One Lesson Everyone Should Learn

3 06 2009

DISCLAIMER: I said I’d start talking about economics/politics eventually.  I’ll try and keep it interesting and informative, as in, you might actually learn something!

So, if you know me personally, you know I’ve been doing some of that vaunted “soul searching” and really “finding myself” at college recently to the tune of $10k+ per semester—Naval Architecture didn’t quite work out (though I still figure I can run off and become a freighter captain someday if I get bored) but in the short term, I believe I’ve settled on economics.

But that I had only read Economics in One Lesson by Henry Hazlitt two years ago; I could have saved myself the grief (and tuition fees) and jumped right in to economics.  Hazlitt was a journalist first and an economic writer and commentator second, which means that this book is easy to read and understand, with very little math (though that is an inherent feature of Austrian economics anyway). It’s not that it’s a new and groundbreaking book, either, as it was first published in 1946.

He sure seems like a swell happenin' dude.

He seems like a swell happenin' dude.

So what is this crucial, groundbreaking economic bombshell that Hazlitt lays on us in the first chapter of this eminently readable (not to mention affordable and readily available) text?  It’s quite simple, really:

“The art of 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.”

To put it even more briefly, the chief job of an economist is to analyze the effects of economic policy on all groups in the long run, not just on one group in the short run.

That’s it?  Yeah, that’s it.  The rest of the book consists of many examples that serve to reinforce that core “lesson.”  If you fully understand what the above means and are fully aware of the consequences of neglecting that lesson, then don’t buy the book.  Otherwise, pick it up today.

The book.  Actually this one has a cooler cover than mine.  Buy it at the Mises Institute Store.

The book. Actually this one has a cooler cover than mine. Buy it at the Mises Institute Store.

Sure, it seems simple, perhaps obvious, or maybe even intuitive.  But if the past few generations of economic policy are any indication, very few policymakers grasp the implications of ignoring the lesson (or willfully disregard it, realizing that the public is, by and large, happily ignorant).

Take, for example, price floors that raise the price of farm goods.  Ostensibly, they improve the lives of farmers by giving them, one way or another, a higher price for food than the market otherwise would.  Because of the propped-up prices farmers receive, they have more “purchasing power;” they have a better standard of living as a result, and are able to buy more than they otherwise would.  In fact, (or so goes the story), because these farmers are able to buy more, they stimulate the economy, and everyone is happy!  Hooray!

Except not.  By focusing exclusively on farmers, you are neglecting the 97% of the population not involved in agriculture.  Farmers are, in effect, being involuntarily subsidized by everyone else.  Any gains in purchasing power given to farmers (who just so happen to be a politically influential group) comes at the expense of those who aren’t farmers, and the economy is no better off.  Just think-for ever dollar gained by farmers due to the higher price of food, a city dweller has one less dollar to spend on booze.  Think of the poor distillers hurt by this!

But wait!  That’s not all!  This is where I think Hazlitt really shines: because the price of food is artificially inflated, inefficient producers (inept farmers) have less incentive to leave the market.  Inefficient production means wealth is misused, not created, or destroyed, and we are all poorer for it—farmer and city dweller alike.  That is a somewhat unintuitive (or at least concealed), nasty unintended consequence of a shortsighted, narrow-minded economic policy.  It’s something we all need to be aware of in these times of subsidies, stimuli, and bailouts.

In case you haven’t picked up on my insinuations, I strongly advise you to buy and read the book.  It’s short, it’s easy to read, and above all, it’s relevant.  I’ll be talking about it further in the coming days, particularly the chapter titled “Saving the X Industry,” where X=Steel, Phonograph, Betamax, or Auto.

See what I mean?  It’s very relevant.

EDIT: “Lession” isn’t even a word.  Not only did I manage to misspell “lesson,” I didn’t even manage to hit another word in the process.   Arg.  Thanks Jerry.

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One response

4 06 2009
Jerry

“Economics in One Lession”

I hope that is lesson not lesion because abnormal tissue doesn’t seem very applicable.

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