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Henry Hazlitt published his epic ‘Economics in One Lesson’ in 1946. Lew Rockwell called it Hazlitt’s “most enduring contribution”; Ayn Rand called it a “magnificent job of theoretical exposition”; Friedrich Hayek and Milton Friedman showered high praise. The simplicity and clarity with which Hazlitt explains essentials of public choice economics and in the process blows away every single Keynesian myth and fallacy is truly unique. It is easy-to-read, no-jargon, yet contains such a simple, yet powerful message with watertight reasoning, that anybody without any formal training in economics can comprehend and appreciate. It sold over a million copies and continues to sell or get downloaded even today.
And yet, what we see in economic policy and public choice world-wide, even in supposedly free-market countries, is outright repudiation of Hazlitt’s lesson and total embrace of the very follies that he railed against. Be it the love for destruction and war as a form of economic stimulus (the ‘broken window’ approach first presented by Frédéric Bastiat), the mindless pursuit of public spending on useless projects as an engine of GDP growth and employment, the brazen application of tariffs as means to ‘nurture’ nascent industry or save an ailing one, the direct or government-guaranteed loans to dubious initiatives that private lenders would not touch, the enduring myth that automation and innovation lead to unemployment and the state must intervene to ‘alleviate’ the pain, the propensity for deficit spending and non-stop debasement of the currency in the quest of, in Hazlitt’s own words, “The Fetish of Full Employment”, the unshakeable belief in the merit of ‘Export’ even if it means subsidising consumption for foreigners at the cost of the your own citizens, the maze of subsidies, guarantees, waivers, price controls and restrictions in agriculture in the name of ‘protecting’ the farmer, the constant urge to intervene in the markets through taxes and regulations with the purported aim of ‘protecting’ the consumer but in reality causing distortions in the price discovery mechanism that eventually leads to reduced output and lowering of the overall societal welfare, and finally, the visceral hatred of profits and the profit motive and the refusal to see wealth creators as benefactors of the society, every action and intent of the state and every position of the academic elites is a testament to the relevance and timelessness of Hazlitt’s 200-page tome published 78 years ago and which, one suspects, will continue to be relevant for decades to come!
Hazlitt begins his ‘Lesson’ by distilling his message in a single sentence: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; … in tracing the consequences of that policy not merely for one group but for all groups”. A common thread among all these missteps, as Hazlitt explains, is the monomaniacal focus on only one half of a transaction, and complete disregard for the other half of the same transaction, which he derides as ‘economic half literacy’. Thus, we have the belief that war and destruction encourage economic activity, ignoring the opportunity cost of lost resources that could have been used for increasing societal welfare instead of restoring what already existed, or the import tariffs to protect domestic industry at the cost of domestic consumers who must now buy a more expensive (and likely of inferior quality) locally made product. Or take the imposition of minimum wage law with the aim to improve the living standards of the wage earners, ignoring its secondary consequences of widespread unemployment among the low-skilled labour and forced automation.
Hazlitt reserves his most scathing criticism for interest rate manipulation and money-printing, which invariably leads to inflation, which in itself is a form of taxation that falls on various groups unevenly and unpredictably. As he explains: “…inflation does not and cannot affect everyone evenly. Some suffer more than others. … Inflation is a kind of tax that is out of control of the tax authorities. It strikes wantonly in all directions.” How true, even after seven decades and yet, nothing learned.
Why has this ‘Lesson’ largely fallen on deaf ears? It is the compulsions of political incentives, which lie in pandering to powerful and vocal special interests, the costs of which are mostly unseen as they are diffused over a large population. Such actions have the support of the academia, which is today simply run over by Keynesian charlatans for whom no amount of state intervention in the economy is enough. The society ultimately pays the price in terms of lost output and hardship, but the policy maker (mostly) escapes the consequences. The situation is unlikely to change, until Hazlitt’s “Forgotten Man, who is always called upon to stanch the politician’s bleeding heart by paying for his vicarious generosity” gets our collective attention.
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