Atanu Dey On India's Development

Economics in One Lesson

March 7, 2007 by Atanu Dey

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.

Thus wrote Henry Hazlitt in his classic book “Economics in One Lesson” over 60 years ago. The book is still in print. And best of all, the magic of the world wide web gives you free access to the book. (Here’s a pdf version.)

I think economics literacy must be mandatory in any society which fancies itself to be a democracy. Because otherwise people don’t understand the implications of the policies that they vote for and society enters a downward spiral. Ignorant people at the top making short-sighted policies, which makes the economy poor, which leads to a poor ill-informed citizenry that votes for bad leaders, who promote bad policies, . . . the spin cycle finally concludes when the whole wash goes down the tubes.

The special pleading of selfish interests is what makes an inherently difficult subject prone to numerous fallacies. The first paragraph of the Lesson makes that point clear. “Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine–the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.”

Anytime you wonder why India is poor, wonder no more. Pay attention to the public policies that the fearless leaders of the land are advocating. And there you will find your answers as clear as broad daylight.

Read the book carefully. It may be a while before I write one for you. :)

  • Harsh Gupta

    Thanks Atanu…

  • but sir

    why this book has gotten such poor reviews on amazon ? so many one star comments and everybody has roundly dissed this hazlitt. one reviewer has said it is a simple book for a simple man! care to address these criticisms ?

  • Anonymous coward

    “why this book has gotten such poor reviews on amazon ? so many one star comments and everybody has roundly dissed this hazlitt. one reviewer has said it is a simple book for a simple man! care to address these criticisms ?”

    on March 9th, 2007 at 12:34 am from but sir

    Mr but sir, you can move your butt outta here! now Fuck off!

  • triya

    Mr.anonymous coward, please keep your comments decent. Leave your curses for your own blog. It was a genuine question. It is indeed a simple book for the simple man. The simple man is the one who needs to know true economics. Not everyone has the patience to read Samuelson or Hayek. I use the book in my intro econ course and my students love it. It explains common economics in simple language which is easy even for a high school student to follow. I personally believe that the simpler an economics text is the lesser confusion there is. I highly recommend Hazlitt’s book. You don’t even have to buy it, just read it online and you can write your own review about it. :)

  • but sir

    Thank you miss triya. I was quite surprised by the abuse from AC especially on this blog voted best indiblog.
    But triya miss, I think you are misunderstanding the meaning of the word simple. When they say it is a simple book for simple man, they don’t mean simpler language or simpler explanation. They mean simplistic. Hazlitt writes for some idyllic bozo who is sitting in a rocking chair in a village. After reading broken window fallacy, that bozo will say “Oh I see!” and slap his forehead. That is the attitude throughout the book. Its a lame book full of silly parables. Only someone who has been living under a rock will find it insightful. If you have been trading stock for a few years, have some money in CDs and bonds, have a home mortgage etc. like every normal average human being, you will know that global economy is not that simple. Economy is not about hoodlums throwing a stone in baker’s window so baker must buy glass from glass merchant instead of buying suit from tailor. The whole broken window fallacy is extremely silly and contrived and definitely obvious to anybody with any real exposure to economy. That book has many such silly examples, it is as though you are explaining economics to LKG child. By UKG the child will show you million holes in your parables. Hazlitt practically argues that if merchant wants to close lossmaking factory, he should get it bombed by neighboring country during war so that there is no cost incurred to closing! This is extremely cavalier and childish and ignores any real world externalities. If you can get neighboring country to break your window, then yeah sure you can close the unprofitable bakery and open profitable cafetria in city, but don’t tell me that is how real businesses actually operate. Hazlitt’s book is full of comedy, if you actually read through it. It makes fun of economics and human beings and Keynesians and everybody else that Hazlitt dislikes. It is not a textbook, it is a mockery. That is why I had asked Dr.Atanu for his criticism. My economics professor calls Hazlitt’s book a polemic, not meant to be taken seriously.

  • triya

    Mr but sir, the law of unintended consequences is very very true. The idea behind the broken window fallacy is to point out the flaws in the Keynes where he says if there is unemploment, dig roads and rebuild them. Destruction of property may indeed prove beneficial for a few, but it still is destruction and there is loss associated with it. Hazlitt’s book is not a polemic in my view. There is a lot of subtle message in it which is lost if you give it a casual perusal. It is surprising to see how many very intelligent people miss basic economics principles such as the negative consequences of state run monopolies, and minimum wages which were items of discussion a few weeks back in this very blog. If you think the normal man understands the ideas of the broken window fallacy, Keynesian policies would not have the same reach as they do now. Even though he is dead and his ideas have been disproved in the 70s, even advanced countries which boast the top minds still follow the same ideas. How realistic do you think the standard textbook discussion of perfect competition is? I do not wish to get into a lengthy argument about what is right and wrong here. All I wish to say is that Hazlitt’s book is a much better and more realistic presentation of economic principles than Samuelson’s or any other modern textbook authors.I recommend “The Armchair Economist” by Steven Landsburg if you do not like Hazlitt. :)

  • But Sir

    Landburg ?! I hope you are not kidding. Landburg is the idiot who said air pollution is good because it makes cities affordable for poor people. Landburg also said he didn’t miss an exotic monkey discovered in the Amazon, so it is ok to chop down the rainforest. Well, the monkey doesn’t miss Landburg either, so why don’t we chop down Landburg and his family ? While we are at it, we can bury his remains in a polluted cemetry in the city, after all thank God pollution makes everything so much more affordable.
    The problem with Landburg is the same problem with Hazlitt , both are cavalier with their approach to human life and life in general. If it was up to them, they will chop off all the rain forests, pollute till forever, and auction off what little clean air that remains to the highest bidder. Auctioning air generates wealth, wealth is always good for economy, with wealth you can buy wood from chopped rain forest, we don’t miss the rain forest monkey anyway, and lets then burn all that wood and keep warm, thus polluting the air, which is good because it brings down cost of city real-estate so poor can afford it.
    Completely upside-down priorities.
    I would rather you dig roads and fill them up with teaspoon, at least it provides employment and keeps people alive. Would you rather bury the people under the roads and pave over them, after the people dug it of course ? See that is good for the economy because you don’t have to pay the people, they are going to be buried anyway, all hail free labor! And you get new roads to boot.