Economics in One Lesson

Summary, Analysis, and Evaluation of Economics in One

Lesson by Henry Hazlitt

Hazlitt is concerned that economics was being haunted by many

fallacies. He attributes them to people having vested interests.
Economics also makes the assumption that people will act out of
their own self-interest. He believes the difference in a good and
bad economist is whether they look at the long or short run
effects of a policy. He may be right, but there is still a lot of
heated debate and tension between various economic schools on
though where the focus should be directed.

Hazlitt places a premium on economists who look at the long run

or secondary effects, over people who only look at the short run,
or the direct effects. He shows that actions have consequences,
and that this elementary truth is often ignored by short run
economists. Most, if not all of the arguments in his book are based
off this main presupposition: 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

Hazlitt views looking at both long and short run as both important,
but only looking at the short run as detrimental. To him, looking
only at the long run might be a vice, but also uncommon. The
new economists, as Hazlitt describes the short- run only group,
only looks at individual trees, and ignores the effects on the rest
of the forest.

Even though he wishes to spread his views on economics, he

identifies the reasons that he struggles to spread economic
literacy. The bad economists are generally better at spreading
their ideas due to using half-truths, as Hazlitt calls them. The
short-run, or bad (as he calls them) economists do not judge the
long-run ideas by their merit, but instead employ intellectual
debility and laziness. They employ terms of abuse such as
laissez faire or capitalist apologetics to try to discredit the
argument.

Hazlitt also points out the errors and secondary effects of price
fixing. When the state sets a price ceiling, it distorts the market.
As Hazlitt points out, the increasing prices are usually blamed on
greedy businessmen instead of the monetary policies of the
people who hold the elected office. This is how the government
will justify enacting a price control. According to Hazlitt, and our
textbook, when the price of a good is held below the market level
through a price control, and is binding, (quantity) demanded will
increase, and (quantity) supplied will decrease leading to a
shortage of the good.

With the profit incentive taken away, production is discouraged.

Holding down the prices short run ignores people interests as
producers. This will likely lead to another long run and unintended
consequence. When prices are arbitrarily held below the market
clearing price, a chronic shortage will follow.

Not to mention, as Hazlitt acknowledged, upward pressure on

prices will effect substitute goods, which will beget more price
control. This eventually leads to a totalitarian economy. When a
market is distorted as a secondary effect of a policy, government
has often used this as an excuse to intervene in the market even
more. Sometimes it will get so bad that the black market will
become the market. When these new firms enter the informal
market, they will be less efficient than the formal market and
produce lower quality goods. These new firms owe their existence
to the law.

Hazlitts argument of why rent controls are detrimental to housing

supply and quality. Some will argue that rent control is different
than regular goods, because they believe that the supply is not
elastic. The rising prices will supposedly not increase quantity
supplied, which is contrary to the law of supply. The law of supply
states that as prices increase, quantity supplied increases,
meaning, that as prices of rental homes increase, people will be
incentivized to make more and better housing and fix the
shortage.
There are also some long run consequences to rent control. When
the price ceiling is enacted, the quality of the housing
deteriorates over time as the incentive for people to improve the
house is taken away due to reduced or nonexistent profits. Hazlitt
points out that there will likely be strained relationships between
the landlord, who is not receiving the profit he would on a free
market, and the renter, who is living in a house with deteriorating
quality. Moreover, if prices were allowed to rise, people would
economize and use space more efficiently. The opposite is true
when the price ceiling is in effect. There is no incentive to have
more people living in an apartment when the price is below the
market rate. Eventually, the area affected by the price ceiling will
deteriorate into a slum, and capitalism will be blamed. As Hazlitt
says, rent control is not only increasingly futile, but increasingly
destructive the more serve it is, and the longer it remains in
effect.

A wage is a price, but since it has a different name, people do not

recognize that setting a price control on wages will have similar
consequence to price controls on goods or services. It will also
govern other prices, and lead to some long term effects.
According to Hazlitt, the arguments for minimum wage laws are
emotionally and politically biased. Hazlitt believes that the
minimum wage law is harmful and its hard to predict the effects.

Instead of the low skilled workers getting or keeping a low paying

job, they get unemployment. They will not find a job if they are
not worth what the government deems fair. As the laws of
economics tell us, when consumers are faced with higher costs,
they will look for substitutes. Likewise, when the price of labor
increases, we see more automation, such as cashiers at fast food
restaurants being replaced by a touchscreen computer.

Hazlitt acknowledges that some people argue that it is better for a

low wage not to exist, but Hazlitt points out three key points that
are ignored when only the short run is acknowledged by policy
makers. The consumers will suffer the loss of that product, people
who worked in that industry will not have a job , as bad as the
wage was it still was a wage.
Some of the long run effects of the short run policy of increasing
the minimum wage show why Hazlitt puts much weight into the
value of looking at the long run when deciding short run policy.
Hazlitt acknowledges that almost everyone would encourage
people to be better off, but the best way to raise wages is through
the increase in marginal labor productivity. Real wages come from
production. The way to increase productivity is through increased
education and capital accumulation.