Review of the Book Economics in One Lesson - Essay Example

Economics in One Lesson Economics in One Lesson by Henry Hazlitt introduces the common man to simple and clear economic thought. The book gives an analysis of economic fallacies that determine how governments formulate their policies. This book gives an oversight of good and bad economists who are involved in policy making. It defines a good economist as one who sees secondary and general effects and a bad one as the one who only sees the primary effects. The fact that the public are not interested in listening to the long boring facts that happen to be the truth makes it easier for the bad economists to easily convince the public that the policies proposed are to their advantage. He argues that the art of economics involves analyzing primary and secondary effects these policies to all groups. The book discusses in details several fallacies such as high taxes, evils that take place in the public projects, minimum wage rate, effects of bailout, price control, tariffs on imports, rent control, trade union activities, regulations, and economic effects of government actions. Parity pricing, disbanding a large number of troops, commodity stabilization, and inflation are fallacies that are not given much weight but are included in this book. Hazlitt does not object public program spending but rejects the use of public projects as a plan of injecting money into the economy. He argues that public projects should be justified based on their importance to the economy. Money outsourced from the private sector by the government in the form of taxes is used to fund public projects. Using the bridge example, Hazlitt argues that creating a job in the public sector kills another job in the private sector. In such projects there are things which are not permitted to come into existence. In Chapter 3 of this book, Hazlitt argues that the secondary effect on public projects is in the form of how money used to fund these projects is diverted to other areas. Unfortunately, such news most likely will not be reported considering the kind of news that are being aired nowadays. Government never does as well in making loans as the private sector does. This is because people tend to be more careful with their own money (Tom the Redhunter para 8). Unfortunately, most of the time this fact is always hidden because bad loans made by the government are hidden in most federal spending. On the other hand, when banks collapse due to bad loans, it is announced all over the news. Political considerations further hide the bad loans as a result of government lending. This does not happen in the private sector unless the firm in question is affected by a politically motivated legislation. The community reinforcement act is an example of a legislation that advocates for loans to individuals who do not qualify. The book cites the Bush administration endeavors to ensure that banks lend more money. Based on the current times, Hazlitt argues that tariffs such as NAFTA are harming the economy. Hazlitt states that both consumers and producers are hurt by the tariffs. His argument is the opposite of the common notion that tariff affects consumers only. He explains that tariff forces consumers to pay much higher than they could have had to pay without it. This means the extra dollar spent due to the tariff could have been used elsewhere. Therefore, this denies producers of other goods and services that dollar. Tariffs are aimed at protecting local industries against competition from foreign goods. On the other hand, imports are good because they provide other countries with local currency necessary for buying domestic goods Hazlitt addresses the economic impact of government actions and remains silent on protectionism due to national security. He states that the real gain from foreign trade for any country lies in its imports and not its exports (Tom the Redhunter para 11). He supports his statement by arguing that businessmen imports products because they are cheaper for the consumers compared to domestic products. He therefore concludes that importation is a good thing. On the other hand, he argues that a country whose imports are more than exports is supposed to worry about its trade imbalances. The book also addresses the fallacy that cost of production determines the market prices. Hazlitt argues that demand and supply determines the market price. Bailouts are necessary to save collapsing industries. Hazlitt argues that even though the resources that could have been used for developing thriving industries are used to revive those collapsing, these revived industries will not attract investors anyway. He argues that it is something good when inefficient businesses closes down due to bankruptcy as it shows that the capital they have invested would better be invested elsewhere. On the other hand, he states that there are disadvantages for individual workers who have to meet their short-term needs. When discussing government price fixing and control, Hazlitt uses the recent government action in dealing with gasoline prices. No one wants to pay more for essential commodities. Profit is the main motivation for firms to supply products in the market and since the prices in this case are fixed by the government, it is only natural for one to assume the worst motivations behind the businesses supplying these products. Inflation occurs as a result of printing more money to expand industries and provide full employment. As a result, prices increase due to a lack of commodities. People blamed speculators for high oil prices experienced last year, but Hazlitt argues that far from being enemies, speculators are very essential to economic stability and growth. Speculators protect people from price fluctuations. On the other hand, he agrees that regulation of speculators activities should be regulated for the well being of the citizens. Hazlitt argues that we normally forget that in addition to being consumers, we are also producers and taxpayers. As a producer, everyone wants inflation so as to charge more for products they produce to justify salary increases, and as consumers everyone wants price fixing so as to pay less for the same goods. Hazlitt clearly states that Profits are only bad when other people are making them. The government's imposing a maximum price for goods in the name of rehabilitation of some industries lead to increased demand and decreased supply due to lack of capital. Consequently, consumers shift their unsatisfied demand to substitute products. Firms producing these products respond to increased demand by producing more. The government moves again to intervene and fix their prices too. The entire economy is held at ransom by price fixing and control. The market forces of demand and supply should be left to control the market. Liberal politicians and their enablers push for people friendly policies such as minimum wage laws. The primary effect of rent control is that poor people will have a better place to live in, and the secondary effect is that landlords have little funds to build more houses and fix up existing buildings. As a result, the same people who were supposed to be protected by the rent control measures, suffer from house shortage. Setting goals and objectives that are geared towards profit maximization is the only sure way of increasing wages without necessarily creating unemployment. Trade unions benefit workers more when they agitate for better working conditions than when they demand for increased wages. Agitating for increased wages has the same effects as minimum wage laws. If minimum wage laws were to force firms to pay certain wages, then these firms will reduce the development of the business. As a result, there will be reduced growth in the labor industry. Trade unions reject the introduction of self-sufficient machines since they are a threat to employment. This objection fails to acknowledge the fact that these machines have led to increased production by making work easier. Increased production in turn leads to higher wages and improved standards of living. It is common knowledge that full production equals full employment. Therefore, this argument ignores the fact that there are many people within the government who are fully employed without being fully productive. Hazlitt argues that saving is another kind of spending only that we give the money to someone else to spend on somewhat different products. This is apparently a new way of looking at things that I had thought of before. When we save our money in financial institutions, that money is lent to investors who use it for investment purposes. In conclusion, it is my humble request to the libertarian and conservatives to comprehensively read the book so that we can all make informed economic decisions and always advocate for the right policies. An in-depth analysis of this book will enable one to understand and appreciate the consequences of government action. The book lays emphasis on the importance of extensive analysis of both primary and secondary consequences of proposed policies. The dying free economy needs to be revived by removing unnecessary government intervention but still maintain important interventionism. The government needs to learn from past mistakes so as to make better informed decisions later.  Work Cited Hazlitt, Henry. Economics In One Lesson. New York: Herpes and Brothers Publishers, 1946. Print. Tom the Redhunter. “Book Review – Economics In One Lesson.”. The Redhunter. The Redhunter, 25 Jan. 2009. Web. 20 April 2013. Read More