This is the first in a series based on Henry Hazlitt’s Economics in One Lesson, a book originally published in 1946 which beautifully explains so much of economics from one very simple idea:
Therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to 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; it consists in tracing the consequences of that policy not merely for one group but for all groups. (p 5)
Many economic fallacies all come down missing the wider impact of policies enacted for the benefit of the few, often at the cost of the many. Hazlitt again,
Those fallacies all stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group to the neglect of other groups.
Hazlitt’s book continues by expanding this idea and applying it to areas such as taxes, minimum wages laws, trade barriers and more. As I go through these topics, I’ll attempt to bring them to life with modern examples.
Those wishing to read the original without my added ramblings can download the book for free from the resources page.
The book begins by a restatement of Bastiat’s famous broken window fallacy, written in his 1848 essay What Is Seen And What Is Not Seen. It’s nicely summarised in the video below:
In this story, a bakery window is broken by some local rioter. While at first the townspeople are sorry about this destruction, some began to realise this means more business for the glazier, and thus see the act of destruction as a blessing in disguise – this is what is seen. Although the baker is upset about needing to pay for a new window, many see this as a “stimulus” for the economy. What is forgotten is that the money the baker was forced to spend on a new window was actually being saved in order to buy a new suit – and so the tailor loses this potential business – this is what is unseen. If the window wasn’t broken, the baker could have had a window, and a new suit, rather than just a window.
The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye. (p 12)
As Art Carden says in the video – if breaking windows really is good for the economy, shouldn’t we desire greater destruction of property?
State that destroying things actually destroys wealth and is bad for the economy may seem like common sense – but there are countless examples of modern statements informing us of the “blessings of destruction”. 9/11 was to do “some economic good”, the Japanese tsunami will create thousands of jobs in order to rebuild, and chaos brought to Britain in recent snowy winters was also supposedly positive.
I’ll look and these and the myth that World War II ended the Great Depression in the next in the series: Do War and Natural Disasters bring prosperity?