Economics in One Lesson – Beware the “Sob Story”

Whenever anyone asks me for a recommendation on what to read for the true story of economics, I always say that if you can read only one book, it should be Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics by Henry Hazlitt.

The “lesson” is essentially that to evaluate any economic policy, one must look at the global application of that policy over the long run.

One of the many fallacies of economic thought that violates this practice is to look at the experience of a suffering individual, and to make policy and law to help that individual. It is tempting to think this is a good idea, because you can see the individual, you can see his suffering. But the consequences of actions taken to help the specific suffer result in actions which are impossible to see, and often result in unintended consequences.

Whenever such specific remedies are applied, what invariably happens is that you can see the benefit; you cannot see the cost. As a trivial example, suppose taxes are raised to enable some sort of transfer payment. The beneficiary of the transfer can be seen to enjoy some improvement. But the cost to many individuals cannot be seen, because you cannot see the choices they could not make on their own behalf, because they don’t exist.

As a specific example, let’s say that in a community of 100,000 people, one dollar is collected from each person to pay for the four-year college education of a selected “worthy recipient.” The benefit to that recipient is tangible and can be seen. But the $100,000 not used by the community at the individual discretion of each is not seen because it does not occur. It seems that “something was created from nothing”, whereas in truth, something was only created in lieu of something else that did not come to being. The retailers, food sellers, etc. who otherwise would have had that income do not have that income.

My point is not that such programs should never come into being. In fact, if the 100,000 made the donation voluntarily, there is in fact no issue at all. It is when the one dollar is taken forcibly via taxation that you must conclude that by definition, it is not a free and good decision, because the 100,000 did not freely make that decision.

You will notice that progressives and liberals often when trying to make their case will point to a specific “sob story.” Whenever policies are made in such specific cases, you can be sure they will not be in the best interest of society at large.

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