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@Read Epub Æ Economics in One Lesson Ø A Million Copy Seller, Henry Hazlitt S Economics In One Lesson Is A Classic Economic Primer But It Is Also Much , Having Become A Fundamental Influence On Modern Libertarian Economics Of The Type Espoused By Ron Paul And OthersConsidered Among The Leading Economic Thinkers Of The Austrian School, Which Includes Carl Menger, Ludwig Von Mises, Friedrich FA Hayek, And Others, Henry Hazlitt , Was A Libertarian Philosopher, An Economist, And A Journalist He Was The Founding Vice President Of The Foundation For Economic Education And An Early Editor Of The Freeman Magazine, An Influential Libertarian Publication Hazlitt Wrote Economics In One Lesson, His Seminal Work, In Concise And Instructive, It Is Also Deceptively Prescient And Far Reaching In Its Efforts To Dissemble Economic Fallacies That Are So Prevalent They Have Almost Become A New OrthodoxyMany Current Economic Commentators Across The Political Spectrum Have Credited Hazlitt With Foreseeing The Collapse Of The Global Economy Which Occurred Than Years After The Initial Publication Of Economics In One Lesson Hazlitt S Focus On Non Governmental Solutions, Strong And Strongly Reasoned Anti Deficit Position, And General Emphasis On Free Markets, Economic Liberty Of Individuals, And The Dangers Of Government Intervention Make Economics In One Lesson, Every Bit As Relevant And Valuable Today As It Has Been Since Publication I could not finish this book It is trite, misleading, and misstates history Here are my notes Notes on Economics in One Lesson, by Henry Hazlitt 1946 I m with Hazlitt on the broken window fallacy destruction of value needs to be added to the balance of new value created in replacing the destroyed.But the next step is NOT a logical extension p 14 But the money is turned out in this way, the the value of any given unit of money falls Not true Money has no value at all It is merely a means of storing value Macro is not micro.This fallacy is clear from the example he uses pp 14 15 But what really takes place is a diversion of demand to these particular products from others No, no, no The Second World War sparked a huge increase in the entire world economy, not just a diversion of demand from one thing to another Why Because there was a huge public investment in technology, which vastly increased labor productivity A single worker could produce vastly steel by the end of the war than he could at the beginning An increase in the money supply which matched the increase productivity of labor simply allowed that labor could trade goods efficiently It had nothing to do with diversion They key was public investment in the economy, where demand was artificially depressed as a result of the depression , and massive public spending, which provided people with the money to buy the goods they wanted Mere inflation that is, the mere issuance of money, with the consequence of higher wages and prices may look like the creation of demand But in terms of the actual produc tion and exchange of real things it is not This is absolutely true But the key is mere However, inflation tied to increased productivity does in fact reflect greater demand If I used to take three days to build a car, but now I can build a car in an hour, then cars have, in a very real sense, become cheaper I can produce a lot cars, and can afford to charge a lot less for them If the same is happening in every area of production, then everyone can buy a lot stuff, and be much better off However, if the money supply is fixed, or contracting, as happened during the depression, then I can not in fact buy , because there will not be enough cash around to store the value of all these new purchases Printing money makes sense, when there is a lot stuff being produced.He admits this point, bit then discards and ignores it There may be, it is true, offsetting factors Technological discoveries and advances during the war, for example, may increase individual or national productivity at this point or that But it wasn t just at this point of that It was worldwide.The following chapter simply builds on this fallacy p 19 Therefore for every public job created by the bridge project a private job has been destroyed somewhere else This is true ONLY if the problem is a lack of supply, rather than a lack of demand If the problem is lack of money and this lack of demand, then the government can borrow money, build a bridge, pay workers, and those workers will now have money to spend This money would not have been spent by anyone, but for the bridge and associated borrowing Corporations must make a profit Thus, if they are sitting on piles of money, they will not spend it to create demand, because too much of that demand would benefit competitors They will only spend the money if there is a demand for what they make And that demand requires consumers with money to spend Building a bridge solves that problem The government can spend the money, without worrying about whether it will profit from a specific expenditure, because taxes are paid by everyone, government will profit regardless of how the money is spent.Of course, a lot of government spending does actually increase wealth directly, by increasing the productivity of labor But the key is, government spending in times when there is pent up demand does not HAVE to increase efficiently How does one know if conditions are right Easy Look at corporate balance sheets if they have large cash reserves, it means there is not enough demand If they have unused production capacity eg., only running one shift instead of three , then there is no unmet demand At this point I had to stop, as it became clear he was simply going to continue building on these same fallacies, over and over and over I have better things to do with my life. Since I have been told see Post 3 that I have insufficiently supported my point in the original review below, I thought I should expand on it I have therefore added on Post 4 in full to this review Original ReviewI read the free copy made available here Well, actually I read the first three chapters and scanned through the rest to see if it was or less based on the same type of argumentation and reasoning It was Can t people tell that this is just rhetoric and argument There are a lot of causal and factual linkages being drawn that are being drawn purely on the basis of what Hazlitt thinks should happen Sorry, whether it s libertarian mind games or socialist mind games, it s all just mind games Either way, it s propaganda Not facts To back up my assertions, here are examples of what I mean The precaution of looking for all the consequences of a given policy to everyone may seem elementary Doesn t everyone know, in his personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end Doesn t every little boy know that if he eats enough candy he will get sick page 4 This is rhetoric Worse, it s emotive rhetoric, and typical of the type of argumentation that is contained in this tract On a hypothetical of government building a bridge But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefitted by a government project to others who are indirectly affected, a different picture presents itself It is true that a particular group of bridgeworkers may receive employment than otherwise But the bridge has to be paid for out of taxes For every dollar that is spent on the bridge a dollar will be taken away from taxpayers If the bridge costs 1,000,000 the taxpayers will lose 1,000,000 They will have that much taken away from them which they would otherwise have spent on the things they needed most Therefore for every public job created by the bridge project a private job has been destroyed somewhere else We can see the men employed on the bridge We can watch them at work The employment argument of the government spenders becomes vivid, and probably for most people convincing But there are other things that we do not see, because, alas, they have never been permitted to come into existence They are the jobs destroyed by the 1,000,000 taken from the taxpayers All that has happened, at best, is that there has been a diversion of jobs because of the project More bridge builders fewer automobile workers, radio technicians, clothing workers, farmers page 20 The underlined portions appear to be statements about facts and causes However, they are not They are inferential conclusions stated as if they are facts He assumes, based on his beliefs, that these events do actually follow Do they Where is the data that shows this Quite notably absent Now, I m not purporting to dismiss all the entire approach of the Austrian school of economics or relying on this book to trash it However, whatever good there is or might be in that school is not done any favours by this type of argumentation What I am against is purely and simply rhetoric and propaganda masquerading as fact Get into a tizzy over theory if that s your kick But for heaven s sakes, let s not pretend that theoretical assumptions and inferences based on those assumptions are the same thing as the price you paid for today s lunch or the number of shirts you have in your wardrobe Added LaterIt has been pointed out that I have missed Hazlitt s point by insisting on facts To quote One of Hazlitt s central points in the book is that people weight the result they can see higher than the one they cannot The things Hazlitt is talking about, by definition, cannot be measured in the way you re asking, because they are never permitted to come into being In other words, Hazlitt doesn t need facts as he has already made clear that he is entitled to imagine counterfactuals Well, if we are going to look at things that might have happened or not happened, here re some other counterfactuals for consideration Counterfactual 1 The government builds a bridge Because of the bridge, cost of transport across the valley drops It becomes economical to ship goods across the two ends As a result, commerce springs up on both sides, and the economy becomes vibrant thereby creating jobs The increase in income both in terms of jobs and profits generates revenue for the government that than pays for the cost of the bridge even without raising taxes Is this a fantasy scenario No, not really One good example is the Panama Canal, built by the US Army Corps of Engineers I don t think anyone can deny that that facilitated trade in an enormous way The internet is another thing that was developed by the US government and that has generated billions of dollars in new forms of trade and business Of course, according to Hazlitt these facts can t exist I guess we ll just have to modify reality then to fit the theory Counterfactual 2 On the other hand, a private company builds a bridge It charges a toll to cross the bridge It not only makes some money, in fact, it makes a pretty good profit, because it effectively has a monopoly on the fastest transport route between the two points This would also be the most beneficial form of rent extraction for the management who stand to benefit most from this kind of immediate return on investment It therefore has an economic reason to charge the highest toll that the market can bear But because transport costs don t go down by much, the impact on the economy is minimal Some extra jobs are created, but income is largely diverted into the costs of paying the toll of the company The company pays its management , who then fly off to Ibiza to party and spend their wealth The rest which is not spent is housed in a numbered bank account in Switzerland to evade taxes You think companies don t behave in a greedy, short sighted way Think Enron or Lehman Brothers Or Goldman Sachs Or hey, the original robber baron himself Rockerfeller You really don t have to try too hard Counterfactual 3 It s during a massive depression People aren t spending money and saving what little trickles their way A company looks into the possibility of building a bridge across the valley thinking it might be a good investment opportunity After doing its sums, it decides that the return on investment will be too low since the economy is rotten and people aren t consuming It decides against it, and instead decides to invest by bidding for a construction infrastructure job in China where the government subsidies make the job profitable Note, by the way, that this is a variation on what is currently happening with the solar panels industry in the US and China Any profits made from that job go into the pockets of a subsidiary set up in a tax free haven to evade US taxes something which makes jobs for lawyers and no one else and the management go on a spending spree buying a huge 20 million customised yacht made by a specialist company that employs 10 people Counterfactual 4 It s still a massive depression, and people still aren t consuming Deflation is destroying company profits but a brave company decides to invest in building a bridge The capital investment requires a bank loan After looking at the business plan, the bank refuses the loan because it decides the risk is too high Real life possibility Yep, just happened Lots of banks tightened lending even to solvent profit making companies during the Great Recession This hit SMEs particularly hard Not only were they not in a position to invest in new opportunities thereby creating jobs , some perfectly good companies faced potential shut down when revolving credit facilities were turned off Relying on revolving credit is a perfectly normal and legitimate business strategy to even out cash flow Counterfactual 6 The bank agrees to the loan But because the economy is in the doldrums and in deflationary mode, relative to the price of tolls that can be charged, the cost of the loan increases year after year This eventually causes the company to go bankrupt Because the economy is bad, no one wants to buy the bridge The inability to recover on the loan causes the bank to close shop destroying what savings people had stored in it To save costs, the company had cut corners on building the bridge which due to lack of repair collapses Real life example Oh, just look at any developing country where short sighted, unregulated companies look to make a quick profit Hey, I don t even have to look at a developing country I just need to look at Fukushima, Japan Management at the company that operated the nuclear reactor refused to put in much needed repairs so that they could suck blood in search of a better profit profile This has resulted in the costly nuclear accident post earthquake Counterfactual 7 Well, I guess if we are going to be playing faith based economics, why not an optimistic free trade scenario A company decides to build the bridge Its management, who are far sighted, prudent and economical because, you know, all management are like that , decide to pay themselves a small sum because they decide that over 20 years, the investment will reap rewards They decide to charge a small toll enough to cover interest and repayment of principle for the first five years to encourage people to use the bridge The low costs encourage people to use the bridge Even though the economy is suffering a brutal recession, and things look still uncertain, some entrepeurnerial people decide to throw off their caution and their gloom to start new industries by spending their capital that they had been diligently saving away during the recession This hiring raises optimism that causes people to go out and buy things instead of sticking to saving the extra earned This engenders a positive cycle causing the economy in the valley to boom After five years, a non predatory investment company because the predatory kind doesn t exist right looks at the low share price of the company due to its small profits and decides that while it would be a highly profit making investment to acquire the company and jack up tolls it won t do this because that would be bad for the economy After 10 years, the company decides to raise the toll by 20% taking into account the strengthening economy Each year after that, it raises the toll by 5% But the measured increases keep pace with the growing economy and don t add too much to costs This grows income all round.Man, I could just go on forever, but I won t If Hazlitt had truly meant to look beyond immediate to secondary consequences , all of the above are both possible and reasonable Hazlitt is being intellectually dishonest or just plain ideological when he cherry picks his counterfactual to give the impression that the only albeit unseen result of government projects is to destroy private sector jobs He argues that there is therefore no role for government in interfering with the economy since, by such interference, a better outcome has been prevented This assumption of there being only one possible outcome from such government action, and the corollary that the private sector will always give a better outcome, is patently false Why does Hazlitt choose this route I suggest that it was because he was interested in making a political and not an economic point I didn t think it was necessary to spell all these counterfactuals out, but perhaps I was wrong The point is that if you are going to go with counterfactuals, you can speculate endlessly ad nauseum of what might have been Ultimately, that s just scifi Life and the economy is far too complex and complicated for these kinds of simplistic answers Thanks but no thanks I prefer policy to be based on facts, not scifi But hey, different strokes right A Final CounterfactualBut perhaps I am being unfair to Hazlitt One situation where the economic effects of Hazlitt s example could play out as described by him is as follows We have an economy which is growing There is unemployment but growth in the private sector is healthy Confidence in the markets is high Consumer spending is on the up and up Companies are actively looking to invest and grow new businesses, so we anticipate that jobs will come slowly but gradually The government decides to build a bridge across a valley which is already criss crossed by five bridges, none of which are heavily utilised To fund this, the government announces that it will raise taxes across the board rather than funding it by using anticipated incoming tolls since it expects no one will use the bridge anyway Rather than outsource the job to the private sector, it decides to set up a Department of Building this Single Bridge To attract people to build this bridge where the economy has other jobs on offer, it has to offer salaries over and above what the private sector is offering Because of this, people give up jobs and companies are left strapped and short of labour New labour cannot be hired anywhere else at any price because immigration controls are watertight This puts companies in a bind The private sector starts to cut jobs anyway to service the additional costs of the taxes imposed as their profit margins are very small, and they are barely scraping by Planned investments are cut because of the additional costs Companies are incapable of finding better efficiencies of scale or different ways of doing things There is no innovation or entrepreneurs willing to work harder.Now, can this type of thing happen It s certainly possible Governments, especially corrupt ones in third world countries, do build white elephants to their own grandeur These are not usually healthy economies The private sector economy in such places tends to be moribund and inefficient, even before the white elephant projects Because they are not healthy economies, there is no inflow of foreign workers to take up the additional jobs and add to the economy because even workers from poorer countries are not attracted to work there So, Hazlitt s scenario can be true, but dependent as it is on a number of factors it s hardly the only possible scenario However, the important question is whether the facts on the ground at that point in time and in that particular situation match this scenario or are materially similar or whether the facts on the ground show something else For example The economy is declining and there is no consumer demand Companies are cutting back rather than expanding Credit is tight because banks aren t lending, so companies cannot invest to create jobs It s not even that companies want to create jobs Companies aren t hiring because a company that has only demand for 10 widgets that can be made by five people is not going to be hiring 10 people at half pay to do the job More likely, it will fire two of the five and make the remaining three people work harder for less pay in anticipation of a possible further decline in demand Wages are low and deflation has set in so anticipated future demand is equally low People that have jobs cling to them and save up for a rainy day, making do with the minimum in essentials, rather than spending.In that situation, a government could just leave the economy to contract and hopefully self correct at some time in the future Of course, this is okay because history and recent events have shown us that starving, hungry people don t turn to crime or otherwise create social instability that damages business confidence even Those that can will scrape up the funds, get in a rickety boat that may capsize at sea, and illegally immigrate to another prosperous country Of course, those that have no choice but to stay will vote that government in the next time the elections roll around Then again, if they don t, the government could just declare martial law and execute all these terrorists, rebels and insurgents Hell, it would even be an efficient way of getting rid of that excess labour supply. 5.0 STARS ALL THE WAY for this TERRIFIC book that I consider ESSENTIAL READING for anyone interested in understanding the free market theory that government intervention in the markets, no matter how well meaning the intent, almost always leads to negative consequences down the road Hazlitt, a prolific author and champion of free markets begins the book with the following lesson of Economics The art of economics consists of 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. Hazlitt states that a primary difference between good economists and bad economists lies in the fact that bad economists look only or at least primarily at the short term results of a policy and overlook longer term, secondary consequences of a given action or policy Hazlitt goes on to explain this concept using what I thought was an insightful example originally proffered by Fr d ric Bastiat and known as the Parable of the Shopkeeper A shopkeeper s son carelessly breaks a pane of glass in the shop window angering him Now suppose it costs 250 to repair the window A glazier comes and repairs the window, gets paid 250 and secretly blesses the child for improving his business Now let s look at how the bad economist and the good economist see this event differently The short sighted or bad economist will hold that, however it happened, the breaking of the window turns out to be a positive event for the economy The event brought work to the glazier and provided 250 to them which the glaziers will, in turn, spend on other items benefiting further businesses and so on and so on Thus, the child, rather than being a hoodlum is actually a public benefactor To this line of reasoning, Hazlitt says that the problem with it is that it looks only at the surface of the issue and sees immediate increased economic activity However, it ignores the unseen consequences.Alternatively, the good economist, Hazlitt argues, takes a wider and longer term perspective and says to the bad economist your analysis is limited to that which can be presently seen and takes no account of the longer term impact What is not seen is the shopkeeper who spent 250 on the new glass no longer has that 250 to spend on something else Rather than repairing a window, he could have, perhaps, replaced his old shoes, added another book to his library or possibly bought some new clothes Thus, the 250 that went to the glass maker was not spent with the shoemaker, the book dealer or the tailor In turn, the shoemaker, the book dealer or the tailor will not have the 250 to spend on subsequent purchases Thus, the good economist would conclude and here is the critical point of Hazlitt s main argument the breaking of the window helps ONE GROUP of people but it does so AT THE EXPENSE of another group and does not increase the overall wealth of ALL GROUPS Thus, Hazlitt argues very effectively in my opinion that good economics should be designed not to assist one group at the expense of another but to take only those actions that, over time, will have the effect of increasing the productivity and standard of living of ALL GROUPS Actions that increase overall productivity and standard of living for ALL GROUPS are positive such as technology innovations, new methods of manufacturing, increases in worker effectiveness Those that simply take from one group through taxes, tariffs, subsidies or credit and give to another in an attempt to affect the way markets work do not positively effect ALL GROUPS and usually lead to unseen and negative consequences down the road The above was just one example and a brief synopsis of this towering work of economic theory I hope it provides enough of the basic flavor of the work to encourage you to check it our I was greatly impressed and found the writing both engaging and very easy to follow HIGHEST POSSIBLE RECOMMENDATION This is a true Economics for Dummies book It can be useful in case you want something handy to bang over an economic nit wit s head on short notice Only such a dummy would be unable to puncture your simplistic arguments or need them in the first place Beyond that, it is hard to envisage much use for this volume, whether for serious discussion or for serious reflection So if the initial bang was not good enough and if you pack no other arsenal, you might as well get out of there, and fast This failing is primarily for want of breadth of scope and an explicit avoidance of addressing possible arguments After all, any book that promises to reduce an entire discipline to one lesson should not expect to have much effectiveness than a poorly aimed sledge hammer.Of course, there is a case for reading a book like this Firstly, it might have been useful and even an essential book back then Textbooks lack bite Sometimes a book needs to come along that takes a point of view and is not shy of an argument, and of drilling in a single pov to the point of exhaustion Which is probably why this book has lasted 50 odd years and is still only moderately outdated But to a modern student, such an unqualified approach can only seem like sophistry He is too jaded to believe in panaceas.