Economics in One Lesson Flashcards
In your own words, state “the Lesson” of Hazlitt’s Economics in One Lesson.
Study of economics has two fallacies: 1) inherent selfish interests, 2) see only short term immediate effects of a policy. Policy concentrates on short-run effects on special groups and ignores long term effects on the community as a whole. His lesson involves looking at the long term effects too (WYSIATI)
The Blessings of Destruction
- Need and demand are often times confused
- Without purchasing power, demand is only need
- Policy in Favor: Country destroyed by War creates a need for rebuilding, resulting in more business for construction companies (and also increase for demand of luxury goods after war is over)
- Policy Against: Destruction benefits few parties unless destruction occurred in an already useless or obsolete product. Destruction leaves party with a loss who must find means to employee construction company to replace what was destroyed. They have nothing left to buy other things with
Public Work Means Taxes
- Some public works are a means to create artificial wealth or employment to a community that wouldn’t have otherwise had it. Building a bridge:
- Policy in Favor: A bridge is seen as something that provides employment to people otherwise unemployed. It’s visible so apparent to see for decades to come as a public works project being beneficial to the economy
- Policy Against: Unless there was really a need for a new bridge, just a way to ‘Create’ new jobs. It’s taking taxpayer dollars to benefit one group of people and leaving rest of society with less money to spend/invest in other things to create new jobs.
The Curse of Machinery
The belief that machines create unemployment is a delusion.
Policy in Favor: The machine makes a specific workers job obsolete and he is out of a job
Policy Against: This fails to look at this machine as creating more jobs. Laborers are needed to manufacture operate the new machine. Long term cost of the machine brings production costs down for employer. Then they can make more profit and invest money in other industries or more machines, or lowering the cost of their product to make it more affordable.
-increase productivity - higher standards of living
Spread the Work Schemes
Policy For: Come from believe that there is fixed amount of work to be done in the world, and a fixed amount of work must be spread amongst the greatest number of people possible.
Policy Against: There is no limit to the amount of work that could be done. As long as there is an unfilled want or need there is more work available. By seeking to fix the short term problem of decreasing unemployment by spreading the work, it actually makes unemployment worse in the long run. By shortening the work week and increasing wages, this makes workers less productive and more expensive, so the least efficient firms are thrown out of business causing more unemployment.
Saving the X Industry
This applies to any industry/business that is artificially kept alive that would have not survived in the free market without subsidization.
Policy For: Protects the labor and capital already invested in X industry, letting it die while others prosper would be a short term impact seen by all.
Policy Against: Subsidizing X industry transfers income from taxpayers and other productive industries to industry x. The long term effect of this is that other industries are inadvertently kept small so that the X industry may remain large.
Government Price Fixing
Arbitrarily holding prices down for a particular commodity creates an artificial demand in excess of supply. This means the labor, supplies etc. for this commodity will need to go down in order for the product to stay afloat.
Policy For: Consumers are unable to afford necessities because of rising prices so the government should intervene for their interest.
Policy Against: This creates a shortage of the commodity when there is a fixed low price. Production of this commodity is discouraged and production of other less useful products is encouraged. When the government price fixes, the government overlooks the true cause of the high prices, scarcity of goods or a surplus of money. The best policy is to let the free market work for itself. The reality is, however, that people serve many roles in an economy as producers, consumers and taxpayers and economic policy fails to recognize the long-term effects of isolating one group.
Minimum Wage Laws
According to Hazlitt, wages are a price.
Policy For: minimum wage redistributes wealth and ensures workers with a minimum skills income.
Policy Against: They are harmful because they encourage unemployment, anyone who is worth less than the minimum wage will be out of the market completely. Because unemployment has increase now there is a need for relief programs which discourage employment and foster laziness. In some cases it also raises the price of the product above market levels, placing the burden of wages on consumers. By not allowing the free markets to operate and fixing the price of wages, many people are hurt. The best way to increase wages is to increase market productivity.
- According to Hazlitt, what is the motivation or thought-process that explains attempts by elected government representatives or bureaucrats for interfering with free markets across the various examples he provides?
The motivation is the theme of this books, government representatives or bureaucrats only look at the short term, immediate implications without looking at the long term effects. One example in the book is public works. This requires government spending which is seen as the remedy for all economic ills. (Example of the bridge being built - only reason was to decrease unemployment). In this case they are interfering with the free market by spending taxpayer dollars and likely hurting private industries. Another example is the government extending credit to industries. . They believe if they can guarantee credit to be granted to a failing industry, they will stimulate spending and growth and all the problems will be solved.
