
Economics in One lesson - Henry Hazlitt - mrlebowski
http://jim.com/econ/contents.html
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dantheman
I can't recommend this book highly enough. I own multiple copies so that I can
lend them out; it highlights fundamental economic fallacies, and introduces
holistic/systems thinking to the general population by reminding the reader to
focus on all those affected.

~~~
nas
Seconded. It's a bit idealistic but is also very simply and dramatically
demonstrates how poorly most people understand economics. Politicians are
especially serious offenders, possibly because even if they know better,
solutions that are economically silly are often publicly popular. For example,
the "Cash for Clunkers" car programs are not a good idea. Although this book
was written years ago, the exact same boneheaded policies are implemented
today, advanced by the exact same nonsensical arguments.

This book will make you very frustrated when you have to listen to politicians
talk about economics. :-)

~~~
nazgulnarsil
the idea of politicians as people who learn about all the impacts and nuances
of legislation so we don't have to has been proven false for _thousands of
years_. the greeks knew that this representative democracy idea was crap. for
an example of a functioning government please see the Venetian Republic (the
birth place of proto-capitalism).

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mrlebowski
As the title says: The Shortest and Surest Way to Understand Basic Economics!

I love the way author uses simple language to describe complex economics
concepts.

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bcl
This is an excellent book, I read it a number of years ago in print form. Is
this html version legal?

~~~
benatkin
I like to think someone who owns jim.com, a very good domain name, and puts up
good content with nice, clean formatting, knows what he's doing.

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tybris
It could have been a great book if he had put his own views and opinions more
to the background.

Put in a modern setting he's clearly a libertarian economist with little
regard for the success of the modern European system in ensuring availability
of essentials (food, health care, housing), while stimulating competition on
non-essentials (mobile phones, internet access, commercial real estate).

Still a good read though.

~~~
philwelch
It always bothers me when people who are obviously pushing a libertarian
agenda market "economic arguments for libertarianism" as "economics".

I'm vaguely libertarian, and even mainstream economics implies a lot of scary
libertarian things (minimum wages and rent controls have terrible side
effects!) but fundamentally, economics is an "is" and libertarianism is an
"ought". Seeing them mixed together is broken.

This book has lots of good things in it, but it's clearly trying to push you
in one direction rather than simply educate you.

~~~
mrlebowski
tybris & philwelch: I am new to economics, your comments make me feel I am
started with the wrong book! Can you recommend some places to start learning ?
Thanks!

~~~
philwelch
Keep in mind you're getting one side of the picture from Hazlitt. Hazlitt's a
libertarian--he thinks less government is better. So he's not very prone to
give you much evidence that sometimes, governments can do desirable things,
just because that's not his bias.

The best advice I can give you is to try and separate facts from judgments.
Take the minimum wage. It's well understood that minimum wage laws cause
unemployment. It doesn't _necessarily_ follow from this that you don't need a
minimum wage, though. Without a minimum wage, you might have twice as much
unskilled labor working for half the pay, but all of them are below
subsistence level and require government assistance. Whereas a higher minimum
wage means some people can be dropped from the rolls entirely while others
have to collect more. Or maybe you change the welfare system. It's a judgment
call which tradeoffs you want to make, just like engineering. There are
obvious things (command economies are pretty crap, just like bubble sort is a
crap algorithm) but there are more subtle things (like time/space tradeoffs
that dictate different algorithms for different applications) that depend on
what you're trying to do.

Likewise, consider health care. Some people think it's a moral imperative that
a wealthy society provide health care to everyone. Economics asks some tough
questions--at what cost, what level of care do we provide--but it also
provides answers--what are different ways of doing this, and what are the
cost-benefits?

Economics at its best is a science. It doesn't dictate your goals to you, it
just warns you of some natural constraints. You might say, "I believe in
minimal taxes and don't care about poor people who need housing and health
care but can't afford it." Well, economics tells you that's very feasible. You
might say, "I believe in minimal taxes and a robust welfare state." Economics
tells you there's no free lunch. You might say, "I believe everyone should
have health insurance that meets these requirements." Well, economics says,
you could give everyone health insurance, or you could have a market in health
insurance and give people vouchers to pay for it, or do any other thing you
can think of, but here are the effects and tradeoffs of those policies.

In terms of what in economics to study? Microeconomics seems better grounded
than macro. Behavioral economics seems promising. Austrian is a mixed bag--
there's some stuff that promotes good economic reasoning but then there's also
gigantic apologias for anarcho-capitalism based upon some moralistic
conception of natural law that totally mix up the science of causes and
effects with the moral aspect of goals and intentions.

I find that separating causes and effects from goals and intentions is a big
problem not only in economics but also in ecology. There's a difference
between saying "I want to sustainably maintain an environment that is good for
human life" and "I want to preserve the environment mostly the way it is
without human tampering", and an environmental scientist will recommend
different policies based upon which goal she implicitly has in mind. Maybe
some endangered species can go extinct if there's a better tradeoff for
humans, or maybe not. Likewise with economics: there's no such thing as
"economics says policy X is bad", only "economics says policy X has effects
Y".

~~~
Empact
> Whereas a higher minimum wage means some people can be dropped from the
> rolls entirely while others have to collect more.

You're falling prey to the fallacy that Hazlitt describes, focusing on some
specific group, and for the short run, when in fact they harm the people
generally and the poor substantially and indefinitely via forced unemployment.

In the minimum wage case, with people forced out of work by a policy
essentially making it economically untenable to hire certain low-skill
workers, or as many of them, you have fewer people engaged in productive
labor. Society incurs a loss to its productive capacity, and our general level
of abundance is reduced, including for those on the margin who aren't forced
into unemployment.

Meanwhile, those who would be gaining skills and experience in the course of
work are instead unemployed and idle. This too detracts from our human capital
over time, by reducing the skills and thus earning power of the poor, the
ostensible benefactors of minimum wage laws.

This isn't a judgment call, it's exactly the sort of thinking Hazlitt warns
against.

~~~
philwelch
Economics is great for telling us about these hidden costs, and I agree the
minimum wage example is a good example where the costs outweigh the benefits.
But it's not a clear-cut libertarian case of "all things that cause economic
inefficiencies are bad policies". All economics can tell us is approximately
_how much_ inefficiency, for instance, would be caused by subsidized food
stamps. It's up to everyone to learn what that cost-benefit is and decide
whether we can afford to subsidize some folks' food purchases. (Food stamps,
and voucher schemes in general, seem to work well in my opinion.)

Or conversely, if we come down and say we want to reduce sulphur dioxide
emissions, we might say, "Oh, let's inspect and license all the smokestacks in
the US and write each of them permits every year." Economists will shake their
heads and say that's an inefficient allocation method, and then they will
invent cap-and-trade, where we sell them permits and let them trade the same
fixed number of permits, so that SO2 emissions stay under a determined
scarcity, but that scarcity is market-allocated. We've been doing that with
SO2 for years and it's one of the great recent triumphs of economics.

~~~
Empact
But you've ignored decades of economists explaining how to do social programs
in an efficient way. For example, Milton Friedman's Negative Income Tax would
take the place minimum wages and food stamps with none of the administrative
overhead or perverse incentives (i.e. the "welfare trap," where earning an
extra dollar per day results in losing more than a dollar per day in benefits,
thus discouraging career advancement).

And wrt sulpur dioxide, economists since Pigou have been arguing not for cap-
and-trade, but for pollution taxes to right externalities. And if you go
beyond Pigou, you don't find cap-and-trade, but Coase, who argues that if you
structure the system properly, you don't even need intervention to right
externalities, the actors will find an efficient arrangement on their own.
Even beside this, Libertarians have no principled opposition to righting
negative externalities: it's one of the few proper roles of government.

In the end, cap-and-trade is preferred not because it's the most effective,
but because it's the most politically expedient. Pollution/Source fuels taxes
are cheaper to administer, have better incentives for bureacrats to be
faithful, and achieve the same ends. They're _better_ and economists will tell
you so. The only reason cap-and-trade is the solution-du-jour is because it
doesn't include the word "tax" in it. This is why conservatives are
identifying it (correctly) as "Tax-and-trade."

You're not arguing against libertarians, you're arguing against the decades of
economists you (I'm sorry to say) don't seem to know.

------
mhb
Also delightful, but significantly more advanced is David Friedman's _Price
Theory_ :
[http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC...](http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC.html)

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tome
That's not so much a lesson as an idealized (and in practice unachievable)
mission statement.

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nazgulnarsil
if anyone is looking for even simpler material to introduce economics to a
broad audience I'd recommend the comic written by peter schiff's father: How
an economy grows and why it doesn't Peter is reworking it for reprinting. I
plan on buying multiple copies to lend out.

PDF warning: <http://freedom-school.com/money/how-an-economy-grows.pdf>

~~~
tome
An entertaining comic which covers the basics well but throws in the
complexities of reality as an afterthought stated as fact with no
justification:

"Basic economic principles do not change with the size of the economy ...
direct relationship between self sacrifice, savings, credit, investment,
economic incentive, social and economic progress is always the same!"

Yeah right. As an introduction to basic economic principles this comic is
great, but it takes a firm position on aspects of economic theory that are
very much up for debate. I'd call this propaganda.

~~~
nazgulnarsil
in the absence of strong evidence that magic properties "emerge" as a result
of dealing with larger scales I tend to believe the simplest explanation.

------
justin_vanw
>The first thing that happens, for example, when a law is passed that no one
shall be paid less than $106 for a forty-hour week is that no one who is not
worth $106 a week to an employer will be employed at all. You cannot make a
man worth a given amount by making it illegal for anyone to offer him anything
less. You merely deprive him of the right to earn the amount that his
abilities and situation would permit him to earn, while you deprive the
community even of the moderate services that he is capable of rendering.

Ok, I can't let logic like that slide by. I'll just list off why it is totally
junk reasoning:

\- Assumes that worker is getting 'what he is worth to an employer' currently.
This would assume that the worker and the employer are on an equal footing,
both in power (workers can be coerced and intimidated into lower wages), and
intellect (workers can be tricked and bamboozled), and in information (workers
know less about the going rates for labor than an employer, if only because
employers have lots of employees, but an employee has only one employer
usually). \- Assumes the worker is optimally employed to maximize earnings.
Lots of people work in fields because they fell into that sort of work, and
learning a new language or new skills is hard or unnatural to them. Being
fired from such a low paying job may make developing other skills a necessity.
Think of the guy working at McDonald's who could be trained to be a lineman
for the electric company or a truck driver, or the truck driver who could (if
he had more ambition, and was willing to give up an income for a few months to
go to trade school) be a mechanic on jet engines. \- If everyone is held to
the same minimum wage, everyone's costs, therefore the price they charge, goes
up. Charging more money lets them afford the more expensive workers. \- If
workers get more expensive, long term investments in mechanization become more
attractive. This lowers costs in the long run, and creates jobs that pay more
than the original menial job. All that extra money everyone has because the
price of everything is so low due to mechanization means they have plenty of
money to spend on luxuries they would never have previously considered, this
is called 'Starbucks' and employs lots of people. \- Even if the worker does
lose his job, modern unemployment insurance schemes will make that relatively
painless to the old 'free market' system of going to debtors prison or
indentured servitude.

A-priori economic arguments are bullshit. It is perfectly possible to prove
convincingly that in a system without a government private security firms
would enforce law and order. We can be convinced of this because we don't know
all the reasons this fails in practice, due to our imperfect understanding of
the world. The fact that in every single instance that there has been a lack
of a functional police force for more than a few hours things go totally
batshit insane should render any such 'convincing' argument totally absurd.

~~~
sokoloff
Nothing in the original argument of the bad effects of minimum wage required
that an employee be paid their true worth. The comment you first quote merely
presumes that an employer will not pay MORE than what an employee is worth,
and all of your "the employer has more information and power" arguing is
supporting, not refuting, the original claim.

~~~
justin_vanw
There is no 'true worth'. The value of an employee is what is paid on the
market.

Since the relationship is asymetric, with the employer knowing more, being
more capable of negotiating, and probably more savvy and intelligent, it is
likely that the employees are paid less than what they could negotiate if they
were more savvy, smart, or powerful. Therefore, raising their pay via statute,
so long as it is still less than the utility gained by the employer by having
them around, won't cause anyone to lose a job. There is very likely a gap in
the pay the employees collect, and what they could collect if they were more
savvy, or had better negotiating skills, or had access to the labor market
data the employer has better access to. In those cases where the new minimum
wage falls within this gap you have no reason to suspect any loss of jobs.

However, such arguments are totally unnecessary, as we have been running a
huge experiment for 60 years and can appeal to empirical data. We do have a
minimum wage, and you will not be able to find anyone cannot find a job that
is not suffering from psychiatric illness or a substance abuser. Temporary
unemployment during economic downswings doesn't count, obviously.

~~~
sokoloff
Suppose today that someone has skills that provide "utility gained by the
[prospective] employer" (what I'd call "true worth") of $4 per hour (and it's
not for a restaurant position). Is that person, today, able to get a job
paying that $4/hour? No, they aren't, at least not legally.

Why is that? Because the minimum wage law takes that option away from them,
increasing unemployment and increasing the underground, untaxed, unregulated,
no worker protection or benefits economy.

I am perfectly able to find people today who cannot find a job, who are
neither psych nor substance impaired. Convenienently, you say that temporary
unemployment during the economic downswing "doesn't count, obviously." I am
more inclined to find that statement disingenious rather than obvious. When
times are tough, one would expect that wages might come down. When the natural
market wage would be lower than the minimum wage, some of those jobs will
naturally vanish. How is that to the advantage of a job-seeker?

~~~
justin_vanw
If you know someone who's labor is worth less than minimum wage to employers,
consistently over a period of years, then that satisfies what the author was
saying, that they can't find work because there is a difference between their
work value and the minimum they can be paid.

However, temporary economic hard times are more like a mismatch in the number
of people available to do work and the positions available. For example, if
the coal plant in your county runs out of coal, there are no coal mining jobs,
no matter how cheaply you will work. This doesn't prove anything about the
minimum wage.

Since you can't find anyone who is unable to find work due to their labor
being worth less than the minimum wage (even digging holes or lugging sacks of
concrete pays way more than minimum wage) either the minimum wage is so low
that it is moot, or other effects dominate any theoretical 'person worth less
than minimum wage' effect in practice.

~~~
sokoloff
It shouldn't be any surprise that demanding physical labor jobs do in fact
naturally pay more than minimum wage. Lots of people have physical limitations
that prevent them from lugging sacks of concrete, yet they need and can afford
things built with concrete.

If minimum wage is totally moot as you argue, what is the downside to
abolishing it? It does not require someone to be consisently un or under
employed over a number of years to prove that minimum wage laws contribute to
unemployment.

Being out of work for 6-12 months, but willing and unable by minimum wage law
to work for $5 an hour to put food on your family's table, would be a
substantial and avoidable hardship.

Fortunately, in the real world that doesn't actually happen much, because
those enterprising hard-working people can find under-the-table paid-in-cash
work.

------
pbhj
How long is that lesson, 25 pages of at least 1000 words.

I'd say in "25 short lessons". TLDR.

~~~
nova
Spoiler!!!!:

"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."

The rest is commentary and application examples.

~~~
pbhjpbhj
In the same way that "eat food" is a lesson on wilderness survival. Or the way
that Schrodingers equation tells you all you need to know about Quantum
mechanics.

The rest is just commentary and examples.

The lesson is a clever device by the author, he pwns marketing 101, but is "to
grok economics consider future global effects" really that inciteful?

Seems to be a nice book though.

~~~
nova
It sure seems simplistic, but again and again we suffer from policies against
that simple rule. It's amazing (and depressing) how many problems can be
explained by it, like politicians implementing myopic short-term reforms in
order to win the next election (and the future be damned), or to appease some
selected and influential group (and be the rest ones left to pay it)

