We've been vandalized!

Henry Hazlitt begins his book, Economics in One Lesson, with a simple illustrative story. The story involves an act of vandalism. Some street punk has thrown a brick through the window of a local baker. Townsfolk gather round, as townsfolk often will, and they start talking, as they often do. At first, the folks are angry with the unknown vandal, and feel bad for the baker. However, as they keep talking, they decide that the act of vandalism is actually a benefit to the community. The baker must now pay the glazier to replace the glass, the cost will be a few hundred dollars. Then, the glazier will have more money, and he will spend that in the community, maybe even hire a new employee with the increased business. That money, in turn will be spent somewhere else, and so on, and so on throughout the community. Wonderful!

But, what about the baker? Maybe he had planned to buy a new suit with that $200.00. But, now he must pay for a new window, and buy a new suit. Or, maybe he will not be able to buy the suit at all. If so, then the tailor will not be paid. Either way, the baker is damaged because he has lost the ability to spend his money as he will, because of the vandal's actions. And, truly, the community is no better off in the long run if the glazier gets paid rather than the tailor.

The shortsightedness of the townsfolk's response to the vandalism is the root problem of all bad economic theory. From a family's poor economic choices to a big government trillion dollar inflate and stimulate plan, the problem is the inability to see beyond the "short run."  The long term effects of these decisions, and the potential unintended consequences, are never considered. And I think more importantly, the long term effects of economic meddling cannot be anticipated. So, when we are told that an act of vandalism, or an act of unprecedented borrowing, will provide a quick fix to the economy, we should stop and think. What about the long term?

Inflation

Here's the thing, if I could count, I would not have gone to law school. No, seriously, I'm pretty good at basic math, but my quest to understand economics sometimes hurts my brain. I have published a few posts about inflation, in an attempt to help me understand it better.

Honestly, I think that I'm making it too hard. On the FEE website this morning they published "A Letter to a Ten-Year-Old." I guess that a ten-year-old wrote a letter to the Foundation for Economic Education asking what inflation was. This response was drafted by Beth Hoffman in 1981. This was a great article, very short, and the most important thing I learned from the article was that my understanding of economics is approximately at a ten-year-old level.

In the letter, Ms. Hoffman refers to another article, "Inflation In One Page", written by Henry Hazlitt. Again, a simple one page explanation. This is economics that even I can understand.