Economics in One Lesson
In his book titled Economics in One Lesson, Henry Hazlitt makes many straightforward and truthful economic arguments. In this paper, I will be analyzing, summarizing, and evaluating the contents of his arguments while considering the differences of economic thought, the growth of economic fallacies, and the effects brought on by rent controls, minimum wage laws, and price fixing.
Hazlitt is worried because he believes that the many fallacies of economics are being preyed upon. He accredits them to human beings having secured interests. There is also an assumption in economics that the human race is carrying on interests other than their own. He believes the differences of a good and a bad economist is affecting the long run and short run policy. Hazlitt may be correct, but there are still various amounts of fiery debate and tension amidst the numerous economic schools about where the focus is aimed.
Henry is in favor of economists who pay close attention to the secondary effects, or the long run, over economists who solely pay attention to the direct effects better known as the short run. He proves that actions are followed by consequences, and economists of the short run quite frequently forget the “elementary truth”. All of the disagreements, if not the majority in his book, are established from this main belief: “The art of economics consists of looking not merely at the immediate but at the longer effects of any act or policy; it consists of tracing the consequences of that policy not merely for one group but for all groups”.
It is detrimental if you only look at the short-run because Hazlitt believes that viewing both long run and short-run is important. According to Hazlitt if you only look at the long run, it is considered vice or uncommon. As Hazlitt explains the short-run group as the “new” economists, it merely takes a look at single trees and doesn't pay attention to the forest and the rest of its affects. Even though a wish of Hazlitt's is to have his economic views spread across the world, he slowly realizes that spreading economic literacy is not a strong point for him. The use of "half-truths," as Hazlitt states, is generally spread in a better way through the ideas of the bad economists. On the other hand, the short-run, or “bad economists” (as Hazlitt calls them), choose not to judge long-run strategies by merit, but instead they make use of “intellectual debility and laziness.” He also touches base on subjects such as capitalism and laissez faire to try and take away from the argument.
Hazlitt initially makes use of what he calls the “broken window fallacy”. His thought process for this fallacy is to introduce the issue of what happens when you do not pay attention to the long run. He gives an example of a store's window being broken. At first, it was a good thing to the crowd that the window was broken because this meant the glassmaker would get more business. But the information they don’t see is the shopkeeper could have bought a new suit with the money that he is using to get the window fixed. Because it is not possible to see the suit with your own eye, people don't realize that the unseen is something that they have lost. The business is going good for the glassmaker in the short-run, but they could have obtained a new suit as well as a brand new window, which hurt them in the long run. Things could have been different if it weren't for the boys’ careless mistake.
To go along with the “broken window fallacy”, Hazlitt makes a few points about price fixing and its effects. Hazlitt makes another point about the increase of every day prices and “greedy” businessmen being at fault. Instead, these accusations should be blamed on policies of the people who hold a specific role in office. The federal government from this effect usually enacts a price control. The price of a good is binding if it is under the market price meaning the quantity demanded goes up and the quantity supplied goes down which leads to a shortage according to Hazlitt.
It is encouraged that people do not produce because the profit incentives will be taken away. People’s attraction to produce ignores the prices in the short run to be held down. Rationing even though we do not see it happen as much in the United States will follow a sequence of the dual price system. An example that is well known by our human race is the issue in the 70’s when gas was set at a binding price by the government, which led to the distribution of gas stations. Hazlitt views the result as redundant, because the prices of goods and the system of free market distribution of goods were not slowed down by price controls. If prices are held without restriction under the market level price, then a shortage will follow. Substitute goods are affected by prices as acknowledged by Hazlitt. The upward pressure from these rising prices will bring about more price control. The economy will then start to change into a totalitarian place. The government often intervenes in the market as an excuse for when a market is distorted from policy. This is also because of the secondary effects of policy. Sometimes the market will get really bad and be replaced by the black market. The new firms will produce lower quality goods because informal markets are not as efficient as the formal markets. New firms owe a lot to the law with one being their existence.
Hazlitt's argument on rent control is very opinionated because most all economists reject it. Today, there aren’t many that think of the importance of rent control but Hazlitt's view is beneficial for us to broadcast. His argument on rent control has to do with the supply and quality of house control and why it is so detrimental. Because the supply is not adaptable some argue that regular goods differentiate from rent control for this reason. The law of supply says that an increase in price will result in an increase in the quantity supplied but according to Hazlitt, it is the contrary of this theory. This law means that as the price increases for rental houses, some people will be lured in to conduct better housing and get rid of their shortage.
Rent control has a few consequences that are unintended in the long-run end of rent control. As the price ceiling is put into place, the quantity over time of housing goes down as the intentions to improve are taken away. This is the effect because profits are not where they need to be. Hazlitt makes it known that the relationship will most likely be forced between the renter, who is living in a deteriorating house, and the landlord whose profit is becoming non-existent unlike in the free market. Additionally, if it were allowed for prices to jump, many would save money and efficiently use space more wisely. If the price ceiling is effective, then the opposite is also valid. If there are numerous people living in an apartment, there is no desire to house that many if the price is under the market level. Capitalism will eventually be blamed for the deterioration of the areas afflicted by the price ceiling.
Price has a few names it is known by with one of them being a wage. As a result of price going by a "wage", people are quick to overlook the similar consequences between setting a price control on wages and setting price controls on goods and services. This issue will also take control of other prices, which will lead to bad effects in the long run. Minimum wage laws, according to Hazlitt, have become too biased in arguments physically and emotionally. Unfortunately, if a minimum wage law tries to cover numerous people, it may result in having no effect and could become more harmful. A minimum wage excludes employment under an unspecified number and does not produce unemployment. Unemployment is given to low-skilled workers when they are maintaining a low paying job. The government sets a standard for what is fair and if the low-skilled workers do not meet these requirements, they will not find a job. Consumers will seek substitutes when they are challenged with higher costs as the laws of economics states. Likewise, when we recognize the price of labor go up, we will start to notice more technology replacing labor.
Economic logic is certainly a strong point for Hazlitt as he justifies and clearly defends his arguments. He does not get tangled up in explaining what things should be rather he is confident in stating what things are as an economist. The success of an economy is solely determined on the merit of understanding economic planning in the long run. When this understanding is overlooked, many will observe Hazlitt's predicted philosophy come to light.