re: EBC Book #1 - Economics in One Lesson by Henry Hazlitt

quote:

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he whole argument for the government entering the lending business, in fact, is that it will make loans to people who could not get them from private lenders. This is only another way of saying that the government lenders will take risks with other people’s money (the taxpayers’) that private lenders will not take with their own money.

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Reminded me of both housing and student loans. With housing loans like Fannie and Freddie, we have obviously seen the repercussions. Makes me wonder what the "reckoning" is going to be with student loans. Academic costs have risen exponentially over the past decade and you have to think that financial aid packages supported by the government is at least a little bit of a catalyst.

My take aways (Which after re-reading have a very political undertone. For some reason, every economic idea makes me relate it back to governmental policies. I don't know how to take it out.):

1: TRANSFER OF WEALTH. The broken window analogy was so simple, but made a lot of sense. Essentially, every action is a transfer of wealth. This got me thinking more about taxes, etc. The government taxes its citizens to provide services, but every single tax is taking spending money out of the hand of the consumer. I believe the quote was something along the lines of "a dollar of spending is a dollar of taxation." Every dollar the US government and LA government spend has to come from somewhere. I'm fine with the government existing and taking up tasks that no one else can handle efficiently, but I think most people fail to realize that the money the State and Federal governments spend comes from the pocket of a citizen.

My issue with government spending is that I don't believe the government is efficient. Go sit in a DMV or any other state office. Then go sit in the office of a private corporation trying to make money. The differences are night and day. Because of the inefficiencies, I'm a big believer that the government shouldn't pick winners and losers. But the transfer of wealth from the consumer to the government and then from the government to a winner got me thinking about two different scenarios.


Scenarios
Bailing out the banks: Was this a good use of the public's money? What if that money had been given back to the consumer? I'm not a banker and I don't understand the intricacies, but I've read a decent amount about the decision and it seems like the decision makers believed it was the only way to save the financial system. But the free enterprise person in me would have been willing to sit back and watch the world burn. What am I missing? Is there ever a good excuse for government intervention through use of people's money?

2008 Stimulus: Along the same lines of the bailing out banks inquiry. In the abstract, it makes a lot of sense to have the consumer determine which industries win and lose and ultimately driving up the economy through the consumer. The only issue that I had was that the money could have been saved or put to use on the black market. I haven't figured out a way to circumvent that issue.



2: ENDING PUBLIC JOBS IS BENEFICIAL BECAUSE IT FORCES PEOPLE INTO PRIVATE ENTITIES. This was really interesting. It assumes that all of the money that was being used to pay excess government employees is given back to the citizens to invest in the private enterprises of their choice. These enterprises will then expand, hiring the government workers. It makes perfect sense on paper. However, there are some major issues practically. One, the government isn't likely to fire a ton of people. Second, if they do, they aren't going to give the citizen's the excess money. Third, there has to be some kind of lag between the firing from the government agency and the hiring in private industry. At that point, you have an increased unemployment rate and more people on the government dime not working. Is there a more practical application of this principle?



4: IF IT DOESN'T MAKE SENSE FOR A FAMILY, WHY DOES IT MAKE SENSE FOR A COUNTRY. This was in the tariff chapter, but it makes a lot of sense in terms of general governmental policies, as well. I know there is a balance budget proposal or attempt in most state houses and the US Congress, however, it always seems like a tough sell. How can a country live outside of their means or take actions that would not be considered financially responsible if a family of 4 took the same actions.



5: GOVERNMENT PRICE FIXING. This was a bulk of my econ classes in college. A non-stop rant on rent control and minimum wage. My belief has always been that a company who pays more than the minimum wage will have better employees than the business who pays the minimum wage. However, if a business is capable of functioning with the employees who work for $4 an hour (people who can't get any other type of job), why should they be forced to pay more than $4 for the work. Further, this would open up jobs in the higher tier for people who actually deserve the higher paying jobs- instead of being crowded out by bad employees.

Great notes. I also walked away with a better appreciation of how many of these policies are just covert transfers of wealth. For example, higher inflation is a transfer of wealth from poor to rich and from creditor to debtor. I think I knew that inflation was bad for the poor and good for debtors, but had not quite understood it as a transfer of wealth before. It's now crystal clear for me.

Yeah I just got over halfway through the book but I am going to try and make a push tomorrow to catch up.

Good read on automation and wages in the National Review today that is relevant to our Hazlitt reading:

LINK