Every field of study has fallacies that they must contend. Medicine has to deal with household remedies and research that is outdated but still being used. In economics, the fallacies have a bigger impact because they can be tried out on a national level, which can cause hardships for consumers and producers.
Henry Hazlitt argues that economics has shifted from a long term whole economy approach to public policy, but to a short term targeted group approach. He argues that when we make that shift we ignore the secondary consequences that come with that policy. The good economists are going to be able see the whole picture and the long term affects. However, the bad economists are like the kids in the candy shop and only go for what they want to see and believe. He contends that the art of economics is taking a look at all the consequences and the whole community.
Hazlitt then moves on to analog given by Bastiat in which a bakers window is broken, where the crowd believes that the window breaking has created business for the window glazier. However, the window breaking has caused the tailor to lose $250 that the baker would have spent on the suit, but has to spend it on a new window. In reality, the town has not created an employment, but rather shifted capital around.
Hazlitt then moves to various types of control that a government tries to exert of the market. The first type of control is government price fixing, where certain people believe that the rich hurt the market with their purchasing power, so to curb that inequality they will make the price the same for everybody usually way below market value. At first, the consumers are happy because they have more money to spend on semi-luxury or luxury products, but the price controls cause an increase in quantity demanded because the price is low. On the flip side, the supply will continue to decrease because there is no incentive to produce more to meet the demand. After a period of time, these factors will cause the product to be available with the most purchasing power. When that happens the government will exercise more controls over the economy by rationing the product, the materials that are needed to make the product, and the labor to make that product. He brings up the fact that when WWII was going on there were price controls on beef put strains on the slaughter houses. The government will also try subsidizing, but all that does is lower the price on the consumer, but not for the producer. Lastly, Hazlitt argues that when the government starts putting controls on the market will lead to where the market is handled by central planners and drives the least profitable businesses out of the market.
He then moves onto rent controls, Hazlitt states that the consequences are the same as price controls but there are also differences. When rent is left up to the free market, when it rises it forces people to make more efficient uses of their money. If an older couple was living in a three...