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How to spot economic flimflam

Thursday, January 14, 2016
Henry Hazlitt was not an economist—at least, not in terms of formal qualifications. He was a journalist who wrote on economics and business for the New York Times and Newsweek.

Kevin Baldeosingh

If you don’t know basic economics, you are not a truly educated person. This is so whether you have a Bachelor’s degree or even a PhD, since understanding economic fundamentals is so essential to understanding the modern world—which includes T&T.

Luckily, this understanding isn’t hard to obtain. There is a plethora of good books dealing with the basic principles of the so-called “dismal science”, ranging in length from a few hundred pages to less than 50, and these principles are readily comprehensible for anyone with a secondary school education. But I am reviewing a book that was first published 70 years ago because, save in matters of detail, Henry Hazlitt’s exposition has never been bettered. And, even if all his arguments were wrong, his clear prose is sheer pleasure in itself.

Yet Hazlitt (who died in 1993 at the age of 98) was not an economist—at least, not in terms of formal qualifications. He was a journalist who wrote on economics and business for the New York Times and Newsweek, but he had no PhD—indeed, no tertiary qualifications of any kind. Yet he was praised by luminaries in the field such as FA Hayek and Milton Friedman. And, even after 70 years, there are lessons in this book which policy-makers in T&T would do well to attend, and ordinary citizens more so in this recessionary time.

Hazlitt starts by noting that “Economics is haunted by more fallacies than any other study known to man.” He attributes this mainly to two factors: “the special pleading of selfish interests” and “the fallacy of overlooking secondary consequences.” 

So the fallacies are rooted in (1) seeing only the immediate effects of a given policy; (2) seeing its effects only on a special group; (3) not considering the long run-effects of that policy on all groups. “In this lies the whole difference between good economics and bad,” Hazlitt asserts. 

From this premise, there is a whole range of issues in this book which can readily be applied to T&T issues and entities. For example, Hazlitt writes: “If a particular union by coercion is able to enforce for its own members a wage substantially above the real market worth of their services, it will hurt all other workers as it hurts other members of the community.”

From this perspective, the Oilfield Workers Trade Union has been the greatest foe of the working class in T&T.

Or consider his take on the government creating employment: “The more inefficient the work—that is, the greater the volume of employment is requires in relation to the value of the product—the more highly thought of the investment is likely to be.” What better summary of the URP or Cepep could there be?

And, in respect to the latest scandal at the Housing Development Corporation, Hazlitt’s point is fundamental to all previous scandals: “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 subsidise these selected families with low income and enable them to live in better housing for the same rent or lower rent than previously.”

Reading this book will help you know when politicians, policy-makers, and even professional economists are talking tata.