Book Review II: Economics in One Lesson

Overall Rating: 5/5

Estimated Reading Time: 8 hours (224 pages, ~2 minutes per page)

Why I choose to read -

• Recommended by Ron Paul
• Interested in expanding my knowledge and understanding of economics
• Lots of media coverage regarding minimum wage, unions, employer mandated health care coverage, bailouts, tariffs, CEO pay, interest rates, etc.
• In my limited knowledge I seem to gravitate towards the Austrian camp of economics, of which Henry Hazlitt identifies with
• Excellent Amazon reviews

Background -

• Subject:
• Refuting common economic misconceptions
• Establishing sound economic doctrine for long term, sustainable, local and national economies
• First Edition: 1946
• Subsequent Editions: 1962 and 1978
• Cultural Context
• Immediate post World War II rebuilding era
• Thousands of soldiers returning from Europe and Asia
• Author lived through Great Depression and Roosevelt’s New Deal implementation
• Bretton Woods Agreement (1944)
• Created International Monetary Fund (IMF)

• Author Details
• Born in Philadelphia, Pennsylvania
• Raised in Brooklyn, New York 
• Briefly enrolled in New York’s City College
• First employed by The Wall Street Journal. Also held positions at The New York Evening Mail, The New York Sun, The Nation, The New York Times, and Newsweek.
• Self identifies with Austrian school of economics

Reflections -

• What I appreciated:
• Extremely practical. Coverage of numerous controversial topics from minimum wage to special interest groups.
• Timely message.
• Today’s political and economic climate is extremely heated regarding which groups to economically favor and which policies to drum up support for.
• Entry level economic text providing logical and rational critique of past, present, and future policies.
• Easy to read and comprehend. Written to the lay person with no background in economics.
• Needed to understand implications and refute politician’s pet programs.
• Shortcomings:
• A little basic on inflation (did reference other work).
• Falls short on showcasing times to divide from proposed principles (war).

Key Messages -

• We MUST understand that productivity, not policy, increases real wages.
• Determining whether an action increases or decreases productivity is the key to solving most economic proposals.
• Profit provides an incentive to innovation and decreased production costs (efficiency).
• Greed and dishonesty are the innate problems mistakenly attributed to profit. Profit is not bad, rather it drives economic and technological expansion.
• It is essential for the health of a dynamic economy that dying industries should be allowed to die and growing industries are allowed to grow.
• Dying industries (or obsolete) absorb labor and capital that should be released for more efficient growing industries.
• One occupation can expand only at the expense of other occupations.
• It is the proper sphere of government to create and enforce a framework of law that prohibits force and fraud.
• Although capital accumulation (a.k.a saving) may prolong a contraction/depression, it will serve to create a greater boom when all the stored up capital is released.
• Hoarding is a symptom of economic recession/depression, not a cause.
• If people are “hoarding money”, interest rates will naturally rise to pull money out of mattresses; don’t need to force people’s hand with artificially low interest rates and inflation.
• Inflation leads to over expansion of some industries (consumer discretionary) at the expense of others (staples), resulting in misapplication and waste of capital.
• Inflation is the opium of the people :)
• Poor are less able to protect themselves from inflation, punishing the poor more than the rich.
• Government loans are given to the highest risk individuals whom private lenders wouldn’t touch.
• Places resources in the hands of less efficient entities.
• Increases tax burden.
• Market also self-selects the best lenders who make the least amount of bad loans; government does not have competition and bails itself out through taxation or increasing the money supply (inflation).
• Subsidized housing loans create an oversupply of houses and hurt real people and sound businesses by lowering their current property values (increased supply).
• Rent controls place a barrier to new construction, the exact thing which would decrease rent.
• Landlords will also no longer make repairs due to decreased funding.
• We cannot have maximum production without maximum employment; we can however have maximum employment w/o maximum production.
• Minimum Wage
• Exchange higher wages for unemployment.
• To raise wages we need to raise/increase the productivity of workers, not fix wages/prices.
• Increases prices of basic goods: food, clothing, etc.
• Charging higher prices for products hurts exports and helps foreign companies import (hurts trade balance).
• Eventually leads to tariffs.
• Encourages black market cash payments (decreased government revenue) when an individual is willing to work for less than minimum wage.
• Unions
  
• Strikes are effective if the employer cannot hire new employees; otherwise strikes are extremely damaging to all parties.
• Increased wages w/o increased productivity increases prices of products/services which decrease demand which leads to unemployment as less supply is needed.
• Unions in part lead to the destruction of their own jobs.
• Unions often are opposed to profit sharing or payment based on output or efficiency (productivity), opting rather for implementing seniority.
• Tariffs
• Tariffs benefit a particular producer at the expense of all consumers and all other producers.
• Eventually trade balances must be equalize. Thus importing will actually increase exporting of goods.
• Your neighbor is only willing to give you so much (imports) on promise of future repayment. Eventually you will have to pay your neighbor (exports) or your neighbor will stop "trading" with you eliminating both importing and exporting of goods/services.
• Tariffs decrease labor productivity by funneling resources ($ and work) into less efficient industries.
• Tariffs always reduce real wages by decreasing efficiency and decreasing productivity
• Tariffs/boycotts of goods produced without adequate environmental controls, slave labor, or unsafe work practices may be warranted.
• Understandably very difficult to implement and a better solution may be for individual consumers to research where and how the products they are purchasing are produced.
• Another potential solution would be businesses would open offering for sale only "fair trade" products. Very similar to fair trade coffee and diamond retailers.
• A problem solved efficiently and effectively by the private sector without the need for an expanded public sector.
• Rationing is an interesting topic, but one in which the black market may counteract.
• Black markets increase dishonesty and in the setting of price controls, inefficiently produce inferior and dishonest goods due to incentives.
• Prices of goods rise from:
• Increased demand
• Decreased supply
• Surplus of money
• With corporate income tax, corporations lose 100% of their losses, but may only gain ~65% of their profits.
• Makes them risk adverse leading to decreased rate of company expansion thus decreased rate of job creation.

To who would I recommend this book? 

• Everyone 13 years of age and older.

To who would I not recommend Economics in One Lesson?

• Those who have read in the last 5 years. 
• If been greater than 5 years should be reread.

Henry Hazlitt delivers a timely, well-articulated, and efficient message of the consequences of unsound economic policy. Serving as an excellent foundational text for common economic thought on a variety of mainstream issues, the need to read and understand Economics in One Lesson exponentially increases as more and more economic and political favors are given to special interest groups. Its messages should be read by all, multiple times, lest we forget and choose of path of slow, ignorant loss of our freedoms and economy.

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