benefits and costs when evaluating economic policies. Thus, economics as a subject should take as a fact the willingness of the individual to open his mind to a view of the entire economic system extending over a long period of time, and to follow chains of deductive reasoning explaining the effects of things on all individuals and groups within the system, both in the long run and in the short run.Broken WindowIn the second part of his book, Hazlitt presented a poignant story of a shopkeeper and a boy with a rock. The boy hurls the rock through the shop window and runs away. A crowd gathers and shows sympathy to the shopkeeper and condemns the youth. But then, a person in the crowd reflected aloud that every cloud has a silver lining.
The shopkeeper now must buy a new window. That creates work for the glazier who now can afford to buy some new tools. That creates work for the tool maker and so on. Why, with this ripple effect, the whole economy will benefit from the boy’s “little act of vandalism”? You could even call him a hero for such service to the nation.
The fallacy is that it looks at the obvious effects and ignores the unseen effects. What is not seen is that the shopkeeper was planning to buy a new suit. That would have created work for the tailor who would have then employed the services of someone else and so on. This “ripple effect” does not happen and cancels out the one noted previously. And society as a whole is, in fact, poorer. The economy could have had a window and a new suit. Now, it just has a window because the suit is never made because the money is now spent to buy a new window.
As an “act of destruction”, what the child did would not create wealth. This argument brought Hazlitt to compare it with the ruins that war could bring:Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace. They see “miracles of production” which it requires a war to achieve. And they see a world made prosperous by an enormous “accumulated” or “backed-up” demand. In Europe, after World War II, they joyously counted the houses, the whole cities that had been leveled to the ground and that “had to be replaced.” In America they counted the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They brought together formidable totals (p.
25).Hazlitt pioneered to expound the “broken-window fallacy” and exhibited how it applies to economic principles, and he shows how many economic analysts use the fallacy in justifying their own pet schemes. As Hazlitt condemned that “the broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics” (p. 25).The Government and TaxesBy tradition and by legislation, most economic decisions in American society are made within a market setting.
This is through the thought that everything produced is determined by market demand and the ability of individuals to bid for what they want. The relationship between government and the economic system is determined by changing economic conditions, especially in light of abundant resources, a strong fiscal environment, efficient labor, and adequate demand for finished goods.Although the economic system is considered the supporter of the political system, the government does not make things; instead, its main role is to help create conditions that are favorable for the economic system. According to Hazlitt, since the government is not driven by a profit motive and has far less relevant information as to the desires of individuals and how to satisfy them than do the millions of individuals voluntarily interacting in markets, resources cannot be allocated as efficiently by government.We could deem here that a sound economic policy should be straightforward: let the market, not the state, set wages and prices. The government should be aware that it should keep its hands off monetary policy and taxes should be minimized. As Hazlitt explained, the government’s role is to do only those things private citizens can’t do for themselves, and thus the government should live within its means.
Some policies and regulations should provide a level that could hamper any abuse. Tariffs and other barriers to trade should be eliminated as much as possible. In short, a government governs best, in which it governs least.Labor and Minimum Wage LawsMinimum wage laws are one of the most familiar forms of market regulation policies of a government. The primary goal of the minimum wage law is to ensure workers a decent standard of living. But the law has other effects as well.
By prohibiting employers from using lower-paid workers, it limits the ability of employers to hire additional workers. This hiring constraint reduces job opportunities for immigrants, teenagers, and low-skill workers. Without that constraint, more of these workers would find jobs and gain valuable experience. With this, Hazlitt criticized that[M]inimum wage law is, at best, a limited weapon for combating the evil of low wages, and that the possible good to be achieved by such a law can exceed the possible harm only in proportion as its aims are modest. The more ambitious such a law is, the larger the number of workers it attempts to cover, and the more it attempts to raise their wages, the more certain are its harmful effects to exceed any possible good effects (p. 134).
Economics experts deem that this also result to unintended consequences when workers’ wages fall in response to a mandated increase in benefits or when employment falls in response to an increase in the minimum wage. As Henry Hazlitt reckoned, the “depth in economics consists in looking for all the consequences of a policy instead of merely resting one’s gaze on those immediately visible” (p. 194).On the side of labor itself, the belief in a scarcity of work to be done in the world leads to the belief that what it is necessary to make is not more goods (that, it is claimed, only causes unemployment) but “more work”. According to some experts, while scientists and inventors and greedy businessmen are off plundering the community’s precious stock of work to be done, with their ceaseless striving for improvements in efficiency, union leaders, government officials, and every good union man must perform the vital function of creating labor.With this, Hazlitt imposed that “every dollar of government spending must be raised through a dollar of taxation.” As Hazlitt elaborated on this, he specified that “for every public job created by a bridge project, a private job has been destroyed somewhere else.” In history books, we see the bridge, the workers toiling, and government spending seemingly creating jobs for these sorry laborers.
“But there are other things that we do not see,” Hazlitt noted, “because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers.”ConclusionHazlitt’s Economics in One Lesson proved that the study of an obviously tedious subject matter could be made pleasant, as he accompanied each assumption with simple explanations through the use of common examples. Although written without the scary-looking graphs or numerical tables, Hazlitt’s book is often lauded and quoted by economics experts. In fact, in an article by Robert Tracinski (2003), he used Hazlitt’s book in criticizing the “legitimate failure of the Bush budget”:Today’s economists have never learned Hazlitt’s one lesson. Instead, they are followers of his more famous contemporary, John Maynard Keynes, whose philosophy was expressed in his famous quip that, “In the long run, we’ll all be dead.
” Based on such shallow wisdom, today’s economists feel free to ignore anything but the shortest of short-term consequences (12 February 2003).As people continually argue whether the government has no appropriate role in the economic sector, controversy still exists over where government should intervene, and for whom. Hazlitt already emphasized that the purpose of government economic policy is to stimulate economic growth in the long term, aside from protecting and supporting the enterprise system through promoting full employment, protecting the well-being of citizens, and controlling the pressures of inflation and recession. Ultimately, these economic policies should result in to a proper distributing of resources among the various groups in society.
That is what “good economists” should be aiming for.As a study that involves how human beings choose to use scarce resources to achieve personal and social goals, economics is becoming more important because we live in a complex global environment where resources are produced, traded and exchanged. If resources were not scarce, we would not face issues of who gets goods and services, what gets produced, and how much gets produced. The fact that many key issues, such as taxation, the federal budget, and the like, are fundamentally economic in nature, people need to have a background in economic knowledge to improve their ability to make reasoned decisions about many government policies.
Works CitedHazlitt, Henry. Economics in One Lesson. New York: Three Rivers Press, 1946 (December 14, 1988): 218 pp.Reisman, George.
Capitalism: A Treatise on Economics. Ottawa, IL: Jameson Books, 1990.Tracinski, Robert.
Bad Economics in One Lesson. 12 February 2003. The Ayn Rand Institute: Center for the Advancement of Objectivism Website. 4 Apr. 2006 http://www.aynrand.org/site/News2?JServSessionIdr009=5ckaxe7mc1.app5a&page=NewsArticle&id=7335