The Lesson of Economics
Something that I have wanted to do for a long time is to break down the chapters of Henry Hazlitt’s best-known book Economics in One Lesson. This short classic on basic economics covers essential topics such as the minimum wage, tariffs, and government bailouts. Many writers have sought, but failed, to beat this work as an introduction. Economics in One Lesson remains the most efficient method of thinking like an economist. Part one, in which Hazlitt explains the fundamental lesson of economics, is only four pages long.
If you read only those short pages, you have mastered more than your social media friends who The Lesson, according to Henry Hazlitt:
The art of economics consists in looking not merely at the immediate hut 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.
This lesson is borrowed from Frédéric Bastiat’s 1850 essay That Which is Seen, and That Which is Not Seen. Bastiat writes:
In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen: it is well for us if they are foreseen.
Two factors spawn economic fallacies. First, policies that benefit individual groups at the expense of everyone else. Secondly, inability to look beyond what is seen: the immediate effect of a new law and its impact on a particular group. The error is overlooking or not inquiring about the policy’s long-term effects on the specific group in question and the community as a whole. The ability to look at the long-term and second consequences of a policy separates a good economist from a bad economist. Hazlitt writes,
The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences.
Only in public policy are unseen consequences neglected. In our personal lives, we almost always understand the long-term effects of our actions. When going out for a night of drinking, we know the short-term effects may be more fun, enjoyable evening. However, the long-term effects will leave us with a nasty hangover. Today as in 1946, when Hazlitt published Economics In One Lesson, bad economists promote policies that “deprecate saving and recommend squandering on a national scale as the way of economic salvation.”
They are unconcerned with the long-term effects of policy because, as John Maynard Keynes said in “the long run we are all dead.”Long-term policy consequences, according to Hazlitt, can be visible in a few months, years, or decades. We currently live in the future that previous economists warned us not to think about. Bad policies today lay the seed for a worse future for our children and their children.
These fallacies live on because bad economists are better at selling their policies than good economics are at combating them.
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
Bad economists are presenting half-truths, that in the short term, are correct and easy to see. Raising the minimum wage has immediate results. Some low-skilled workers will get a pay increase. The long-term consequences of unemployment for other workers is harder to see and even harder to explain to a disinterested public. As Hazlitt acknowledges:
The answer consists in supplementing and correcting the half-truth with the other half. But to consider all the chief effects of a proposed course on everybody often requires a long, complicated, and dull chain of reasoning. Most of the audience finds this chain of reasoning difficult to follow and soon becomes bored and inattentive
Good economist considers the long run and indirect consequences of a proposed policy. Furthermore, a good economist considers the impact of the policy on all groups.
Economics In One Lesson aims to get the reader to detect and avoid economic fallacies and better understand the elementary problems in modern economics and public policy. In the next installments, I aim to present a summarized view of Hazlett’s ideas and how “the lesson” affects us today.
“To that task we shall now proceed.”