Henry Hazlitt’s Book Economics in one LessonEssay title: Henry Hazlitt’s Book Economics in one LessonEconomics in One LessonBy Henry HazlittDan GardnerHistory of Economics 360-001Dr. SmithMarch 8, 2005Economics in One LessonBy Henry HazlittHenry Hazlitt’s book, Economics in one lesson, brings to perspective numerous topics that are mainstream issues in the economy today. His book breaks down in detail specific concepts that have their effects on the economy. Hazlitt explains topics such as war and the expenses, the tariff system, and productivity and the minimum wage laws.
One concept Hazlitt emphasized on was how economics was viewed for temporary needs, versus more permanently viewed.“In addition to theses endless pleading of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences” (Hazlitt p15-16).
This simple fact that Hazlitt brought up is the dominating factor that separates good and bad economics. A good economist will look at the effects a certain policy will have on all groups, while a bad economist will only see the effects that a policy will have on a particular group. This ties in with the long-run effects because if a group is only looking at how a policy will affect itself then in the future another group that was affected could lose their business because of the way the first group viewed a policy. For example if a clothing company decides to increase revenues by selling more products at a lower price, it will cause the company that has to supply the materials for the shirt to have to increase the amount of materials they need to use in order to keep up with the sales the clothing company makes. If the shirt company acted in the best interest of all the groups they would make sure the company that is supplying the materials is able to increase production instead of making the decision on their own. The bad economist believes that tomorrow is not as important as what is at hand today. “Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson. Those fallacies are stem from one of two central fallacies or both: that of looking only at the immediate consequences of an actor o proposal, and that of looking at the consequences only for a particular group to the neglect of other groups” (Hazlitt p17). It is also important to realize that some of the consequences may be evident in a few months or it could be evident in a couple years. The shirt companies’ raising revenues might not affect the supplier immediately, but it does not change the fact that it is not affected at all.
When Hazlitt wrote about how war affects economics, he wrote about this subject brilliantly. The best example Hazlitt used had to do with the broken window. He said that if a window breaks for a certain business, it is better for the economy. If a window is broken for a certain business and takes a few thousand dollars to fix, it would be a small price to pay to increase the economy. The economy would give jobs and pay wages to the repair the window. Hazlitt’s point is that sometimes there is a blessing that comes out of destruction. For example, the Civil War had a positive affect on economics. During and after the war, there was tremendous growth in industry, railroads, and others. But this came at the price of destroying land and life as well. “The war, in short, changed the postwar direction of effort; it changed the balance of industries; it changed the structure of industry” (Hazlitt p27). The reason for this growth is because it takes a lot of energy and a lot of stimulation to get the economy back where it was before the war, because the money that the government used to supply the war came from certain industries. A commodity had to be subtracted in order to supply the needs for the war. After the war, it is a great chance that commodity will become a demand because it will be presented as going back on the market. This does not mean that a great economy is built because of a war. The economy balances out just after a war takes place. When two countries go to war, land is destroyed, buildings need to be replaced, and in turn money is what is sought so the rebuilding process can begin.
Permanent damage to economy is another example of the “wars-versus-world” approach that I’ve described in Chapters 3 and 4. These are wars.
Permanent damage costs money, time, and effort if it does not come from a good cause. The war cost money, energy, resources, and energy to stop the economy from taking new steps. All of these expenses are cumulative but the one with the greatest difference to the economy is the war.
When war has a significant negative impact on economic development, the War Department says that if not spent, the nation goes bankrupt, and it is better for the economy to not go bankrupt. “The War Department has a number of reasons” for not spending money. The reason is that war would make the US economy less powerful and so the government would have to spend money. The War Department should have seen this and it would have been better to spend the money on new government policy. The War Department did the right thing by trying to get Congress to increase its own spending and the War Department should have been worried about a bad deal where only the War Department thought its spending was on war.
The War Department’s “wars-versus-world” approach is much harsher, and the War Department uses similar arguments to justify its policy of getting Congress to increase its spending. One of the reasons in addition to spending, which you might have seen mentioned earlier, is because one doesn’t want to save. What is really happening to the economy is that American exports are dropping. The problem is that American exports have plummeted from their peak levels in 1996, and now they are approaching record lows. The reason is that there are no real changes in U.S. export prices. The only significant change is the US government’s decision not to increase its foreign investment until these changes are in place.
Another reason for the War Department’s reluctance to spending is that in the current economic environment, the War Department is unable to work with economic growth when it is going to achieve an objective like “reforming the labor market.” It has to keep the economy growing and the economic growth will be very difficult for a country to maintain if the American people are to accept austerity and an economic slowdown.
The best comparison I could find with economic growth is the American Manufacturing Survey in the late 1990s. According to the government, the largest gains were from technology production for domestic products. A country that was able to produce technology is now struggling for what it needs. When economists look at the picture, then they see these same things:
There is a clear shift to manufacturing with the rise of the tech sector since the 1980s.
Manufacturing started off the year with a decline of 6%, but growth slowed to 1% by the end of the decade.
Manufacturing was not growing at a steady enough pace to capture the rapid growth of government employment.
Manufacturing was not growing because the American economy was growing only after the recession began.
Manufacturing was getting weaker in the last quarter