Many people, however, believe these fallacies because of man’s nature to see only the “immediate effects of a given policy, or its effects only on a special group. ” Those people neglect the long-term effects and the implications on other groups by an economic policy. Hazlitt goes on to explain that those fallacies do not typically occur in everyday life, but they are dominating in the field of economics. Long-run effects are sometimes not seen for many years, so they can easily be hidden and separated from the policy that created them.
Hazlitt reduces his lesson 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. ” Most of the fallacies in economics come from ignoring this essential lesson, but the opposite are can occur. Classical economists only focused on long-term consequences and not the immediate damage incurred by certain groups. This error, however, is not often made.
Many people take short run consequences into account to the extent that they neglect any long term consequences of policy. The difference between good and bad economics is that bad economics focuses on short term benefits and ignores long term consequences. The reason that this has continued to prevail is because bad economist are better at defending their errors than good economists are at convincing the public of the truth. To analyze a real world issue, we must apply this lesson in many aspects of the world or economic situations.
It will help us to understand why we should consider the result of both short and long-term and all group. Considering the role of government in lending and the overlap on taxation, Private lenders are more stringent in their lending policies and, consequently, have to turn down some high risk borrowers. The government is willing to lend these borrowers the money they need for capital to carry out their businesses. These borrowers will then be able to acquire the resources they need to produce what they need.
What is overlooked at this point is the fact that, because these high risk borrowers were able to get what could have been acquired by low risk borrowers from private lenders, the resources ended up in the hands of less efficient producers who may not be as productive as the producers who qualified for private lending. Furthermore, high risk borrowers get the money from the taxpayers and taxpayers can not fet benefit from this lending and this means the practice to the benefit of a few at the expense of everyone else.
For the short-term result, government lending can encourage entrepreneurship to create more GDP and bring benefit for the high risk borrowers. But for the long-term result, high risk borrowers may not produce and use money efficiently when get money from the government. The worse is that this only benefit for special groups. For the synergy of technology, production and employment, Many labor unions exist to argue against the need for self sufficient machines as this is a threat to employment. This is the short-term result of the self sufficient machines brings to the labor.
However, this argument ignores is that these machines are the results of technological advancements that have made lives easier for the majority and has made production more efficient. This higher production in turn has contributed to higher wages and standards of living – the economic goal of any country. This is the long-term result and bring benefit for all the people in the economy such as consumers can buy chipper product that without cost of labor who sell the product and producer can save labor cost as well.
This argument overlooks the fact that full production equates to full employment in the sense that everyone has something to do within the time they are employed. It further overlooks the fact that there are many people within the government who are fully employed without being fully productive. For the pressures imposed on minimum wages, there are two forces pushing minimum wages which are legislation and labor unions. They only see the short-term result of minimum wage that is protect the benefit for the labors and increase the live standards for the workers.
But both these forces ignore the fact that they cannot impose a price for labor that employers cannot pay for. The driving force for wages is production and employers cannot afford to pay for labor that does not produce. For the long-term result, if employers were to succumb to the pressure of law and unions, they will end up sacrificing the development of the business which, in the end, will equate to the lack of growth in the labor industry. Legislation imposing minimum wages and labor unions operate under the presumption that there are limited resources which need to be shared.
Furthermore, this policy only consider the benefit of workers and not consider the benefit of producers, if producers can afford the higher wages the demand and supply of labor will cause the higher wage. Considering the application of lesson is these situations, we can know the total result of policy is decided by advantages of short-term result compare with the long-term result and whether this policy consider the benefit of all groups. Government should consider the effect of their policies whether can improve the whole economy.
What is recommended now is a need to thoroughly examine and debate proposed economic decisions before they are implemented. There is a need to revive the dying free economy. It is dying because it is being choked off by too much government interventionism. Yet, the necessity for some form of interventionism cannot be ignored without repeating the chaos that Wall Street experienced in late 2008. Governments need to learn from the mistakes of history and open their eyes to these fallacies. Reference list: Economics in One Lesson, The Shortest and Surest Way to Understand Basic Economics”. Random House. com.