Topic: Worst book ever: "Economics in One Lesson"? - page 2. (Read 17517 times)

Wrong again.

Unemployment insurance prevent a large amount of under-employment and destitution than would otherwise occur.  If a factory goes bust and empties out 100 low-skilled laborers and 10 high-level engineers what is the cost to the overall economy if 6 of the 10 of those engineers have to become underemployed in order to make ends meet?  What is the total cost if 40 of the 100 low-skilled workers become destitute?  Is that 'cheaper' than simply paying them a monthly stipend so that they aren't starving and homeless?  How much would crime increase for those desperate people?  Why have an engineer flipping burgers when he can be building things?  Labor is not totally liquid and not having this system would drastically lower everyone's wages as there would always be some near-starving hapless wretch to take your job from you (much more so for unskilled labor).

Contrary to the hateful monetarist dogma, people = wealth.  A healthy workforce that is employed at their maximum level of capacity is what adds more long term value to the economy than having the law of the jungle prevail; there is a reason that all other modern economies have seen the benefit of these programs. 

Unemployment insurance I'm sure exists for vastly different reasons in your opinion than mine.

You go first.

 

Well put.  I disagree with a lot of what Ayn Rand said yet The Fountainhead is one of my favorite novels.  I am reading a Joseph Stiglitz book and while I disagree with many things he says he also says a lot I agree with.  With Hazlitt, there is some things that he puts very well in the book but it doesn't mean that it's a good book.  At some point if a book is 75% - 90% repackaged trash then you have to say something about it.

I believe that far too many people are using as what could be described as 'pack based' socio-dynamics, as in that they ally their beliefs with a mindset or dogma or prevailing philosophy and then see opposition to that as some external threat (like the tribe over the mountain) to which they reinforce their patterns of thought (beliefs) against.  The most extreme form of this thinking you see in religious circles yet it is not exclusively a religious phenomenon.  How else could one describe people on this forum that appear to be, from everything I've ever heard them write, exact clones of famous authors and economists of the past era?  How else could it be that a person would agree with every single position and belief that some notable had already had?  Perhaps those that fall into that category should quit reading books as a simple 'I'm going to dump the contents of this book into my brain' instead adopting a more dialectical approach as if you would when politely arguing with someone.  Questioning everything that they are reading on a sentence-by-sentence basis, taking notes, doing research and fact checking while reading.  For each book I read I usually have about 10-15% of the length of the book in notes I have taken by the time I'm done reading it.  It's a good strategy if you care to have what you 'believe' be actually supported by historical reality.

There are numerous explanations of why welfare programs not only do not work, but are actually bad for the economy. Here's a simple one:

Government unemployment programs not only remove the incentive to find a job (replacing it with an incentive to look like you're trying to find a job), but drain funds from those who do have jobs to do so.

Distribution of wealth programs all have the same result. Everyone's poorer, except those doing the distribution.

No, the question was, would you argue that not working and getting $0 an hour is better than working and getting $1 an hour. Also, assuming you say it's better to not work and get $0 an hour then do you think this is just your personal opinion or is it something that should be enforced everyone regardless of what they believe?

Ok, I think I got it.

Am I to assume that you think that the existence of a unemployment insurance program or 'social safety net' isn't a 'given' and shouldn't exist whatsoever?

Can you please illustrate why you think it is economically inefficient to have such a program?  Sorry I didn't know that we were all to assume that no such program existed even though they do in all 1st world modern economies (that I'm aware of).

Hence why I didn't explicitly spell out that such a program exists, because it already does.

The faux argument of Inflation or Deflation? is much to simplistic to be of any use to people.  There is inflation in the market and deflation at the same time, depends on what you are talking about.  Housing prices down and being held on life-support.  Commodity prices up, stock prices up.  Wages flat or deflating.  I've heard Peter Schiff and some other people argue Inflation / Deflation all day long and the end result is that people are looking at the system as a whole rather than the specifics, which may be good for some people's investment strategy, but for constructing policy and living your daily life aren't.

Why would I argue that working for $0 is better than $1?  What did I say that leads you to believe that?

Secondly, the chapter was pretty much chosen at random.  There are plenty of problems with the preceding chapters I just choose chapter XX.  Not that it matters, there is very little 'flow' to the book and the chapters could be in practically any order.

Mittlyle, I appreciate reading your critiques; I was otherwise worried this thread would be stillborn. I realize someone posted the book as "the final word" or "must read before comment on econ". Indeed, that is why I read it. I agree with you that Hazlitt presents gross simplifications which might have been better expressed in a book 10% the size.

I think the running thesis, the one lesson, is to recognize not only the apparent results of economic policy but also the hidden or subsequent distributed losses.

While I think you correctly argue that Hazlitt tends to argue a zero-sum-game, his accusation is none the less true, that democracies past and present create policy with visible results irrespective of hidden losses, whether for political gain or ignorance.


This is interesting. While the economy is contracting the Fed and central banks are inflating money supplies (devaluing currencies) to prop up housing and stock markets. Food and energy prices are increasing disproportionate to wages. How could anyone claim that inflation remains low and that deflation (monetary or price) is our greatest concern? But "inflation...truly code for rising wages" is the most succinct wording I've yet read.

Oversimplified and flawed is what I would describe the book as a whole. Actually I found the book bit arrogant as first Hazlitt started with explaining what is proper reasoning in economics, and then fails to follow it himself. Difference of MPC within people is just one short-term effect he failed to recognise and happens to have huge impact on most of his arguments.

In chapter dealing with reducing work-time by law he used two clear straw-man examples in which wages were fixed and then showed that this leads to problems. The strongest case with reduced work-hours and wages set by markets were ignored.

The inflation chapter is just bs dealing only with government spending with printing money.

Hazlitt also got the workings of banking wrong, which is common fallacy. Banks do not lend peoples savings, they just make two IOU's one of which is the debt-takers bank account and other is the agreement to pay back the principle plus interest. Peoples savings is just one of the defining factors of the limit how much this 'debt money' banks can create (Basel I, II, III).

Hazlitt also seem to reduce the purpose of economics to mere growing of the GDP over well-being of individuals, which in my opinion is confusing the end with means. Economics is for creating well-being which is subjective value, so resorting to absolute objectives is inherently flawed.

As book dealing mainly with economic fallacies, I find the omittance of law of comparative advantage a huge flaw as it is so unintuitive and thus leads to many fallacious reasonings regarding free trade.

The chapter dealing with price control after war was also flawed. Obviously the purpose during crise is to guarantee the adequacy of supplies by restricting hoarding. This is done by rationing. Price control will follow only if necessary, not the other way around as in the book.

That being said, I agree with many of the conclusions in the book. Nevertheless, I think Hazlitt's reasoning hardly qualifies him for the reputation he seems to have.

You would argue, then, that $0.00/hour is better than $1.00/hour?

The rest of the arguments have merit, since his arguments against unions are seriously oversimplified and flawed.

That said, you've gotten to chapter 20 before running into anything to complain about... sounds pretty good to me.

Sorry to be away for so long.  But it looks like the title got people's juices flowing.
Ok, so I'll just pitch out one chapter I think is horrible, not the worst chapter but a bad one nevertheless.  I'm sure that this will rile people more so than other chapters, but that's part of the reason I am choosing it.

 

Chapter XX
"Do Unions Really Raise Wages?"

Second sentence:  "This delusion is mainly the result of failure to recognize that wages are basically determined by labor productivity." 

This above sentence is more or less the theme of the chapter; yet there are so many factors that go into what someone earns at a wage that he ignores or heavily downplays in this chapter.  For example, the fact that workers doing a similar (or nearly identical) job in two different countries (let's use a barber for example) make radically different wages; if it was purely or even primarily a function of their productivity then why would a US citizen get paid ten times or more what someone does in the 3rd world?  Is that 'mainly' a function of their labor productivity? 

He bravely concedes shortly thereafter that in a bargaining relationship between worker and employer that the worker potentially has much more to lose, admitting that the old total liquidity of labor is patently false.  Good on him for that.

He next sees unemployment as the worst possible outcome, not under-employment or working at slave wages.  This is a reoccurring theme in the book.

He then refers to those that have a different interest or different wants as "emotional economics" citing the oft-used "free market" mythos (my apologies to those who still believe that such a thing exists, if you think it exists then please succinctly define what you mean by the term "Free Market" in a reply, citation of historical examples of such a thing earn extra bonus points).  Then he begins the setup for some divide and conquer strategy in saying that if other's have unions then you'll be paying higher prices for their services.  This is clearly true, the prices would be partially (not totally) 'absorbed' by non-unionized workers, but what non-unionized workers should be doing about it is pushing for their own unionization for their own rational self interest.  Reason: the closer to 100% of the labor force that is unionized the more rapidly wages rise in relation to non-wage money flows; which is exactly what the monied interests don't want. The workers income rising against the rich's assets they consider "inflation" (totally ignoring the actual underpinning economic growth, but more on that later), this is the "inflation" that central bankers speak about (it's truly code for rising wages) and why they hate Full Employment so much, the skyrocketing cost of living increases that you see while your wages remain flat or are declining are totally ignored by Bernanke and crew.  They have a blind spot toward speculative commodities prices, and why shouldn't they?  The price that a super rich person pay in relation to their total assets in higher commodity prices is incredibly negligible compared to the infinitely more visible 'loss' (which is really isn't, but more on that later) of having to pay higher wages for worker bees.

Next he weaves a little example.  "In order to see more clearly how this occurs, let us imagine a community in which the facts are enormously simplified arithmetically."  This is an understatement in the example he creates.  He creates a world where all money exists as wage payments and the end-user purchasing power scantly mentioning the issuance of more bank credit at the end of the example.  Like before, he ignores savings, money held in bonds, the existence of debt, financial securities of all types, capital gains, etc.  I hope you see the immediate problem with this.  He later in the example brings up the idea of unionizing everyone but poo-poo's it in a brief wave of the hand in a typical Zero Sum Game fashion.  He says that the balance of power amongst the various unions will not be balanced therefore you shouldn't unionize, and then harps back to his absurd thesis that all money in the system must exist as wages because if all wages rose in tandem it would be a net zero gain as everyone would have to pay higher prices.  This WOULD BE TRUE if all money did exist as wages and expenditures in a system, but that's not the system we live in, it's not a system that is feasible or ever has been or ever will be. 

In his next example (since it is a next sub-chapter) he allows for the fact that rising wages could impact total overall profits but hastily concludes that that will be just passed on to the customers of that business and not 'shared' among the bondholders, the shareholders, the board, etc.  We he finally gets around to admitting that it is "conceivable" that the money earned from higher wages could impact the earnings in relation to stocks and bonds we sink into a even deeper form of a Zero Sum Game than he was in before, I assume because they effect the interests in which he is most attached to, the myopic rich.  Wealth is created.  It is a fact, this would be impossible if we fell into the ZSG world-view where Hazlitt can only fathom a context of winners and losers and that for the workers to be winning in means that like some universal consent someone must be losing somewhere.   He then says in more words that the rich won't accept that kind of abuse of not reaping the entirety of the rewards of economic growth and take their money else where where they can get the highest returns.  If the rich of the country don't want to help create economic growth and go on an effective 'capital strike' we truly don't need them being our nations 'elite'.  There are many solutions to this if we wish not to be held captive to the caprice and avarice of a clique of unelected and unelectable dynastic families.  Of which one of them is issuing 0% credit from a nationalized central bank and build the capital intensive projects and infrastructure that we need.  I'll leave it at this as this opens up another avenue of conversation that would take pages to explain, so someone make the obvious rebuttal to it so I can return in kind.

Next he reinforces more ZSG crap: "Thus we are driven to the conclusion that unions, though they may for a time be able to secure an increase in money wages for their members, partly at the expense of employers and more at the expense of nonunionized workers, cannot, in the long-run and for the whole body of workers, increase real wages at all."

Well there you go, one big giant ZSG lump of a thesis.  What a bleak outlook.  This is actually a regurgitated neo-classical trash from raving reactionaries from the days of yore.  Totally disproven from history, both modern and contemporary.  Collective bargaining allows the workers to have a portion of the economic growth they helped create, without which, as we have seen in this country the stagnation of wages even in the face of massive productivity gains from the flourishing of the information technology industry.  He sees full unionization as a futile impossibility.

Then he makes a few concessions in the reason why unions have worked in the past just to tee the ball for the next attempted 'grand-slam' to bash them in typical Socratic dialectical fashion (you always want to concede a few good things before you 'go for the kill').  He is apparently against the reduction of the work week any further but paradoxically supports the reduction of the work week from the high 70 hours a week but against lowering it below 40 as if there is something profoundly wonderful or numerologically superior to the 40 hour work week in comparison to other amounts of time.  If the average worker's productivity goes up by 70% from the introduction of new technology (in this case Information Technology) would it be outlandish for that worker to want to leverage that massive boost in productivity to have a 38 hour work week and a 15% raise?  That is still less than the overall growth or productivity gained from that worker with much of it going elsewhere in the system.  But of course monetarist, oligarchical reactionary sympathizers don't see this, they think that they should get all that extra wealth from that gain of productivity.

Of course he ends the chapters with some examples of what we would all consider union abuse, that is unions that are feather-bedding in ways that only the CEO's of our country should be allowed to do.  I'm against golden parachutes and I'm against ridiculous feather-bedding, ESPECIALLY the blocking of technological advancement.  That is a sin in my book, he who blocks technological advancement deserves to be tarred and feathered.  But the degree of this going from the top is much more profound and damaging to society than anything a union can do, but this is topic for another conversation.  Although it's convenient for him to make the average person look like a Luddite rather than the oligarchical interests.

Then he makes an abortive attempt at spurting out some form of condensed history lesson to fallaciously prove that unions = bad.  Basically pointing to unions for all our woes in an era where the following happened: Bretton Woods collapsed, Vietnam War, Cold War, oil crises, Prime rate spikes and many other events that would do much to explain these numbers, but no! it was the unions!

I eagerly await your comments and will try to not be away for many days this time.

Thanks Mittlyle for some meaty critique. I'll take a stab...


And Keynes was likewise oblivious to economists he preceded. Such as the life cycle hypothesis or Friedman's permanent income hypothesis stating that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. Transitory, short-term changes in income have little effect on consumer spending behavior. Consumption trends follow income, whether up or down.

Keynes rightly argues that the rich consume less personally than the poor. But the rich invest. Hazlitts argues that the investor is better equipped to evaluate efficient use of his own savings, both risk and gains, whereas the government through taxation takes from properly risk/gain calibrated investment to necessarily less efficient projects.

You can argue that some projects (law-enforcement, infrastructure...) have a benefit to all of society for which no single investor would see gains that compensate his risk. I don't recall Hazlitt denying this (I believe an earlier post referred to it as 'back peddling') but argued against subverting private investment to fund private debtors who could not otherwise receive favorable loans - ie subsidizing bad investment at the loss of good investment.

You are probably right that calling the arguments as straw mans is bit too strong when looking at the historical context. As he mentioned Keynes in the beginning he should've been aware of the consumption function. In the Keynes's book the consumption function was probably modeled as linear and as there probably weren't many empirical studies done at the time of Hazlitt's book, the MPC would have been assumed constant thus validating Hazlitts point of view.

I found that the general tone in the Hazlitt's book was that here you have bunch of recurring economic fallacies, and then let the reader to read between the lines that all theories emphasizing government spending, including Keynes's arguments are reducible to those and thus there is no need to touch upon them. The fact he needed another book for Keynes indeed shows that Economics in One Lessons wasn't alone sufficient criticism.

I think that evidence is convincing at calling the book outdated since it doesn't present that argument. But I can't assume it's a strawman, since the consumption function was published in 1936 which is not long before Economics in One Lesson. Especially as I remember reading that Keynes's ideas were criticized initially but ended up taking off as the war ended, just when the book would of been published. Hazlitt apparently made a book attempting to refute General Theory of Employment, Interest, and Money, in 1959 once the idea caught ground. So he might of mentioned it in Economics in One Lesson if it was published a decade or two later.

I have one argument that I believe seriously hampers the main arguments in the book:

The author seems oblivious of consumption function (and improved models with similar content), which was first introduced by Keynes in his The General Theory at 1936. Simplified model of consumption function is shown here:

The x-axis is the persons income and f(x), the black line, is his consumption. The vertical difference x - f(x) is what person's accumulates. The point where the black and red line intersect is the so called brake-even point. Above that person accumulates money and below either spends his savings or has to take debt. The consuption function is in reality not linear but the slope is reduced when the income increases.

Important concept here is MPC, or marginal propensity to consume. If we give a person extra money, the ratio of it that will increase consumption is the so called MPC. The MPC is simply the slope of the consumption function. In the simplified model all income-classes would have same MPC. In reality, however, average poor people have higher MPC than average rich, as the slope is reduced with x. This leads us to very important conclusion: aggregate demand is not indifferent to transfer of wealth.

Many of the Hazlitts arguments are of form: When you take x from person A (by taxation, accident or other means) and give it for entity B to consume, the loss of consumption of A cancels the positive effects of consumption of B, and as consumption of B is inherently less effective as not being decided by the markets, the net effect is negative. This completely ignores MPC. Consider for example employing somebody with taxation. Somebody loses money in the process. If he has lower MPC than the one employed then aggregate demand will increase thus improving the employment rate in aggregate. In addition, if the job filled is improving circumstances for business (law-enforcement, infrastructure...) it is in effect investment improving prospects for economy. Also, the taxed money is used to increase domestic employment rather than foreign.

This argument does not clearly refute any of the arguments, but clearly shows the book is using straw-mans. There were few other smaller ones, but I'll post them maybe later to keep things bite-size.

Ha ha, I agree. I still haven't seen anyone attack specific arguments from this book. That doesn't mean the book is 100% correct, but the "this book is stupid but I can't make specific logical arguments against it" whining is pointless and irritating.

Ideally (and often) but not always. Two example situations are:
1. Where analyzing the primary evidence is beyond the grasp of an average reader, or at least not worth his own time to learn. If a scientist tells us 'the temperature of the earth is increasing at this rate' and shows us a graph, I can see if experts agree with that graph without going over piles of difficult research papers and analyzing their method. For an example in economics, someone could write "purchasing power of the average worker increased/decreased during this period" or "net exports went up by this percent each year". I could decide if that's true by trusting the economist and seeing if other experts agreed with his conclusion. In both those cases, learning the correct application of statistics and going through hoards of primary data, to decide if I trust a single sentence, is not worth my time.
2. Sometimes the 'stuff before the conclusion' can be purposefully misrepresented or twisted, even if it's within the grasp of the average reader. They might quote passages from a book or historic figure out of context. If you cannot trust the author, it means the only way you can make up your own mind is by personally tracking down the books they quote and checking it hasn't been quoted out of context (or even made up completely). Once again, an unreasonable use of my time, especially if there's an alternative author with a long track record of not misrepresenting evidence.


Accepted. To clarify my statement I'm referring to purposeful deception rather then mistakes. This is the area where it can be difficult to tell. But a common indicator is whether they correct themselves and change their mind when told about the mistake. Here's an example from David Friedman referring to an exchange with Rothbard:

My standard example was an exchange long ago, after a talk of his in which he claimed that Reagan did not really cut government and offered as evidence the increase in the nominal federal budget. I pointed out that, while his conclusion might for all I knew be true, his evidence combined whatever growth had occurred in the real size of the federal government with the effect of inflation over the period.

His response was that that was all right; because Reagan was responsible for the inflation, it was appropriate to use it to make his performance look worse. Think that through and he was saying that it was all right to misrepresent the evidence to his fellow libertarians as long as the result was to make them think badly of someone they should think badly of, to lead them to the correct conclusion for the wrong reason. I don't regard that as a desirable approach to political (or other discussion). Or, for that matter, a libertarian one—we are generally opposed to fraud as well as force

You shouldn't trust anyone's conclusions. The reason all the stuff before the conclusion is there is so that you can make a decision about what to do with the conclusion.

Any author that has written a significant amount of work has almost certainly written something that misrepresents someone, ignores obvious evidence, or commits a logical fallacy. It is crazy to dismiss all of that author's work just for that. Rand, for example, wrote a lot of really idiotic things about gender roles and art. That's no reason to dismiss much less idiotic things she said about epistemology.