Monday, February 09, 2009

Who (the hell) is Henry Hazlitt?

Or The Portrait of an Economic Autistic.

Or maybe How Clenched Was His Ass?

Or maybe even Henry Hazlitt and Ludwig von Mises: Separated at Birth?

He was a libertarian, right, Spot?

Yes, grasshopper, and the kind of third-rate mind that fourth-rate minds look up to. Which is why, Spot supposes, Craig Westover loves him:

'There is no more persistent and influential faith in the world today than faith in government spending.' So wrote Henry Hazlitt in his classic little book 'Economics in One Lesson.'

Always warming to an anti-gummint manifesto, Sticks continues:

Government doesn't create jobs; government doesn't create wealth. What the stimulus package will do is create inflation, the cruelest form of taxation on the oft-cited "working family" while it garners votes for myopic congressmen who trade the welfare of the unseen many for the benefit of the visible few.

Hazlitt's economic lesson is simple: The art of economics consists in looking not merely at the immediate but also 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. Hazlitt's lesson applied to the federal stimulus package reveals the fundamental fallacies of job-creationists on both the left and the right.

Everything we get must in some way be paid for. Government can't do anything for anyone until it acquires the funds to do so, and ultimately government acquires funds through taxation. Borrowed money plus interest must be paid out of taxes collected. When government simply prints paper money not backed by productivity, the result is inflation, which reduces people's purchasing power and lowers the quality of life as viciously as any tax.

Cutting to the chase: Every dollar of government spending must be raised through a dollar of taxation.

So begins another tripe fest from Captain Fishsticks. Spot finds that Sticks’ concern about federal stimulus spending hurting other people to be especially touching. The libertarian concern for humanity is always enormously affecting.

Henry_hazlitt Spot has to admit that Henry Hazlitt the perfect tin god for the altar in Sticks’ incense-perfumed prayer room. Why, he’s the guy who introduced Ayn Rand to free-market types in New York. He is also credited — or blamed, take your pick — with introducing the “heterodox” Austrian School of economics to an English-speaking audience.

What does heterodox mean, Spotty?

Spot should make you look it up, grasshopper, but he’s in an expansive mood this morning, so here’s one definition:

Not in agreement with accepted beliefs, especially in church doctrine or dogma.

Outside the mainstream, in other words. Armed with a single year of college, Hank set out on a career of journalism and at one point dedicated himself to writing a book to prove that John Maynard Keynes was wrong, wrong, wrong.

Golly, Spotty, he must have learned an awful lot in that one year of college!

D’you think so, grasshopper? Anyway, Hazlitt performed a valuable service for Captain Fishsticks and his fellow travelers at the Minnesota Free Market Institute by reducing economics to simple arithmetic — not only that, but only two operations — addition and subtraction. What one person has, another does not. Very easy to grasp.

Presently, Hank’s ghost has some currency because President Obama’s stimulus plan is mostly — although not as much as it was, thanks to Mitch McConnell and his merry band of Senate Republicans — Keynesian.

At this point, let’s look at where we are now, economically. Here’s a graph whose original provenance is House Speaker Pelosi’s office, but it’s been reproduced several places. Spot copied it out without saving a link, but you can find it easily enough.


Doesn’t look good, does it Spot?

No, grasshopper, it doesn’t. Which is why economists like Paul Krugman say we need to apply some Keynesian stimulus through government spending. Krugman says that even the original Obama plan, now whittled in the Senate, was not enough:

Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted, it wouldn't have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

This is plainly not your ordinary recession. Uncle Alan or Ben Bernanke aren’t gonna get us out of this one.

Part of the reason that government spending must do it is what is called the liquidity trap, or as John Maynard Keynes expressed it, the liquidity preference. The situation is dire enough that monetary policy has lost all traction. That’s what happened to Japan during its recent prolonged recession: interest rates were cut to essentially zero and it still didn’t help.

We need to think of the 30s and the Depression for our analogy here.

Yeah, Spot, but Roosevelt and the New Deal didn’t get us out of the Depression; the run up to World War II did.

What happened in the build up to World War II, grasshopper?

The government spent a lot of money.

That’s right, grasshopper. Just like today, FDR had the Republicans — the Hoover dead-enders — picking away at him, and it took getting ready for war to get us out.

That was the Mother of All Keynesian Spending, wasn’t it Spotty?

Right again, grasshopper. Only this time, the problem isn’t military preparedness; it’s the fact we neglected everything else: education, transportation, health care, for example.

But isn’t the military stretched thin, Spot?

Yes, but Spot thinks that is a foreign policy problem, not a military spending problem.

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