“Economics is haunted,” says Henry Hazlitt, “by more fallacies than any other study known to man.” If I’d understood that fact years ago, it would have saved me a lot of grief. Hazlitt’s contention in Economics in One Lesson is that bad economics sees only immediate benefits, and that good economics looks beyond. The former tries to benefit some special interest through wage laws or tariffs or other intrusive measures without looking at how such policies can penalize both producers and consumers in society as a whole.
Economics is traditionally considered a subset of politics which, in turn, is a branch of ethics. Although this is logical, it might make more sense for people to study economics first (just as it would be helpful for young adults to learn about managing personal finances before they embark on pure mathematics like algebra and calculus). Economics deals with very tangible relationships. It provides lessons that can be easily grasped. An example of this is Hazlitt’s discussion of government-guaranteed homeowner loans. These involve the artificial oversupply of underpriced housing and granting loans to borrowers with bad credit. Taxpayers not only subsidize the bad risks but are forced to defray the losses. Classic free market economists, including Hazlitt, foresaw these risks decades before the mortgage bust and the debacle of Fannie Mae and Freddie Mac in 2007 which contributed to our current recession.
When students are taught realistic assumptions about economics they are less likely to have their energies squandered by arrogant academics or exploited by political opportunists. Government in large part exists (or should exist) to secure the freedom and security necessary for the operation of the marketplace. This, in turn, makes possible the pursuit of non-political aspirations by normal individuals (as opposed to the precarious ambitions of ideologues). An additional bonus is that by minimizing political intervention in the economy we could significantly reduce the cost and intrusiveness of government as a whole, making it more efficient in its primary duties, like securing domestic tranquility.