Monday, April 11, 2005

Two Lessons Needed

Brad is not a fan of Hazlett's "Economics in One Easy Lesson". This is because
It is a limited book because at least half its pages hint that the works of John Maynard Keynes are an abomination without ever grappling with the Keynesian argument... We all know that the market system is an amazing decentralized social planning and allocation mechanism if externalities are small, if returns to scale are in general diminishing, if we are happy with the distribution of wealth and the concommitant distribution of economic power it gives rise to, and if Say's Law holds--if supply does indeed create its own demand, and we don't have to worry about large-scale unemployment and deep depressions.
The Keynesian argument -- "things are wrong because people are irrational so the government should step in and make things right" -- is instinctively well understood by people. People see wrongness all around them and are eager to call on authority to intervene and "do what's right". The Classical argument, that there are second order costs and effects, is not understood by people and this is what Hazlett's book explains, and explains very well.

Brad should wander around the mean streets of Berkeley and ask people if breaking windows increases employment or not. Keynes would say "yes" (or at least "sometimes") and Hazlett would say "no". I wonder what Brad would think it's most important to educate people about once this survey on economic literacy was done. (More on Marginal Revolution).


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