Sure, and very soon in the book too. Hazlitt discusses make-work programs (pgs 17-24 in the edition provided by the FEE) and argues for crowding out: the government can’t build a bridge without taking money, thus the “unseen” effects of government projects are less capital/jobs in other places.
This is usually true, but there’s a huge literature in economics about when it’s true and when it isn’t. Specifically, from a Keynesian viewpoint, in a recession caused by a stagnation of aggregate demand, government can create jobs without “crowding out” jobs in the private sector because, under those circumstances, the private sector was not operating at the PPF and those jobs were not going to be made.
Likewise, the chapter on inflation (ch. 22) is not up to date with modern thinking. The book refuses to recognize sticky-wage situations that might cause inflation to be beneficial. In fact, Hazlitt addresses and brushes aside the idea that workers might be fooled by wage decreases brought on by inflation. Not his fault, but we’ve had decades of research since then that many economists would agree prove him wrong. The book was released long before Friedman and Schwartz’s research on the link between money and the great depression. The chapter ignores the negative economic effects of deflation, which most economists consider worse than inflation under sticky-price conditions. Furthermore, it offers a brief introduction to Austrian Business Cycle theory (inflation has disastrous long-term consequences because it distorts the structure of production) which most economists consider false. He even dismisses the idea of a monetary multiplier—something we know for a fact to exist because M1, M2, and M3 are all larger than the monetary base.
There are similar objections to be raised throughout the book. Hazlitt ignores all of them. Not to be too critical, I like the book and the lessons are usually true, but any modern macroeconomist will walk away miffed.
This is usually true, but there’s a huge literature in economics about when it’s true and when it isn’t. Specifically, from a Keynesian viewpoint, in a recession caused by a stagnation of aggregate demand, government can create jobs without “crowding out” jobs in the private sector because, under those circumstances, the private sector was not operating at the PPF and those jobs were not going to be made.
Yes, but Keynesian recessions are a monetary phenomenon, caused by a shortfall in M*V (the quantity of money times its velocity of circulation). “Job creation” programs increase M*V (by increasing V), but they do so in an inefficient way; thus, they actually forgo some crowding in which would occur under more efficient policies.
Sure, and very soon in the book too. Hazlitt discusses make-work programs (pgs 17-24 in the edition provided by the FEE) and argues for crowding out: the government can’t build a bridge without taking money, thus the “unseen” effects of government projects are less capital/jobs in other places.
This is usually true, but there’s a huge literature in economics about when it’s true and when it isn’t. Specifically, from a Keynesian viewpoint, in a recession caused by a stagnation of aggregate demand, government can create jobs without “crowding out” jobs in the private sector because, under those circumstances, the private sector was not operating at the PPF and those jobs were not going to be made.
Likewise, the chapter on inflation (ch. 22) is not up to date with modern thinking. The book refuses to recognize sticky-wage situations that might cause inflation to be beneficial. In fact, Hazlitt addresses and brushes aside the idea that workers might be fooled by wage decreases brought on by inflation. Not his fault, but we’ve had decades of research since then that many economists would agree prove him wrong. The book was released long before Friedman and Schwartz’s research on the link between money and the great depression. The chapter ignores the negative economic effects of deflation, which most economists consider worse than inflation under sticky-price conditions. Furthermore, it offers a brief introduction to Austrian Business Cycle theory (inflation has disastrous long-term consequences because it distorts the structure of production) which most economists consider false. He even dismisses the idea of a monetary multiplier—something we know for a fact to exist because M1, M2, and M3 are all larger than the monetary base.
There are similar objections to be raised throughout the book. Hazlitt ignores all of them. Not to be too critical, I like the book and the lessons are usually true, but any modern macroeconomist will walk away miffed.
Yes, but Keynesian recessions are a monetary phenomenon, caused by a shortfall in M*V (the quantity of money times its velocity of circulation). “Job creation” programs increase M*V (by increasing V), but they do so in an inefficient way; thus, they actually forgo some crowding in which would occur under more efficient policies.
I do broadly agree w/ the rest.
I agree completely. I only meant to point out that there are economists who would object to portions of the book, not that I’m one of them.
Thanks.