In a previous post I highlighted the cool scribd.com technology for reading online. That started a summer of reading economic basics. In this day of troubled economic times and the political decisions that necessarily follows, I have been trying to retreat from the discourse from time to time to reaffirm the basics. I think one of the best explanations of what is going on today was written in 1946 and last updated in 1979, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics by Henry Hazlitt.
At the risk of you not buying and devouring this book, here is the lesson in one sentence courtesy of the author. 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 (p. 17). He goes on to say on the same page that (n)ine-tenths of the economic fallacies that are working such dreadful harm in the world today... stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group of the neglect of other groups (p. 17).
I have always had this maxim of Fredrich Bastiat in my mind, but in reading Hazlitt I see how easy it is for me to be swayed by conventional wisdom. While I would never fall into the broken window fallacy (when I recognize it), it is the art of recognizing it that is the art of economics. While I can easily apply the broken window fallacy to war, why did I so easily accept that bombed out factories in Germany and Japan allowed them to grow faster since they could rebuild with the latest and greatest technology and leap frog the west in their growth. The truth is it was their economic policies, not the bombed out factories that led to the growth, but see how easy it is to attribute actual growth to the wrong cause when we see what is seen and not what is unseen.
Read this book and you will be pondering current events with renewed enthusiasm.