To improve the economy we need leaders who understand economics

The contents of Henry Hazlitt’s book, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics,” applies to the current financial crisis America is experiencing during these remaining weeks of the presidential campaign. Written in 1946, it’s an excellent read that conveys the basics about what you need to know when it comes to the larger workings of the economy.

In fact, it’s not just recommended reading for those who hold or are running for political office – it’s required reading. At its core, the topic isn’t overly complicated. The more of our Republican leaders who grasp the basics the sooner we’ll return to domestic fiscal sanity.

What follows are a few good excerpts from Hazlitt’s book. Emphasis was added in a few places through bolding of the text.

The first three passages apply perfectly to what happened with the Democratic Party’s policy of forcing banks to weaken their lending standards and give mortgages to risky borrowers.

“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.”

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“It is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths. It is often complained that demagogues can be more plausible in putting forward economic nonsense from the platform than honest men who try to show what is wrong with it. The reason is that the demagogues and bad economists are presenting only half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group. As far as they go they may be right.  In these cases the answer consists in showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups.”

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“The central lesson is that we should try to see all the main consequences of any economic policy or development-the immediate effects on special groups, and the long-run effects on all groups.”

The next excerpt sounds much like Barack Obama‘s plan to hire more middle-man bureaucrats to increase the size of government for the benefit of all.

“There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills.”

This sentence, as simple as it is, needs to be spoken by more Republican candidates more often:

“Everything we get, outside the free gifts of nature, must in some way be paid for.”

George Will’s recent column (see here) articulates an excellent parallel of the following paragraph:

“The enormously complicated problem of deciding precisely how much tens of thousands of different commodities and services should be produced is solved by the private enterprise system incomparably better than any group of bureaucrats could solve them. For they are solved by a system under which each consumer makes his own demand and casts a fresh vote, or a dozen fresh votes, every day; whereas bureaucrats would try to solve it by having made for consumer, not what the consumers themselves wanted, but what the bureaucrats decided was good for them.

“Yet though the bureaucrats do not understand the quasi-automatic system of the market, they are always disturbed by it. They are always trying to improve it or correct it, usually in the interests of some wailing pressure group.”

A few more:

“Emotional economics has given birth to theories that calm examination cannot justify.”

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“Deficit spending, once embarked upon, creates powerful vested interests which demand its continuance under all conditions.”

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“…this is our lesson in its most generalized form. For many things that seem to be true when we concentrate on a single economic group are seen to be illusions when the interests of everyone, as consumer no less than as producer, are considered.

To see the problem as a whole, and not in fragments: that is the goal of economic sense.”

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Up next: Clear thinking about economic progress and the role of government.