Wednesday, January 25, 2012
“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.”- Henry Hazlitt
This is the one economic lesson taught in Henry Hazlitt’s aptly named classic, Economics in One Lesson. It is a lesson that has not been learned by either the ruling or the chattering classes, who continue a short-sighted, group-focused approach to economic policy in this country. The examples on our current economic landscape are myriad – repeated stimulus programs, the housing loan crisis, “Cash for Clunkers”- yet their lessons continue to be ignored even as the consequences of mistaken and harmful actions manifest themselves in an economy that refuses to improve.
Hazlitt upheld the theories of his philosophical predecessor, Frederick Bastiat. This 19th century French political economist challenged the moral and practical right of government to intervene in financial transactions between free people, as well as its effectiveness in creating prosperity. He observed that economic intervention is most commonly proposed by one group in society trying to gain for themselves at the expense of everyone else.
Bastiat also famously warned of the unintended consequences inherent in such intervention. Unintended consequences are the economic equivalent of Sir Isaac Newton's third law of motion, which states "for every action there is an equal and opposite reaction" and they abound. The “Great Society” programs were not intended to increase out-of-wedlock births and broken families nor were extended unemployment benefits meant to discourage employment searches but these are partial results nonetheless. Guaranteeing loans to banks is not supposed to make them more reckless in their lending practices but often does. Social Security was not meant to nearly eliminate personal planning for retirement but has.
“Depth in economics consists in looking for all the consequences of a policy instead of merely resting one’s gaze on those immediately visible,” Hazlitt said in his economic treatise. Bastiat put it thus: “The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
Too many of today’s economists fit Bastiat’s definition of bad, and too many of our leaders and opinion-makers rely on their incomplete prognoses. That politicians are also shortsighted is not surprising but one could wish for more depth from some of the experts who advise them as well as the media which report and comment on their doings.
That we even accept the role of government in fashioning our economy is a sad statement on how far we have strayed from the laissez-faire model under which our nation thrived during its first few decades. There is a strange belief that politicians and bureaucrats know better how to spend our money they we ourselves do and, therefore, the more of our money that ends up in their control, the better. It is as though money that avoids being deposited in government coffers disappears when, in fact, the opposite is true. Money that remains in private hands is distributed more immediately and efficiently to others through trade or philanthropy.
Keeping more of our money in the private sector might also have a positive unintended consequence: it might minimize the politicians’ proclivity to be constantly seen as doing something when often the best thing they could do is nothing at all. Perhaps congressmen and presidents would not need to prove their worth so much and would stop tinkering since they cannot possibly understand, control and anticipate all that produces a thriving economy. Maybe as they saw the American people participate in mutually beneficial financial transactions without their help and interference they would gain some much-needed humility, as well as trust in people to conduct their own lives and financial affairs.
Our current economic situation is the result of actions taken by short-sighted and narrowly-focused policymakers who came long before us and worked their dark magic over many years. It is not the fault of Barack Obama or even George W. Bush, though both have contributed and both are blamed by their political adversaries. It is the result of intervention in the free economy by progressives and industrialists, bankers and champions of social justice. Financially powerful individuals will always try use government to steer economic policies in directions beneficial to themselves while the politically powerful will always try to use government to achieve social and financial goals beneficial to their favored groups. Unfortunately, government itself is a willing player in this game.
Our leaders should learn Hazlitt’s lesson and put it in practice. Their vision should extend beyond their next self-important sound-bite on the evening news or the upcoming re-election campaign. They should have the strength of character and the wisdom to resist special interests of all stripes and make decisions that will benefit the American people over the long haul. They should admit sometimes the best decision they can make is no decision at all and let the American people be about their business. We can take it from here.
Audrey Pietrucha helps coordinate the Vermont Liberty Alliance. She can be reached at email@example.com.