Economics Essay, Research Paper
Economics in one Lesson Economics in one Lesson is Henry Hazlitt s attempt to educated people about general economic principles and the penalties of ignoring them. He goes into a thorough analysis and dissection of economic fallacies that the American government has implemented. Every government agency is influenced by these errors, so every American is influenced because we all pay taxes. The major economic fallacy is overlooking secondary consequences. There are good and bad economic policies. Good economics looks beyond just the immediate consequences and sees how a policy will affect all groups. Bad economics sees only immediate and direct consequences ignoring the indirect and long term repercussions. In the field of public economics, elementary troops are ignored “The art of economics consists in looking not merely at the immediate but the larger effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”1 All fallacies, therefore, come from two main errors, looking only at immediate consequences and looking only at the consequences of a particular group while neglecting the consequence it will have on others. This concentration on immediate benefits to a special group ignores the long term effects on a community as a whole. Ignoring the long term effects has great consequences. Bad economics are easily implemented by politicians because they present their ideas to the public better than politicians with good economics. Bad economics presents immediate gratification while good economics takes time to be seen. The case of the broken window is a good example. While business seems to be generated in the repair and/or replacement of a broken window that money is actually “stolen” from where it might have been spent otherwise. “Some, therefore, would say since there are net benefits and small acts of destruction, they see enormous benefits in enormous acts of destruction.”2 This destruction theory says we are economically better during war than peacetime. It confuses need with demand. Because war destroys so many things it is bad for a community because the destroyed things have to be rebuilt rather than new things being invented. War has changed the direction of money spent not actual purchasing power. A huge fallacy of good economics is the use of government to create new jobs. When large numbers of people in a community are unemployed, the government will often create a job for them to do. Bridges, apartment complexes, and parks have been built or created to employ people. This, however, puts a larger tax burden on those already working. If this project is not more necessary than what the taxpayer might have spent his money on, the government is actually stealing money from the taxpayer. Doing this is foolish. Governments tell the lie that the wealth created by government spending will fully compensate the wealth destroyed through taxes. Taxes, however, are not equally assessed and unemployment in the private sector rises. The taxpayer is discouraged as he loses more and more control over his money and the quality of his work often goes down. The government also encourages others to do bad work. Farmers are paid by the government to keep their products off the market until prices are high enough for them to make a good living. The government will loan money to people who are poor credit risks; people who have been unable to obtain loans from banks because they have not proven themselves to be financially wise. The government will take risks with money that is not theirs because there is no accountability. This is why private loans are better; people are accountable and must produce to pay the loan back. This accountability and need for greater profit to pay the interest and principle on a loan led to an increase in technology and a lower cost to the producer. With this increase of technology came the fear that jobs would be destroyed as people were replaced by machines. This fear may be true at first, however, it should challenge people to find other work. Technological improvement improves a product, reduces its cost, and increases production. This in tern, raises the standard of living, increases economic welfare, and then encourages more invention and industry creating jobs for those who are unemployed due to the original technological advances. With potential profits high, the danger is in hiring too many people. A successful business man knows that the greatest profits are achieved when there are a minimum number of people employed for the maximum amount of product produced. This keeps prices as low as possible and available to more people. This will increase production and profits to the manufacturer. If more people than necessary were hired, the cost would be higher, but fewer people would be able to purchase it. While it seems fewer people would be employed, with the increased demand would cause more people to be hired to meet that demand. Production creates work and opportunity. There is a fallacy that says there is only a certain amount of work to be done. After a war or a military conflict, the American government has been slow to disband their troops. The government has felt there were not enough private jobs to employ these people, but the opposite would actually happen. The government would have to cut taxes because the troops would not have to be paid. The taxpayer would then have more money to buy more stuff. People would have to be hired to make the stuff the taxpayer wants. This would be the troops no longer necessary. The same thing happens when extra government workers are hired for a specific purpose. Once the purpose is completed they should be let go, not kept on. Again, taxpayers would get a tax cut enabling them to buy more stuff causing a need for people to be hired to make the stuff. Those people would be ex-government workers. There are certain government workers that are necessary, but this number should be kept to a minimum for maximum efficiency. “When your money is taken by a thief, you get nothing in return. When your money is taken through taxes to support needless bureaucrats, precisely the same situation exists.”3 The economic purpose and goal of any nation, company, or individual is to get the greatest result from the least effort. Unemployment is never wanted, but full employment must bring about maximized production. This must be based on consumer demand. None of us want to be naked tribesmen hunting for food with a poisoned spear. All of production should be to raise the standard and quality of one’s life to ultimately further the gospel of Jesus Christ. The American government only wants to have a comfortable standard of living with no purpose. So at times they protect certain producers. These protections are called tariffs. Tariffs were originally placed upon the American colonies by the English government. Present day tariffs are worst than those. In trying to protect American merchants and manufacturers, the government has actually prevented possible expansion. Wise consumers buy the best product for the least amount of money. I f a foreign country is able to produce a product cheaper than American companies, Americans should be able to purchase it for that price. They will have the extra money to buy something else, possibly American made. In buying something from another country, now the other country has American money to buy American stuff. So the only person who benefits from imposing tariffs on imports is the government employee who collects the tax. The government gets extra money, but the American employee does not get a raise. So, the tariff seems to be good for the producer at he expense of the consumer. The tariff does protect certain producers, but hurts producers who might have a large amount of goods that would be exported. The tariff actually changes American s production. You can easily see the immediate benefit of the tariff on a special group, but everyone else loses. The removal of all tariffs would hurt those who had previously been protected, but others would benefit greatly. The tariffs that are specifically money makers or those which keep American defense strong could be necessary, but tariffs never create employment, increase pay, or protect out way of living. Every country feels that the more they export the greater the profits. If we import goods from other countries, rather than buying American made product, we think American producers will lose money. Unless we buy imported goods, those foreign countries will not have the money to buy out exported goods. So free trade between countries benefits everybody. John Stewart Mill stated that, “The gain in foreign trade to any country lies not in its exports but in its imports.”4 Parity, noun, the state or condition of being the same in owner, value, rank; equality. American economic history has tried to instill parity for agricultural product. Because agriculture is the foundation for all other industries, it has been felt it must be preserved. Parity has kept an increase of productivity and agriculture to a minimum. Even though the amount of food product has increased because of fertilizers, pesticides, disease resistant varieties, and better equipment, government has tried to maintain parity through artificial means. The farmer may get higher prices for his crop, but less will then be sold. When the government gives parity income to farmers, private workers pay for it through taxes. This is a special privilege farmers should not have. If their prices were regulated based on customer demand like everyone else s, they would not need government intervention.
Some in congress feel that certain industries should be saved no matter what. Congress tried to save the coal industry with the Guffy Act. This resulted in fixing 350,000 different prices for coal. The consumer answered this absurdity by finding other sources to heat their homes. The coal industry died and we now heat our homes with product that do not pollute the environment the way coal did. The reasons why people feel some industries must be protected are many. They feel free competition will pull down the economy, but if the industry is kept alive, everyone will benefit. A dying industry may get a direct subsidy from the government. This is just again, steeling from one and giving to another. In keeping this industry alive, money and people are kept out of industries where they could be more efficiently employed. The biggest question is when is dying, why should it be kept alive. If the industry is allowed to die, those people will be employed in a more advanced industry. The book talks about the horse and buggy trade. It died as the automobile industry was born. This has been extremely beneficial to the American economy “Improved methods of production must constantly supplant obsolete methods, if both old needs and new wants are to be filled by better commodities and better means.”5 Good economic policy must consider not only the immediate results but long-term effects as well. While the primary consequences are easily seen, secondary consequences must be calculated. The immediate effects on a special group are obvious, but before any economic policy is put to work, its long term-effects on all people should be analyzed. Studying long-term effects takes a lot of time and energy and, therefore, is not always done. This is known as the fallacy of isolation. We produce things to be used, not for profit. This is where the conflict between engineers and business men arise. The engineers can mass produce but the business men want a profit. It is when the two work together that the best economics result. Prices should be fixed based on demand. Bureaucrats should stay out at any type of price fixing so that industry can regulate itself based on supply and demand. This will also prevent bureaucrats from buying votes from special interest groups. The intervention of special groups has jerked politics around in many ways. The government at times attempts to raise the price of certain product to where it will eventually stabilize. They feel the low price is bad for the producer. Congress has actually loaned money to farmers, which is rarely paid back so that they do not have to put their product up for sale until the price goes up. The state has also bought product at a high price to keep the profits for the producer high. This buys the farmers vote, but does have adverse effects. The public has to pa a higher price for food and, therefore, has less to spend on other products. In a competitive market economy, it is the inefficient producers that are driven out of business. Good producers will then be able to expand their production benefiting both producer and consumer. When the government pays farmers to not grow as much food, a taxpayer is actually paying for nothing. At the totally opposite of stabilizing prices, is the government’s attempt to hold prices below their natural market levels. The consequences are that people are able to buy a lot of the product, however, this reduces the supply of that product. Because there is no profit, production is low. The government tried to control prices during World War II. They used rationing, cost-control, subsidies, and universal price fixing. Rationing leaves to a double price system by limiting the demand and controlling production. Cost control leads to more price fixing and an attempt to be fair. So then the government tries to compensate subsidies to those at the lowest level, farmers. These subsidies are paid for by the taxpayer who has gotten nothing for it. These efforts by the government to keep the economy moving results in black market products. These black market products harmed long established producers. In order to survive they had to break the law. Political manipulation of prices discourages and disrupts employment and production. The government has also tried to regulate the price of rents in certain places. When a landlord is unable to charge a reasonable rent that allows him to keep his property in good repair, pay his taxes, and make a living; he will often neglect the property. The politicians here are buying the votes of a tenant because there are more of them than landlords. The landlords are abused by the system and in return tend to abuse their tenants by not keeping their properties in good repair because they do not have the money to do it. Minimum wage laws have also been put into effect by the federal government. All this does is increase the cost of a product. There is no net benefit. Because some benefit can not afford to pay a given minimum wage they will be forced to lay off workers, decreasing production, and raising the price even more. Those that have been laid off need to be taken care of and the government steps in with welfare. This again is paid for by the taxpayer and gets nothing in return. Unions also have tried to raise wages. The original purpose of a union is to improve working conditions and to make sure that employees were being paid fairly. Again, government has come in to buy votes by insisting that labor unions have power in private companies. By being allowed to legally strike or refuse to work until certain conditions are met, a worker has power over his employer. Workers should be paid what is fair based on production and profit, not politics. Powerful union leaders have felt that the wages of an employee should be enough that they could easily buy the product they manufacture. That would mean that cadillac manufacturers should be paid more than Hyundai manufacturers even though they do the same job. Others think there should be an average between different industries. In our economy, everybody s income, is somebody else s cost. As wages go up, wages go up with no net gain. Wages and prices always hit an equilibrium if the government stays out of the equation. The best prices of any product are prices that encourage a lot of production, therefore, a lot of sales, therefore, full production and full employment. Enough profit must be made by the companies to encourage greater development. Profits are essential in an economy. Profits dictate what is produced. If there is no profit, either a product will cease to be produced or a more efficient way to produce it will be derived. This is how true profits are achieved. The largest profits are made by companies that are able to keep their production costs lowest. This ultimately serves the entire community. If a lot of money is best for the community, should the government just print out just a bunch of money and give it out to anyone? No, this would cause inflation. Wealth is not cash on hand, but rather what is produced and consumed. Webster says inflation is an increase in the general price level resulting in a decline in purchasing power. So handing out more money is not good economics. Some economists think inflation is good. They think exports will be increased, while imports hindered, but we have already shown how this is not true. The government printing money to purchase a product for government use does benefit a special interest group. This benefit comes at the expense of the taxpayer. It distorts production leading to the growth of some industries and a decline of others. Some economists feel inflation causes industry to be more productive, but what it really does is change the relationship of prices and cost. Inflation is like a tax in that a special interest wins while every other taxpayer loses.Possibly the largest economic fallacy ever told is that saving money rather than spending it is bad. Whether someone purchases a product or puts money in some type of bank savings account, both are fueling the economy. The person who purchases a product is directly helping the economy. The person who has money in a savings account is indirectly helping the economy. His money is available before bankers to loan to others so they can directly help the economy. This is another example of secondary circumstances having an economic effect.The emphasis of this book is that secondary effects that are not easily seen are as important as the primary effects that are easily seen. The science of economics must realize the effects of a policy of everyone in the long term, not just the immediate effects of special interests. Good economics must recognize the implications of every policy. The economy can regulate itself based on consumer demand and supply if the government stays out of most policy. Government intervention in the form on subsidies, tariffs, or parity only hinder the natural economy. The economy of the United States is so full of government regulations that it seems only a total crash in our entire economic system would bring about the reform necessary for our country to be economically sound. Footnotes 1. Economics in One Lesson, Henry Hazlitt, Page 17.2. Ibid, Page 25.3. Ibid, Page 704. Ibid, Page 895. Ibid, Page 102