Economics in One Short Lesson for Baby Boomers

I expect this is where you all fall asleep. The mere mention of economics is enough to do this to most people. But give me a few moments here please.

Do you feel uneasy about what your government is doing to get us out of this financial mess? Do you want some answers? Then read on.

The more I looked into the reasons for the economic mess this world is in, the more I realised I could not think through some of the justifications being put forward for all this deficit spending. It just made no sense to me to spend trillions of dollars of our money to get us out of our massive debt binge.

It was not logically correct to me what was going on. Why were the governments of the world spending money like water to prop up our highly leveraged economies? Our financial wizards tell us they need to do this to keep the unemployment down and to save the financial system of the world.

Helicopter Ben Bernanke as well as all other reserve bank bosses have said they will spend whatever it takes to resolve this crisis. That assumes that spending our way out is the right economic thing to do.

I went looking for some answers and found a Free book on the Internet called “ECONOMICS IN ONE LESSON” written by Henry Hazlitt and published in 1946.

Before you close this post hear me out on this. Mr Hazlitt said,

“I have tried to write this book as simply and with as much freedom from technicalities as is consistent with reasonable accuracy, so that it can be fully understood by a reader with no previous acquaintance with economics.”

There are no charts, formulas or complex maths. He explains the economic fallacies through stories and examples. He state the first fallacy is ignoring the long term effects of a policy,

“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.”

He goes on to say,

“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.”

Mr Hazlitt explains this fallacy further,

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.”

Think about Henry Paulson and his bailout of the banks. This group had to be saved at all cost. Did he do what he said he would do, or did he do something different? Did you end up being totally confused? How true is Mr Hazlitt’s statement?

The second fallacy is,

“This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.”

Think about Helicopter Ben all that money he has dished out. Did you hear anyone talk about the long term consequences other than saying something like, we can fix that later. Right now they have to save the world banking system.

But here is the really telling statement and the reason to read this book, so you can begin to understand what is happening and why you may feel frustrated and uneasy about it.

“There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” ”

In my book Bernanke and Geithner come under the heading of brilliant economists, and aren’t they “squandering on a national scale as the way of economic salvation?”

Ask yourself does this have any relevance to what is happening today and take the time to download and read the book. Remember Mr Hazlitt said this in 1946.

“As a character in   Bernard   Shaw’s Saint   Joan replies when      told   of the theory      of  Pythagoras   that     the earth is round   and   revolves around   the sun:   “What   an utter   fool! Couldn’t he use his eyes?”

One final quote, this time from Adrian Pierce Rogers.

“You cannot legislate the poor into freedom by legislating the industrious out of it. You don’t multiply wealth by dividing it. Government cannot give anything to anybody that it doesn’t first take from somebody else. Whenever somebody receives something without working for it, somebody else has to work for it without receiving. The worst thing that can happen to a nation is for half of the people to get the idea they don’t have to work because somebody else will work for them, and the other half to get the idea that it does no good to work because they don’t get to enjoy the fruit of their labor.”

Take the time now to educate yourself.

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