In his classic work, Economics in One Lesson, New Deal-era economist Henry Hazlitt critiques modern liberal economic theory. His analysis is interesting and extremely relevant to the current debate surrounding our own economic crisis. Why do the liberal economists win the day? How do they succeed in convincing people that government intervention in the economy will work—despite so much evidence to the contrary?
Selfish interests contribute greatly to the liberal victory. Whatever industry or special interest group will immediately benefit from government intervention generally supports the intervention. And of course, there is an initial economic benefit to the special interest group. The problem is that we only see the immediate effects and we neglect to investigate what the long-term effects will be—on all groups. According to Hazlitt, “In this [the fallacy of overlooking secondary consequences] lies almost the whole difference between good economics and bad.”
One reason that we fail to examine secondary consequences is that we generally lack the ability to follow long, complicated, and boring chains of reasoning. Bad economists speak in half-truths and present their errors to the public better than the good economists present their truths. But, it’s not just that the public lacks a decent attention span and reasoning skills, Hazlitt thinks it boils down to a lack of imagination.
Consider the reasoning offered when bad economists argue for government spending on public works. This act by the government, they maintain, will 1) provide a necessary product and 2) create jobs. So, the government collects funds in the form of taxes (which means taking money from private citizens) and spends it on building a bridge (to choose a favorable example of a public work. Obviously when government spending is wasteful, the problems are multiplied.)
The public sees the bridge being built. They see the men working—men with real paychecks that they will use to feed their families and purchase goods from other businesses. We see with our own eyes the economic stimulation. For most people, this “creating jobs” argument becomes vivid and very convincing.
But, Hazlitt asks, what about what we don’t see? What about all the things that will never exist? The bridge was paid for with tax money. For every dollar spent on the bridge, a dollar is taken from a taxpayer. So if the bridge costs $10 million, that’s $10 million that private citizens will now not spend to purchase items they need.
Therefore, Hazlitt argues, for every job created by government intervention, a private job has been destroyed somewhere else. The public doesn’t think about these jobs because these jobs will never exist. We will never see them. At best, the government has diverted jobs, not created jobs. There are more bridge builders, but fewer computer techs, automobile workers, and farmers.
But, the bridge exists. We see it with our own eyes. “It has come into being through the magic of government spending.” If the conservatives had their way, there would be no bridge and the country would be poorer for it, the liberal economists insist.
Yes, we see the bridge. But, again, we do not see all the unbuilt homes, the unmade cars, the unmade clothes, the ungrown food. We don’t see them because they don’t exist. Hazlitt concludes, “To see these uncreated things requires a kind of imagination that many people do not have.”
There’s no question that our modern education, our modern lifestyle, and our modern culture have greatly diminished our imaginations. And many astute cultural critics have outlined the ways in which our lack of imagination has contributed to our lack of character and other societal ills. But this was a new idea for me: that’s it’s not a lack of reasoning ability that has led us to this economic precipice, but perhaps it’s a lack of imagination.
What are your thoughts?