Just over 70 years ago, economist Henry Hazlitt wrote an economics textbook, Economics in One Lesson, which is still regarded as one of the best introductory economic texts available to the public. The book contains not a graph or a mathematical equation and reduces economics to its essence — logical reasoning.
Hazlitt’s One Economic Lesson is as follows:
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.
From this lesson is derived two central economic fallacies common to all bad policymaking:
Fallacy 1: That of looking only at the immediate consequences of an act or proposal.
Fallacy 2: That of looking at the consequences only for a particular group to the neglect of other groups.
Henry Hazlitt’s insights are as relevant to policymaking today as they were when the book was published in 1946.
For example, opponents of the current company tax cut should have paid heed to Hazlitt as these critics have clearly violated both of his central economic fallacies since:
Fallacy 1: They focus on the fact that a tax cut will reduce government revenues today and ignore the long run improvements in investment, GDP, job creation and wages growth.
Fallacy 2: They only highlight the proposed benefit of the tax cut to ‘foreign’ investors while ignoring the benefits flowing to Australian companies, workers and shareholders.
The company tax debate is one of many policy debates which would be improved if participants heeded the lessons of Henry Hazlitt. Economics in One Lesson is a great book, available for free on the internet, for anyone interested in learning about the economic way of thinking.
Matthew O’Donnell is a senior research fellow at the Centre for Independent Studies.
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