Economics in One Lesson, part 2

Well, I have to admit I am rather proud of myself for hanging in there and being on schedule with this book for two weeks in a row. Henry Hazlitt is delving into the sort of territory that makes economics a fairly daunting topic--employment, tariffs, imports and exports.

While he does continue to offer examples that are as simple as possible (maybe if this were a modern book, it would be "Economics for Dummies," I did find myself having to read very slowly to follow some of his logic. He moves so quickly from one "logical" point to the next that I didn't feel I was always able to make the connections myself.

However, I was further impressed by the idea that I wrote about last week--that part of being able to understand the bigger picture of economics is having enough imagination to picture "what might have been." Every economic policy (presumably) benefits some groups for at least some period of time. What happens can be seen, observed, and (more importantly) calculated to produce statistics. The benefits that didn't happen because of any given economic policy are much harder to evaluate, and they defy calculation, so that it is difficult to make a comparison between the good that happened and the good that didn't happen to see which one would actually have been better. Hazlitt uses the term "optical illusion" in reference to a short-sighted or one-sided evaluation of economics. I think it is a good word, because optical illusions do deceive--the "evidence" of our eyes is so convincing, and it is always much harder to see, with the eyes of imagination, what is not there to be seen.

I think I understood the relationship between employment and production fairly well. Hazlitt calls production the end--because production is real wealth--and employment only the means toward that end. If we make employment the end rather than production, it seems we end up hurting both in the long run. However...long-term policies that may be good and sensible from an economic standpoint can still cause short-term, or even permanent hardship to some segments of society. Hazlitt admits that, but doesn't really offer solutions, as that is not the point of his book. He is merely trying to remind us that successful economics cannot occur if we only look at short-term results, or the results on one group of people.

I'm not really sure it's in the best interests of politicians (and they seem to be the economic policy-makers) to follow plans that would give the greatest prosperity in the long run. In the long run, they won't be around, and if they cause some of that short-term economic pain, they won't make it past the next election.

Curiously, I actually live in a place where some of those hard decisions were made. Poland, as a communist country, enjoyed "full employment," and industry was owned by the government, and wages were paid by them. In the early 1990's, Poland emerged from communism at the same time as many of its neighbors. However, while many eastern European countries adopted long-term plans for changing their economic systems, the Polish government divested itself of industry in favor of the private sector just as fast as it possibly could. Private owners took one look at inefficient, unproductive industries, and put thousands of people out of work.

I invite anyone to visit Poland today and compare its economic prosperity to that of its slower-changing neighbors. Poland has an illegal immigration problem not unlike that of the US, as Ukrainian and Russian workers come here to work for much better wages than they can in their own countries. Goods and services available here in Poland so closely resemble those in the west that there is virtually no difference, and that still cannot be said of countries further east. So I have an excellent illustration before me that Hazlitt is probably right. However, there were those many families who suffered and are still suffering because of the change. If you are under 30 in Poland today, you will probably have no trouble finding a job. If you are over 40...it is much, much harder. There is a generation, or maybe a generation and a half that are not going to benefit from the economic prosperity in Poland. They have suffered a permanent injury because of the changes. Those who were already retired have found their pensions woefully inadequate in the face of rising prices. Those older workers without the education and background to take advantage of the new economy can hardly earn a living wage.

And yet...the streets are full of new cars, the stores are full of every electronic gadget, everyone carries a cell phone, and there are no long lines of passive, patient people waiting to buy bread or eggs. Poland is as a whole much better off than before, in spite of the injury to some of its people.

Hazlitt doesn't really have answers about what to do for them, and from an economic standpoint, neither do I. The government who made the hard decisions is long since out of power as well. Hazlitt calls it an error not to look at the long-term effects of a policy on everyone, and I'm sure he is right, but for some people, the short-term effects are the only ones they are going to see, as they will not live long enough to enjoy the long-term benefits of sounder economic policy.

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Be sure to read what others have to say in the discussion over at Dominion Family.