I have no reservation to say that Economics in One Lesson is
one of few books in economics that can explain economics in simplest ways for
laymen and economists alike. Giant economists such as Adam Smith, John Maynard
Keynes and F.A. Hayek were far from being able to do so. This is one of the
reasons that I include it in my 5 must read books in economics.
Clearly this book is an updated version of Bastiat’s That
Which is Seen, and That Which is Not Seen.
Although on which the emphasis of the cost is or should be is different
from one another, economists of every school of thought agree to this concept
of Opportunity Cost, . This is the only one lesson that the author tried to
emphasize throughout this book by using extensive examples of national policy
debates.
The Economy Only Grows by Productive Activities
Negative Effects of Taxation
Suppose you buy one bottle of $1 Coca Cola every day for ten
days. Then you spend $10 in ten days. Now the government taxes imposes tax on
the Coca Cola drink, which now cost $1.1. Now you have to spend $11. And the
government receives $1 through taxation. The negative or positive effect of
taxation depends on how the government spends the money. If the government
spends it on the enforcement of contracts, for example, the government provides
a service back to you, to the Coca Cola Company as well as to the whole
economy. Thus, it provides something as a return for the money. It is the same
way as your income of $10 where you get via a job, through which you offer
something in return. This is how the economy grows. However, if the government
uses it, for instance, to give to your friend, the government does not produce
something new or offer something in return for it. Thus, this activity impose a
negative effect on the economy. In this regard, as examples in the books go,
random taxation such as tariff, excise, income tax, consumption tax etc. tend
to induce negative more than positive effects on the economy.
Price System
They say economics is all about demand and supply.
Understanding what the demand and supply together produce is one step further.
I won’t take the credit by trying to explain here.
Why are you employed? Because the employer thinks you would
provide something in return for the money he offers. Why you choose this
employer over that employer? Because that employer offers something better than
this employer, be it relationship, monetary benefits or social status. Those
are factors of supply and demand which eventually determine price, in this case
wage. Along the way, the author continues to explain that the minimum wage,
price control, price floor and various kinds of subsidies are
counter-productive. Neither are efforts to keep workers employed to keep
unemployment rate in the economy fruitful.
Is Profit a Sin?
This is a very old question. Students of religions like to
debate about this. In fact, Christianity and Islam in the past (and now to some
extent) forbad the lending of money with interest rate. You think about profit
when you do good deeds, thus it is a sin. Is it? How many sins Steve Jobs
committed when he thought about profits, along with the sense of achievement,
producing iPhone, iPad and MacBook? How about the methods to get profit? “How
to get the profit” is the question then. What kind of policy should a
government focus then to make profits least associated with sins? I believe you
would find the answers in this book, in addition to what the free market
economy is, how a country grows rich and somehow on the rule of law and
property rights.
The Conundrum
Here comes the great debate in economics. Inflation is bad
for the economy in the long-run, most economists agree, but is it good in the
short-run, say several months to a few years? Can or should a policymaker
induce inflation to lift an economy out of recession? As a member of Austrian
School of Thought, the author disagreed. In contrast, members of Keynesian
School of Thought such as Harvard prof. Gregory Mankiw, Nobel Laureates Paul
Krugman and Joseph E. Stiglitz, agree.
My Intervention
I agree with the idea that prices do not adjust immediately
in response to sudden changes in the economy such as oil supply shock. However,
I do not think it is a problem. Prices are the result not a cause of their
respective demand and supply, thus the speed of price adjustment is totally
dependent on the demand and supply itself. In addition, one cannot
differentiate long-run sectors with short-run sectors. In a simpler example, a
country is big; some parts are cold and some parts and hot. The average of
temperature does not represent the situation of the country. Thus, in
economics, using aggregate data are not effective.
Full title: Economics in One Lesson: The Shortest and Surest
Way to Understand Basic Economics
Author: Henry Hazlitt (1894-1993)
Publisher: Crown Business; Later Reprint edition (December
14, 1988)
My rating: 4.5/5
