Economics in One Lesson (LINK)

by Henry Hazlitt



The Lesson

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine-the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

In this lies the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.

The distinction may seem obvious. The precaution of looking for all the consequences of a given policy to everyone may seem elementary. Doesn’t everybody know, in his personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end? Doesn’t every little boy know that if he eats enough candy he will get sick? Doesn’t the fellow who gets drunk know that he will wake up next morning with a ghastly stomach and a horrible head? Doesn’t the dipsomaniac know that he is ruining his liver and shortening his life? Doesn’t the Don Juan know that he is letting himself in for every sort of risk, from blackmail to disease? Finally, to bring it to the economic though still personal realm, do not the idler and the spendthrift know, even in the midst of their glorious fling, that they are heading for a future of debt and poverty?

Yet when we enter the field of public economics, these elementary truths are ignored. There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” And such shallow wisecracks pass as devastating epigrams and the ripest wisdom.

But the tragedy is that, on the contrary, we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.

From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced 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.

The Lesson

Section 2

Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson. Those fallacies all stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group to the neglect of other groups.

It is true, of course, that the opposite error is possible. In considering apolicy we ought not to concentrate only on its long-run results to the community as a whole. This is the error often made by the classical economists. It resulted in a certain callousness toward the fate of groups that were immediately hurt by policies or developments which proved to be beneficial on net balance and in the long run.

But comparatively few people today make this error; and those few consist mainly of professional economists. The most frequent fallacy by far today, the fallacy that emerges again and again in nearly every conversation that touches on economic affairs, the error of a thousand political speeches, the central sophism of the new economics, is to concentrate on the short-run effects of policies on special groups and to ignore or belittle the long-run effects on the community as a whole. The “new” economists flatter themselves that this is a great, almost a revolutionary advance over the methods of the “classical” or “orthodox,” economists, because the former take into consideration short-run effects which the latter often ignored. But in themselves ignoring or slighting the long-run effects, they are making the far more serious error. They overlook the woods in their precise and minute examination of particular trees. Their methods and conclusions are often profoundly reactionary. They are sometimes surprised

The Lesson

Section 3

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 the honest men who try to show what is wrong with it. But the basic reason for this ought not to be mysterious. The reason is that the demagogues and bad economists are presenting 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 often 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. The answer consists in supplementing and correcting the half-truth with the other half. But to consider all the chief effects of a proposed course on everybody often requires a long, complicated, and dull chain of reasoning. Most of the audience finds this chain of reasoning difficult to follow and soon becomes bored and inattentive. The bad economists rationalize this intellectual debility and laziness by assuring the audience that it need not even attempt to follow the reasoning or judge it on its merits because it is only “classicism” or “laissez faire” or “capitalist apologetics” or whatever other term of abuse may happen to strike them as effective.

We have stated the nature of the lesson, and of the fallacies that stand in its way, in abstract terms. But the lesson will not be driven home, and the fallacies will continue to go unrecognized, unless both are illustrated by examples. Through these examples we can move from the most elementary problems in economics to the most complex and difficult. Through them we can learn to detect and avoid first the crudest and most palpable fallacies and finally some of the most sophisticated and elusive. To that task we shall now proceed.

The Lesson Applied

The Broken Window

Let us begin with the simplest illustration possible: let us, emulating Bastiat, choose a broken pane of glass.

A young hoodlum, say, heaves a brick through the window of a baker’sshop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.

Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.

The Lesson Applied

The Blessings of Destruction

So we have finished with the broken window. An elementary fallacy. Anybody, one would think, would be able to avoid it after a few moments’ thought. Yet the broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by chambers of commerce, by labor union leaders, by editorial writers and newspaper columnists and radio and television commentators, by learned statisticians using the most refined techniques, by professors of economics in our best universities. In their various ways they all dilate upon the advantages of destruction.

Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace. They see “miracles of production” which it requires a war to achieve. And they see a world made prosperous by an enormous “accumulated” or “backed-up” demand. In Europe, after World War II, they joyously counted the houses, the whole cities that had been leveled to the ground and that “had to be replaced.” In America they counted the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They brought together formidable totals.

It was merely our old friend, the broken-window fallacy, in new clothing, and grown fat beyond recognition. This time it was supported by a whole bundle of related fallacies. It confused need with demand. The more war destroys, the more it impoverishes, the greater is the postwar need. Indubitably. But need is not demand. Effective economic demand requires not merely need but corresponding purchasing power. The needs of India today are incomparably greater than the needs of America. But its purchasing power, and therefore the “new business” that it can stimulate, are incomparably smaller.

But if we get past this point, there is a chance for another fallacy, and the broken-windowites usually grab it. They think of “purchasing power” merely in terms of money. Now money can be run off by the printing press. As this is being written, in fact, printing money is the world’s biggest industry—if the product is measured in monetary terms. But the more money is turned out in this way, the more the value of any given unit of money falls. This falling value can be measured in rising prices of commodities. But as most people are so firmly in the habit of thinking of their wealth and income in terms of money, they consider themselves better off as these monetary totals rise, in spite of the fact that in terms of things they may have less and buy less. Most of the “good” economic results which people at the time attributed to World War II were really owing to wartime inflation. They could have been, and were, produced just as well by an equivalent peacetime inflation. We shall come back to this money illusion later.

Now there is a half-truth in the “backed-up” demand fallacy, just as there was in the broken-window fallacy. The broken window did make more business for the glazier. The destruction of war did make more business for the producers of certain things. The destruction of houses and cities did make more business for the building and construction industries. The inability to produce automobiles, radios, and refrigerators during the war did bring about a cumulative postwar demand for those particular products.

To most people this seemed like an increase in total demand, as it partly was in terms of dollars of lower purchasing power. But what mainly took place was a diversion of demand to these particular products from others. The people of Europe built more new houses than otherwise because they had to. But when they built more houses they had just that much less manpower and productive capacity left over for everything else. When they bought houses they had just that much less purchasing power for something else. Wherever business was increased in one direction, it was (except insofar as productive energies were stimulated by a sense of want and urgency) correspondingly reduced in another.

The war, in short, changed the postwar direction of effort; it changed the balance of industries; it changed the structure of industry.

Since World War II ended in Europe, there has been rapid and even spectacular “economic growth” both in countries that were ravaged by war and those that were not. Some of the countries in which there was greatest destruction, such as Germany, have advanced more rapidly than others, such as France, in which there was much less. In part this was because West Germany followed sounder economic policies. In part it was because the desperate need to get back to normal housing and other living conditions stimulated increased efforts. But this does not mean that property destruction is an advantage to the person whose property has been destroyed. No man burns down his own house on the theory that the need to rebuild it will stimulate his energies.

After a war there is normally a stimulation of energies for a time. At the beginning of the famous third chapter of his History of England,Macaulay pointed out that:

No ordinary misfortune, no ordinary misgovernment, will do so much to make a nation wretched as the constant progress of physical knowledge and the constant effort of every man to better himself will do to make a nation prosperous. It has often been found that profuse expenditure, heavy taxation, absurd commercial restriction, corrupt tribunals, disastrous wars, seditions, persecutions, conflagrations, inundations, have not been able to destroy capital so fast as the exertions of private citizens have been able to create it.

No man would want to have his own property destroyed either in war or in peace. What is harmful or disastrous to an individual must be equally harmful or disastrous to the collection of individuals that make up a nation.

Many of the most frequent fallacies in economic reasoning come from the propensity, especially marked today, to think in terms of an abstraction—the collectivity, the “nation”—and to forget or ignore the individuals who make it up and give it meaning. No one could think that the destruction of war was an economic advantage who began by thinking first of all of the people whose property was destroyed.

Those who think that the destruction of war increases total “demand” forget that demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions. Supply creates demand because at bottom it is demand. The supply of the thing they make is all that people have, in fact, to offer in exchange for the things they want. In this sense the farmers’ supply of wheat constitutes their demand for automobiles and other goods. All this is inherent in the modern division of labor and in an exchange economy.

This fundamental fact, it is true, is obscured for most people (including some reputedly brilliant economists) through such complications as wage payments and the indirect form in which virtually all modern exchanges are made through the medium of money. John Stuart Mill and other classical writers, though they sometimes failed to take sufficient account of the complex consequences resulting from the use of money, at least saw through “the monetary veil” to the underlying realities. To that extent they were in advance of many of their present-day critics, who are befuddled by money rather than instructed by it. Mere inflation—that is, the mere issuance of more money, with the consequence of higher wages and prices may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not.

It should be obvious that real buying power is wiped out to the same extent as productive power is wiped out. We should not let ourselves be deceived or confused on this point by the effects of monetary inflation in raising prices or “national income” in monetary terms.

It is sometimes said that the Germans or the Japanese had a postwar advantage over the Americans because their old plants, having been destroyed completely by bombs during the war, they could replace them with the most modern plants and equipment and thus produce more efficiently and at lower costs than the Americans with their older and half-obsolete plants and equipment. But if this were really a clear net advantage, Americans could easily offset it by immediately wrecking their old plants, junking all the old equipment. In fact, all manufacturers in all countries could scrap all their old plants and equipment every year and erect new plants and install new equipment.

The simple truth is that there is an optimum rate of replacement, a best time for replacement. It would be an advantage for a manufacturer to have his factory and equipment destroyed by bombs only if the time had arrived when, through deterioration and obsolescence, his plant and equipment had already acquired a null or a negative value and the bombs fell just when he should have called in a wrecking crew or ordered new equipment anyway.

It is true that previous depreciation and obsolescence, if not adequately reflected in his books, may make the destruction of his property less of a disaster, on net balance, than it seems. It is also true that the existence of new plants and equipment speeds up the obsolescence of older plants and equipment. If the owners of the older plant and equipment try to keep using it longer than the period for which it would maximize their profit, then the manufacturers whose plants and equipment were destroyed (if we assume that they had both the will and capital to replace them with new plants and equipment) will reap a comparative advantage or, to speak more accurately, will reduce their comparative loss.

We are brought, in brief, to the conclusion that it is never an advantage to have one’s plants destroyed by shells or bombs unless those plants have already become valueless or acquired a negative value by depreciation and obsolescence.

In all this discussion, moreover, we have so far omitted a central consideration. Plants and equipment cannot be replaced by an individual (or a socialist government) unless he or it has acquired or can acquire the savings, the capital accumulation, to make the replacement. But war destroys accumulated capital.

There may be, it is true, offsetting factors. Technological discoveries and advances during a war may, for example, increase individual or national productivity at this point or that, and there may eventually be a net increase in overall productivity. Postwar demand will never reproduce the precise pattern of prewar demand. But such complications should not divert us from recognizing the basic truth that the wanton destruction of anything of real value is always a net loss, a misfortune, or a disaster, and whatever the offsetting considerations in a particular instance, can never be, on net balance, a boon or a blessing.

The Lesson Applied

Public Works Mean Taxes

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. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to “insufficient private purchasing power.” The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the “deficiency”.

An enormous literature is based on this fallacy, and, as so often happens with doctrines of this sort, it has become part of an intricate network of fallacies that mutually support each other. We cannot explore that whole network at this point; we shall return to other branches of it later. But we can examine here the mother fallacy that has given birth to this progeny, the main stem of the network.

Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing. They tell us that the government can spend and spend without taxing at all; that is can continue to pile updebt without ever paying it off because “we owe it to ourselves.” We shall return to such extraordinary doctrines at a later point. Here I am afraid that we shall have to be dogmatic, and point out that such pleasant dreams in the past have always been shattered by national insolvency or a runaway inflation. Here we shall have to say simply that all government expenditures must eventually be paid out of the proceeds of taxation; that inflation itself is merely a form, and a particularly vicious form, of taxation.

Having put aside for later consideration the network of fallacies which rest on chronic government borrowing and inflation, we shall take it for granted throughout the present chapter that either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation. Once we look at the matter in this way, the supposed miracles of government spending will appear in another light.

A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works — of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services. With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned. I am here concerned with public works considered as a means of “providing employment” or of adding wealth to the community that it would not otherwise have had.

A bridge is built. Ifit is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.

Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has beencompleted. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.

This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

But then we come to the second argument. The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer. Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.

The Lesson Applied

Public Works Mean Taxes

Section 2

The same reasoning applies, of course, to every other form of public work. It applies just as well, for example, to the erection, with public funds, of housing for people of low incomes. All that happens is that money is taken away through taxes from families of higher income (and perhaps a little from families of even lower income) to force them to subsidize these selected families with low incomes and enable them to live in better housing for the same rent or for lower rent than previously.

I do not intend to enter here into all the pros and cons of public housing. I am concerned only to point out the error in two of the arguments most frequently put forward in favor of public housing. One is the argument that it “creates employment”; the other that it creates wealth which would not otherwise have been produced. Both of these arguments are false, because they overlook what is lost through taxation. Taxation for public housing destroys as many jobs in other lines as it creates in housing. It also results in unbuilt private homes, in unmade washing machines and refrigerators, and in lack of innumerable other commodities and services.

And none of this is answered by the sort of reply which points out, for example, that public housing does not have to be financed by a lump sum capital appropriation, but merely by annual rent subsidies. This simply means that the cost to the taxpayers is spread over many years instead of being concentrated into one. Such technicalities are irrelevant to the main point.

The great psychological advantage of the public housing advocates is that men are seen at work on the houses when they are going up, and the houses are seen when they are finished. People live in them, and proudly show their friends through the rooms. The jobs destroyed by the taxes for the housing are not seen, nor are the goods and services that were never made. It takes a concentrated effort of thought, and a new effort each time the houses and the happy people in them are seen, to think of the wealth that was not created instead. Is it surprising that the champions of public housing should dismiss this, if it is brought to their attention, as a world of imagination, as the objections of pure theory, while they point to the public housing that exists? As a character in Bernard Shaw’s Saint Joan replies when told of the theory of Pythagoras that the earth is round and revolves around the sun: “What an utter fool! Couldn’t he use his eyes?”

We must apply the same reasoning, once more, to great projects like the Tennessee Valley Authority. Here, because of sheer size, the danger of optical illusion is greater than ever. Here is a mighty dam, a stupendous arc of steel and concrete, “greater than anything that private capital could have built,” the fetish of photographers, the heaven of socialists, the most often used symbol of the miracles of public construction, ownership and operation. Here are mighty generators and power houses. Here is a whole region, it is said, lifted to a higher economic level, attracting factories and industries that could not otherwise have existed. And it is all presented, in the panegyrics of its partisans, as a net economic gain without offsets.

We need not go here into the merits of the TVA or public projects like it. But this time we need a special effort of the imagination, which few people seem able to make, to look at the debit side of the ledger. If taxes are taken from individuals and corporations, and spent in one particular section of the country, why should it cause surprise, why should it be regarded as a miracle, if that section becomes comparatively richer? Other sections of the country, we should remember, are then comparatively poorer. The thing so great that “private capital could not have built it” has in fact been built by private capital—the capital that was expropriated in taxes (or, if the money was borrowed, that eventually must be expropriated in taxes). Again we must make an effort of the imagination to see the private power plants, the private homes, the typewriters and television sets that were never allowed to come into existence because of the money that was taken from people all over the country to build the photogenic Norris Dam.

The Lesson Applied

Public Works Mean Taxes

Section 3

I have deliberately chosen the most favorable examples of public spending schemes—that is, those that are most frequently and fervently urged by the government spenders and most highly regarded by the public. I have not spoken of the hundreds of boondoggling projects that are invariably embarked upon the moment the main object is to “give jobs” and “to put people to work.” For then the usefulness of the project itself, as we have seen, inevitably becomes a subordinate consideration. Moreover, the more wasteful the work, the more costly in manpower, the better it becomes for the purpose of providing more employment. Under such circumstances it is highly improbable that the projects thought up by the bureaucrats will provide the same net addition to wealth and welfare, per dollar expended, as would have been provided by the taxpayers themselves, if they had been individually permitted to buy or have made what they themselves wanted, instead of being forced to surrender part of their earnings to the state.

The Lesson Applied

Taxes Discourage Production

There is a still further factor which makes it improbable that the wealth created by government spending will fully compensate for the wealth destroyed by the taxes imposed to pay for that spending. It is not a simple question, as so often supposed, of taking something out of the nation’s right-hand pocket to put into its left-hand pocket. The government spenders tell us, for example, that if the national income is $1,500 billion then federal taxes of $360 billion a year would mean that only 24 percent of the national income is being transferred from private purposes to public purposes.[1] This is to talk as if the country were the same sort of unit of pooled resources as a huge corporation, and as if all that were involved were a mere bookkeeping transaction. The government spenders forget that they are taking the money from A in order to pay it to B. Or rather, they know this very well but while they dilate upon all the benefits of the process to B, and all the wonderful things he will have which he would not have had if the money had not been transferred to him, they forget the effects of the transaction on A. B is seen; A is forgotten.

In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new privatejobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

A certain amount of taxes is of course indispensable to carry on essential government functions. Reasonable taxes for this purpose need not hurt production much. The kind of government services then supplied in return, which among other things safeguard production itself, more than compensate for this. But the larger the percentage of the national income taken by taxes the greater the deterrent to private production and employment. When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble.

I’m going to stop there for now and in the next section, I will jump ahead a few chapters.


Here’s a meme that I ran across and had to comment on. The lack of basic math ability still amazes me. Then you have this one cat talking about his college economics professors and they undoubtedly can”t do math either. Last we have the one who doesn’t believe me and decides that it is all because of “Corporate greed.” For about the 10th time I have asked a lefty to explain what corporate greed is and Bam, they’re gone, never to speak again.

After this post, I’m going to share Henry Hazlitt’s –  Economics in one lesson. Since this is not a novel, I’m not going to start at the beginning but show 3-4 chapters that are pressing at the moment first. This book could have been written yesterday.

loony 1 uohuohuh


    • Alan Peppers Say that minimum wage is raised from $7.25 to $10.10; that is a raise of $2.85 per hour.
      Now say that there are 7 people working at McDonalds per shift. 
      This would increase pay by $19.95 per hour.
      To cover this cost by raising the Dollar menu to $1.05 would require 399 items to be sold per hour; every hour. 
      How do they do that?
        Rich Schmidt Cut the CEOs salary by one tenth of one percent…/mcdonalds-ceo-pay_n…
        Kris Vaughn Mcdonalds makes about 4-6 billion a year… Im sure it would barely put a dent in their pockets.. For what Ive gathered from my own economic professors, to what studies Ive seen on the internet.. Probably look at 100 million AT MOST lost… But then you gotta figure.. How many of those people with new raises are gonna turn right around and take their family to Mcdonalds? Honestly.. From my own figures.. Im guessing Mcdonalds is gonna loose out on anywhere between 50-80 million. But when your making 4-6 billion a year.. What does it even matter?
        Pamela Sue And of course Mickey’s will get a bigger tax break & even more incentives. The important thing is that many Americans will have their foot on the botton rung of the climb to self-sufficiency & prosperity.
        Alan Peppers If each McDonalds pays $19.95 per hour more and there are 14000 McDonalds that = $279,300 per hour x 16 hours = $4,468,800 per day.
        Now $4,468,800 per day x 365 days = $1,631,112,000 per year.
        And yes, that is $1.6 BILLION and you’re talking about 1/10 of 1 % of the CEO’s salary.

        Please learn basic math.

        Russ Schleicher Alan that is 1.6 billion into the economy a great protion of which they will have spent there.
        Alan Peppers Do large corporations and rich people keep their money stuffed in a mattress? No, they spend it and invest it which keeps the money in the economy. You can’t take $1.6 billion out of the economy, turn around and put it back in the economy and call it a gain.
        Milton Strumpf Alan, the wealthy do NOT spend it. Give someone who makes $290 a week a raise to make $404 a week and they WILL spend it, generating more profits for businesses. Someone making $1 million/year a raise to $1.1 million, they will mostly just bank it. That’s been proven over and over throughout history. We have the lowest tax rate on the highest earners in history. Corporate profits are the highest they’ve been in years. It’s time to reign in corporate greed. And remember, people making so little survive on government benefits and assistance. So let’s stop giving places like McDonalds corporate welfare they don’t need and make them start paying their workers like they’re supposed to.
        Alan Peppers Explain to me exactly what “corporate greed” means.
      • Alan Peppers

In a discussion the question was asked, “If Obama is such a bad president, what does that make Bush?” Here’s my take on a few things that the left use against Bush.

Was Bush a great president? No, but he was the right president for the time. While people like to brag on the Clinton “Surplus” they always forget that Bush was sworn in at the start of a recession. They act like the Bush tax cuts were simply to favor the rich… he cut taxes and ended the recession just in time for 9/11.

There are those on the left that try to make out that the Bush administration knew of the attacks in advance and did nothing to stop it. That’s as silly as the one’s on the right who believe that 9/11 was an inside job by our government and that there was no hijacking, no planes and no terrorist. The government did it all. Was information available that would have led anyone to think that 20 terrorist were going to hijack 4 planes at the same time and crash them? No, not even remotely.

Could the aftermath of 9/11 have been handled differently? Sure it could but that doesn’t mean that it could have been handled better. Bush pulled all of America together, as one people. That was his job at the time and he did it well. He was pointedly blunt with our enemies and our allies rushed to our side. President Obama has been pointedly blunt with the American people and our allies and it seems that he has covered for our enemies. A Muslim shouting Allah Akbar kills 13 people at fort Hood and it’s called work place violence.

Now let’s talk about the wars. It seems that people have forgotten what really went on and have made up there own versions.  I’m going to stick with the war in Iraq because that seems to be the most contentious one. I have saw people posting about Bush going into Iraq to get Al qaeda out and ended up with al qaeda in charge but al qaeda was never the question in Iraq. Iraq was strictly about a threat to America.

Why would we think that Iraq had weapons of mass destruction? Well, it could be because they used chemical weapons on the kurds in there own country. Maybe it was because after the first Gulf war the UN found and helped to destroy tons of chemicals.

By the time that 1998 rolled around it was believed that Saddam Hussein had rebuilt the stock of weapons and President Clinton had bombed suspected sites in Iraq. Clinton signed the Saddam Removal Act in to law in 1998. Democrats everywhere supported the war. It was only in Bushes 2nd term that the left decided that Bush had lied, Remember all of the pictures of Bush being hanged, being shot, be burnt, the Bush mask. All of the things that so offend the left if the same is done to Obama they heap on Bush.

The UN inspectors would search through Iraq and when they named the next place to look, they were denied and kicked out of the country. This happened over and over. There were 14 UN resolutions against Iraq and Iraq ignored them all.

Let me get the “Blood for oil” out of the way here. The United States has not profited from any oil that has been sold from Iraq just as it did not profit from Kuwait when Iraq attacked it in the first Gulf War. I just saw a meme with Dick Cheneys picture and the claim that Halliburton made $39,000,000,000 off of the war. Maybe they did, they are a huge corporation. Now other than working there at one time, Dick Cheney has nothing to do with Halliburton. Now, put the money in perspective, Halliburton makes X number of dollars over 13 – 14 years and the US government makes twice that off of student loans EVERY YEAR. Think about that.

Back to Iraq and WMD. The main reason that it was believed that Iraq still had chemical weapons and was running a nuclear program was because that was what Saddam Hussein wanted the world to believe. His defecting military members believed that he had them, after the war began, captured military believed that he had them. Saddam played a huge bluff and he got called.
Now today, June 29 2014 we have new news

“Chemical weapons produced at the Al Muthanna facility, which Isis today seized, are believed to have included mustard gas, Sarin, Tabun, and VX.

Here is the CIA’s file on the complex.

QuoteStockpiles of chemical munitions are still stored there. The most dangerous ones have been declared to the UN and are sealed in bunkers.

Although declared, the bunkers contents have yet to be confirmed.

These areas of the compound pose a hazard to civilians and potential blackmarketers.

Numerous bunkers, including eleven cruciform shaped bunkers were exploited. Some of the bunkers were empty. Some of the bunkers contained large quantitiesof unfilled chemical munitions, conventional munitions, one-ton shipping containers, old disabled production equipment (presumed disabled under UNSCOM supervision), and other hazardous industrial chemicals.”

“The remaining chemical weapons from Saddam Hussein’s regime are stored in two sealed bunkers, both located at the Al Muthanna Chemicals Weapons Complex, a large site in the western desert some 80km north west of Baghdad.

This was the principal manufacturing plant for both chemical agents and munitions during Saddam Hussein’s rule.

Thousands of tonnes of chemical weapons were produced, stored and deployed by the Saddam Hussein regime. Iraq used these weapons during the Iran – Iraq War (1980 to 1988) and against the Kurds in Halabja in 1988.

16.32 Isis jihadists have seized a chemical weapons facility built by Saddam Hussein which contains a stockpile of old weapons, State Department officials have told the Wall Street Journal:”

Can anyone explain to me where these chemicals came from if there were no chemicals were in Iraq?

There is one person and one person only to blame for the war in Iraq and that is Saddam Hussein.


Imagine post 9/11 and the country is being threatened with WMD’s and the President does nothing and VX gas is released in the New York subway. The united States went to war with Iraq because it had too. The chance could not be taken. In going to war Bush was up front with the American people that this would be a long and drawn out war, Obama pulled us out of Iraq and the country is much worse off.

Let me finish with another nonsense meme that the left loves to put out, “The right is racist because they only started caring about the deficit after Obama became president.” For the most part we didn’t worry about the deficit. We had ran deficit for years so nothing was new… until TARP. Now this was under Bush, the bank bailouts of hundreds of billions of dollars opened peoples eyes. A yes vote for TARP cost many republicans their position and caused some to resign. The battle of the dollar was on and Bush was the President. Obama came in throwing gas on the fire with the waste of the stimulus and programs that were going to cost the country, businesses and the people money all the while people were losing their jobs. The government was blind to this.

Signing the Patriot Act was another dumb ass move by Bush but then Obama signed it too including adding indefinite detention to the NDAA.

Any more Questions just ask?

I came across this meme today and thought that I would do a little checking of the facts, so here it is…


Now anyone who followed me during the last election cycle knows what I think of Paul Ryan. He’s a big government republican who doesn’t know how to spell conservative. He’s been the number three man in John Boehner’s clown posse for years and i hope you get my point. But… I’m one of these odd people that kinda likes the truth and this isn’t exactly it.

It says that Ryan supported raising the minimum wage when Bush asked for it but under Obama he claims that it will cost jobs. First off, President Bush NEVER asked for the minimum wage to be raised. Both the House and the Senate were controlled by the Democrats and this was their plan all the way. All that George Bush had to do with it was that he said that if they sent him the bill, that he would sign it. And he did.

Next we have Ryan’s own words about supporting the increase but did you notice how he qualified his support by tying it to cuts in the small business tax? He basically said yeah, I’ll support it if we credit back the money paid to small businesses. Guess what happened next, they left off the rest of his platform. No… they wouldn’t do that would they?

Here is his quote from the meme…  “Last year, I supported an increase in the minimum wage because it also included tax relief measures for employers to offset the cost of the proposed minimum wage increase.” This meme was created from a Think Progress story and the story did tell the truth begrudgingly while still trying to spin it,

“A ThinkProgress analysis finds that at least 67 Republicans who are still in Congress today backed an increase in the minimum wage in some form, including Rep. Paul Ryan (R-WI).”

Farther down we find…

“Though Ryan ultimately voted against the measure, he argued that he supported raising the hourly rate as long as it came with a suitable “offset” of small business relief. “Last year, I supported an increase in the minimum wage because it also included tax relief measures for employers to offset the cost of the proposed minimum wage increase,” he noted in a floor speech, as he announced “with great regret” that he could not back the bill without more small business tax cuts.”

Wait a minute, wait a minute… He voted NO… With George Bush as President Paul Ryan voted no to the increase and because he says no to Obama he’s a hypocrite. Really…

Now let’s talk seriously for a minute. There can be no comparison between raising the wage in 2007 and raising it now. Look at the unemployment numbers, look at the work force, look the economy, then and now. We have never recovered. Obama talks about all of the jobs created but we have less people working today than there were in 2008. So someone could vote yes in 2007 and vote no today simply because the economy can’t take it.

One last thing… Post Hoc Err Prompter Hoc… because of that, this.The democrats minimum wage increase went into effect July 2007, July 2008 and July 2009…. and can anyone think of something else that happened over that same two year period?

I’m not a smart man. I’ve never been to college, never got high grades. I cannot do algebra but I’m pretty fair at old-time basic math; adding and subtracting and so on. Another thing that I can do naturally is to notice things that are out of whack, a form of intellectual OCD.

So, here I am reading through the Daily Kos, a left leaning web site, when I see that the House Republicans and Democrats had compromised on the Farm bill and cut $8 Billion from Food Stamps over a 10 year period. Ok, now here is what caught my attention, The Daily Kos claims that this will effect 2 million people, that it will cut $90 a month from the benefits of 850,000 families.

And my OCD kicked in.

Have you noticed what’s wrong? I didn’t check their math but I’d say that it’s right… but it’s also wrong. Their number is based on 2 million people, 850 thousand families; where did they pull these numbers from? There are now 47 million people receiving food stamps, not 2 million.

So to cut $8 Billion over 10 years is a cut of 800 million a year. Divide by 12 and you get a 66,666,666 cut per month. Now we again divide that by 47 million and the cut is… $1.47 cut per person per month.

I guess they are really large families. Now, I’m not making light of the cuts but how can we ever do anything when people lack basic math skills.

Wendy Davis rose to national fame for her pink running shoes and a pro-abortion filibuster in the Texas State Senate. Everyone loves Wendy, so she is now running to be Governor. Her story is one that many people, especially women, can relate too.

All right, you’re running for the office of the Governor of the State of Texas, so you go around telling people your life story. You want to connect with the people and share an understanding; there’s nothing at all wrong with that but what happens when the story that you’re telling turns out not to be completely true? If you’re a whacked out progressive/socialist you place all blame on your political opponent.

Pregnant and married at a young age, she finds herself divorced and living in a trailer park at 19. Well, she was really 21 but that’s not the important thing. The trailer park turns out to be a family owned trailer where she and the baby lived for 3 months before moving into an apartment.

She worked multiple jobs to support them while also getting a college degree and going on to graduate from Harvard Law School. That sounds great. But while parts of this are true, there are details that are missing. Like the husband, who was a lawyer that paid for her last two years of college and drew out his 401 K and took out a loan to pay for Harvard. It turns out that when he made the last loan payment on her Harvard education, she divorced him.

My hat is off to any person who works their way through school, while raising a child and can make Harvard quality grades. But how do you forget getting married, quitting your jobs and someone else paying for your education? That confuses me.

Then when the truth comes out, you double down and blame your opponent for dirty tricks.

I guess that even Harvard doesn’t teach ethics and responsibility.





This stared as a reply on a Facebook thread to the question, “what would the republicans replace the ACA with” and it grew…

…… can you try not to use a straw man argument so much. While lack of insurance and healthcare cost are a concern, they are not what’s holding the country back so a plan would not have anything to do with moving the country forward. And guess what? Immigration reform is not what is holding the country back either but that is what they want to divide the country on next. That is all the progressive/socialist have to offer, divide and blame, divide and blame.

In 2009, what did the country need? It needed jobs. While the left had the presidency, the house and the senate, what did they do for jobs? Absolutely nothing.

To be honest, that’s not surprising because government can not create jobs. No matter how much money they spend, they are not creating jobs. Now can the government kill jobs? Oh you betcha.

Now what is holding the country back today? That’s easy; Barack Obama and the progressive/socialist agenda. You see, while the majority of voters elected Obama, the majority of Americans have no faith in him. Consumer confidence is down, consumer borrowing is down, business borrowing is down.

The Fed has been pumping $87 Billion a month into the “economy,” with almost zero interest rates. The libertarians have been screaming about the inflation this will cause but there’s no inflation. Why? Because no one is borrowing the money. The money has to enter the system before inflation but it hasn’t, it’s just sitting there.

The left hates big corporations but they love to brag on the Stock Market and the money being made on their 401K’s under Obama. They fail to see how things are tied together. Ask them how the market is making money while the unemployed and under employed are barely surviving? Ask them how they are making big profits while the people have no money and aren’t spending any money? Watch the blank look come over their faces.

Business is making money by not borrowing, by not hiring and not expanding. They are making money by paying down debt, cutting jobs, cutting insurance and other benefits. All of that goes directly to their bottom line.

There is no such thing as a jobless recovery. It’s just that simple. Whether it’s a business or a family, if you cut expenses your cash flow increases. It all looks great until you reach the day when there is nothing left to cut. What happens then? The increases turn into decreases and profits turn into loses.

This is the Obama economy and the left refuses to even look at it. It’s the republicans fault, Fox News fault, McDonald’s fault and to a degree they’re right. You see it’s the fault of every one of us who is not stupid enough to run out and borrow and spend like a democrat. If we were to borrow and spend, hiring would resume, expansion would resume and the economy would rebound. I’m sorry but that’s not happening when no one knows what job killing bill this nut will want next.

Now back to the ACA and your wanting the republicans to come up with a plan. I would not support any republican plan. You refuse to acknowledge that the government lacks the authority to have any plan on healthcare. It is none of their business. If the ACA worked perfectly, everyone had insurance, prices came down and all was wonderful, it would still be a complete failure because of the power given to the government that can now be used almost unlimitedly.