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"Good" And "Bad" Economics In One Lesson

Tyler Durden's picture


Via Henry Hazlitt's Economics In One Lesson,

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine-the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

In this lies the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.

The distinction may seem obvious. The precaution of looking for all the consequences of a given policy to everyone may seem elementary. Doesn't everybody know, in his personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end? Doesn't every little boy know that if he eats enough candy he will get sick? Doesn't the fellow who gets drunk know that he will wake up next morning with a ghastly stomach and a horrible head? Doesn't the dipsomaniac know that he is ruining his liver and shortening his life? Doesn't the Don Juan know that he is letting himself in for every sort of risk, from blackmail to disease? Finally, to bring it to the economic though still personal realm, do not the idler and the spendthrift know, even in the midst of their glorious fling, that they are heading for a future of debt and poverty?

Yet when we enter the field of public economics, these elementary truths are ignored. There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” And such shallow wisecracks pass as devastating epigrams and the ripest wisdom.

But the tragedy is that, on the contrary, we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.

From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. 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.

h/t @noalpha_allbeta

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Sat, 08/02/2014 - 14:03 | 5037980 Skateboarder
Skateboarder's picture

Economics is not an art, asshole.

p.s. It is not a science either, and it is certainly not a field where you should honor "experts" by de{c,g}ree.

Sat, 08/02/2014 - 14:03 | 5037985 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

No, economics is not an art. Too often is is nothing more than self-serving politics.

Sat, 08/02/2014 - 14:05 | 5037996 Escrava Isaura
Escrava Isaura's picture

The only function of economic forecasting is to make astrology look respectable.

John Kenneth Galbraith

Sat, 08/02/2014 - 14:13 | 5038021 AlaricBalth
AlaricBalth's picture

Economics is a religion and Janet Yellin is its High Priestess. It has its temples, churches and its god is JM Keynes.

And Yellin prayed, "Oh JaMuK, god of Keynsian Economics. I have but two rolls to feed the banking horde. They are insatiable and I have not enough. "
And JaMuK said, "Do not despair, thou shalt print, hypothecate and rehypothecate. The rolls will multiply. Full faith is required. Just knoweth that thou shalt never have enough."

Sat, 08/02/2014 - 14:23 | 5038052 Harbanger
Harbanger's picture

It's the Good the Bad and the Ugly, said Janet.

Sat, 08/02/2014 - 14:39 | 5038092 ZerOhead
ZerOhead's picture

I disagree... economics is an art.


Of which Milton Friedman was a master...

Sat, 08/02/2014 - 14:43 | 5038126 BigJim
BigJim's picture

If someone asks you "I can only read one book on economics... what should I read?" Hazlitt's 'Economics in One Lesson' should be it.

Published 1947, and still relevant.

Sat, 08/02/2014 - 16:02 | 5038352 Oracle 911
Oracle 911's picture

Economy, my best definition is this: practical philosophy how to manage certain human activities, mostly it is about trade.


Well philosophy is full of nonsense. So my question is: where it went wrong? (I mean the economy and philosophy)

Sat, 08/02/2014 - 16:38 | 5038469 NoDebt
NoDebt's picture

Economics and Philosophy have the same track record- they've never actually SOLVED anything.

And they have the same purpose of existance- to make people feel they have control over something they do not actually have control over.

The analogy of economists as modern day high priests is an apt one.

I am an economist by training (but I'm feeling much better now).

Sat, 08/02/2014 - 16:45 | 5038503 TheSecondLaw
TheSecondLaw's picture

Philosophy does not give answers.  It tries to understand the question better.

Unlike economics, philosophy does not attempt to predict.  It attemps to understand.

Sun, 08/03/2014 - 02:09 | 5039666 Tall Tom
Tall Tom's picture

Unlike Keynesian Economics..which is a plan...not a theory.


Misean Economics does not concern itself with predictions but concerns itself with observations. That is why it is an art and not a science.


Hazlitt is a proponent of the Austrian School.

Sun, 08/03/2014 - 05:56 | 5039777 Oracle 911
Oracle 911's picture

Agree about the Keynesian economics.


The truth is, you can make predictions according Misean economics and on the ground level you will be in about 80% of time right, and if you have enough accurate information you will be right in 98% of time. Napoleon said something in these lines: "Predicting means managing." So you can manage things in economy. Note: Peter Schiff is right about the 90% of the time.


About science, it became a crazy religion and this is the reason, if the "scientists" observation doesn't fit with the theory the "scientist" has these 3 options:

1st Admitting the fact he/she was wrong.

2nd Ignore the inconsistencies.

3rd Modify the theory, see dark matter/dark energy nonsense.

And because the science became a crazy religion the 1st option is nonexistent and the 2nd and 3rd is happening always these days. Conclusion: if you want real science ask the engineers. :)


Philosophy these days is mostly nonsense.

Mon, 08/04/2014 - 01:50 | 5042723 All Risk No Reward
All Risk No Reward's picture

The corrupt economists only see what they are paid to see.  The corrupt media only sees what tey are paid to see.  The corrupts politicians only see what they are financed to see.  The corrupt academicians see only what they are paid to see.

That's the crux of the problem - d*mn near everyone is corrupt to the core underneath a razor thin veneer of legitimacy.

Sat, 08/02/2014 - 17:17 | 5038594 Stuck on Zero
Stuck on Zero's picture

Economics is what happens whether it is studied or not.

Sun, 08/03/2014 - 02:10 | 5039660 Tall Tom
Tall Tom's picture

Wow...You agree with Hazlitt.

Sat, 08/02/2014 - 23:27 | 5039487 A Nanny Moose
A Nanny Moose's picture

Initiation of force and moral relativism.

Sat, 08/02/2014 - 16:41 | 5038489 TheSecondLaw
TheSecondLaw's picture

I agree wholeheartedly about Hazlitt.  

As far as I can see, there are three economic principles, which, if understood, prevent a lot of bullshit being written and said by economists and especially politicans:

1) Marginal Costs

2) Opportunity Costs

3) Hidden Costs

Sun, 08/03/2014 - 01:35 | 5039656 Tall Tom
Tall Tom's picture

One of the best books ever written, Big Jim.


I learned more about economics by reading that book than anywhere else.

Sun, 08/03/2014 - 08:14 | 5039916 Bindar Dundat
Bindar Dundat's picture

A modern tradedy to be sure.  


Why do economists use decimal places?  To prove they have a great sense of humour:-)

Sun, 08/03/2014 - 08:15 | 5039917 Bindar Dundat
Bindar Dundat's picture

A modern tradedy to be sure.  


Why do economists use decimal places?  To prove they have a great sense of humour:-)

Sat, 08/02/2014 - 14:47 | 5038138 Escrava Isaura
Escrava Isaura's picture

Milton Friedman was a master... LMAO

Sat, 08/02/2014 - 16:19 | 5038407 max2205
max2205's picture

Economics is a science.   It becomes an art when politicians get involved

Sat, 08/02/2014 - 20:30 | 5039065 DeusHedge
DeusHedge's picture

Essentially the reason I'm here.

Sat, 08/02/2014 - 14:24 | 5038058 Escrava Isaura
Escrava Isaura's picture

So Balth,

You are telling us that economics and religion are both bogus?

Both self-serving human creation?

Or, am I misrepresenting your post?

Sat, 08/02/2014 - 14:30 | 5038079 Harbanger
Harbanger's picture

It is religious.  Economic law when using fiat currency is based solely on faith.

Sat, 08/02/2014 - 14:40 | 5038116 Escrava Isaura
Escrava Isaura's picture


Economic Law?

It "fiat currency" is religious because it based solely on faith?

Please, clarify.

Sat, 08/02/2014 - 14:48 | 5038141 Harbanger
Harbanger's picture

Historically, most currencies were based on physical commodities such as gold or silver.  When Central Banks can create money out of thin air and then blow economic bubbles in any sector they choose, it distorts and disregards all economic law and also dilutes the value of the currency.  So it takes faith in central planning really, that they won't destroy the economy and the currency.

Sat, 08/02/2014 - 15:01 | 5038181 ZerOhead
ZerOhead's picture

Except 'Central Planning' doesn't even attempt to control or regulate currency creation.

Bankers do.

Sat, 08/02/2014 - 15:13 | 5038218 Harbanger
Harbanger's picture

What are you talking about? The Fed has been centrally planning our economy since it's creation, and of course they're bankers.  The Statists elected into office love this idea and benefit from the money creation as they can grow the state with no limit to the Nations credit card.  That is until economic law, which is math, returns with a vengeance.

Sat, 08/02/2014 - 15:23 | 5038239 ZerOhead
ZerOhead's picture

I repeat... there is NO planning. Planning considers OPTIONS. These clowns only print.

Printing alone can't be considered a plan... it's more like a policy. Unless of course the options are 1) print & 2) print more


Sat, 08/02/2014 - 15:27 | 5038262 Harbanger
Harbanger's picture

They don't only print, they decide exactly where and how much of that printed money goes in their planning schemes. With laser like focus.  They are Central Planners and plan every aspect of your life whether you're aware of it or not. 

Sat, 08/02/2014 - 15:49 | 5038308 mademesmile
mademesmile's picture

I think a more apt name WOULD be the central printers.

Sat, 08/02/2014 - 14:50 | 5038149 AlaricBalth
AlaricBalth's picture

Fiat currency is considered legal tender. It is backed only by the "full faith and credit" of the United States government. If faith in that implied guarantee wanes or the credibility of the government backing it comes into question, the currency will slowly, and then suddenly, become useless as a medium of exchange.

Sat, 08/02/2014 - 15:00 | 5038179 Escrava Isaura
Escrava Isaura's picture

Guys, not sure about your answers.

Every one that I asked "Fiat Currency" they have NO clue.

And I live in DC.

Sat, 08/02/2014 - 15:15 | 5038200 ZerOhead
ZerOhead's picture

Fiat money is simply money backed by nothing. It is what the entire planet is operating on right now and it never survives very long (historically) before it crashes to it's intrinsic value which is ZERO. (See : Zimbabwe/ Gono & US/ Greenspan Bernanke Yellen)


"In the USA 100% of the money supply is created by the private banks. In Britain the figure is over 97%. In the rest of the world, the figure is estimated to be over 95%. All this money is created as a debt. It is created when people borrow money, as banks do not lend existing money; they just create new money out of thin air to lend."


Sat, 08/02/2014 - 15:17 | 5038232 AlaricBalth
AlaricBalth's picture

Slave Girl. Why don't you share some
of your wisdom with us. You have been on ZH for 4 plus years, surely you have formulated your own hypothesis.

Sat, 08/02/2014 - 15:49 | 5038306 Escrava Isaura
Escrava Isaura's picture

Slave Girl! That was good.

Anyway Balth, because this article is about economics, so that’s my take:

Economics is not different than religion. It’s man made. With lots of flaws. And heavily indoctrinated.

Sat, 08/02/2014 - 14:37 | 5038103 Skateboarder
Skateboarder's picture

My condolences to all high schoolers who raise the economics == religion comparison in class and get sent to the Principal's office for being terrizzz.

Sun, 08/03/2014 - 02:10 | 5039648 Tall Tom
Tall Tom's picture

So, with your opening post you disagee with Mises' economics?


So are you a Keynesian? What is your Economic Philosophy?


Henry Hazlitt was a proponent of the von Mises.. He is the author of the article. This is an excerpt out of his book, "Economics in One Lesson".


At times I just read and learn. Perhaps you need to slow down and not rush to quick judgment. You might just learn something.

Sat, 08/02/2014 - 14:37 | 5038110 AlaricBalth
AlaricBalth's picture

Strawman. I was merely pointing out that economics is a faith based paradigm. Nowhere do I espouse religion in the traditional sense as bogus or self-serving.

Thanks for asking.

Sat, 08/02/2014 - 14:44 | 5038133 Escrava Isaura
Escrava Isaura's picture


Economics is faith based.

Religion is faith based.

But, neither is bogus or self-serving.

Thanks for clarifying.

Sat, 08/02/2014 - 14:57 | 5038167 Harbanger
Harbanger's picture

Central planning is faith based, economics is a math problem.

Sat, 08/02/2014 - 15:07 | 5038198 Escrava Isaura
Escrava Isaura's picture

But you said economics was religious?

Sat, 08/02/2014 - 15:16 | 5038227 Harbanger
Harbanger's picture

When using fiat currency.  Damn, you're dense.

Sat, 08/02/2014 - 14:05 | 5037993 junction
junction's picture

Boring pretentious article, boring pretentious postings.  What else is new?

Sat, 08/02/2014 - 14:07 | 5038003 Escrava Isaura
Escrava Isaura's picture

You posting it!

Sat, 08/02/2014 - 15:48 | 5038307 Schmuck Raker
Schmuck Raker's picture

I advise you to improve your attention span.

Sat, 08/02/2014 - 16:59 | 5038185 kill switch
kill switch's picture


Whats the difference between the Godfather and an economist??

The economist gives you an offer you can't understand..


Sun, 08/03/2014 - 02:19 | 5039694 r0mulus
r0mulus's picture

i think they meant that in the way that is meant by "the art of war".

"Latin artem (nominative ars) "work of art; practical skill; a business, craft,""

Sat, 08/02/2014 - 14:16 | 5038030 theonewhowaskazu
theonewhowaskazu's picture

Economics as a study of incentives & how a rational person should react to them isn't something to be put down. Perhaps its not an "art" or a "science", but its surely a much more developed and reasonable academic field than what passes off as "psychology" these days.

What is to be put down is supposed "behavioral" economics, i.e, attempting to claim that it is posible to predict  when & how people are going to act "irrationally", and attempting to control that behavior. This field is messed up for all number of reasons. First, when you point out something as "irrational" publicly, people will most likely stop doing it, especially if you are using that irrationality to justify making policy choices. Second, the behavior might not be irrational at all, but merely representative of a different set of priorities; one might say it is "irrational" to smoke, but when you prioritize the pleasure and other short-term benefits  of smoking over the long-term costs (which for example you may never even experience for a whole array of reasons), it might be perfectly "rational" for some. This "behavioral" branch of economics seeks to create a government-sponsored set of priorities which are to be forced upon every citizen, which is clearly very problematic.

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