Monthly Archives: February 2014

Economics in One Lesson: An Introduction

In 1945, Henry Hazlitt authored Economics in One Lesson, wherein he offers market-oriented insight into a number of post-war developments in the United States and dispels several myths associated with economic theory that continue to dominate public policy discourse over sixty years later.

The first chapter, titled, “The Lesson,” discusses how many economic theories rely on fallacious assumptions and fail to anticipate the long-run consequences of public policy: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

In other words, Hazlitt is reviving Bastiat’s concept of opportunity costs and law of unintended consequences, introduced nearly a century earlier in his essay, “What is Seen, What is Not Seen.” Bastiat presents a scenario in which a shopkeeper’s son breaks a window and spectators console the man that,

“It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?” In response to this hypothetical situation, Bastiat posits to the reader “what is not seen”:

“But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen. It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.”

The ideas of opportunity cost and unintended consequences profoundly affected public policy, challenging economists and politicians to scrutinize more heavily initiatives to intervene in the economic or manipulate economic outcomes. Hazlitt’s lessons, of which there are two dozen, apply to the 21st century economy, as well. He discusses how taxes discourage production, what effect minimum wage laws have on employers, where “Saving the X Industry” fails, and whom tariffs protect. I plan to enumerate these lessons in the coming weeks, applying them to various municipal, provincial, and federal policy initiatives and offering market-oriented solutions to each. This will familiarize the reader with Canadian politics and introduce ideas from some of history’s greatest thinkers.

Hazlitt’s book is available for download at Mises.org!

Tagged , , , , , , ,

Cutting Fat: The Automotive Industry, Government Assistance, and Corporate Welfare

The Conservative government released its 2014 budget this week and, much to the joy of North American automotive manufacturers operating in Canada, it turns out that free trade is actually just “free trade.”

Finance Minister Jim Flaherty announced Ottawa’s plans to double the amount available via the Automotive Innovation fund from $500 million to $1 billion, presumably assuaging anxieties over Canada’s to-be-negotiated trade agreement with Asian auto-powerhouse South Korea. However, it is counterintuitive to expand government assistance to the automotive industry while also pursuing free trade with a country that hosts competing manufacturers. The decision is not surprising, though, considering the amount of legislation, policy, and regulations that exist only to contradict one another. Instead, the Canadian government should negotiate lowering tariff walls and reducing anti-competitive policy both domestically and internationally.

More concerning are comments made recently by Chrysler Group chair Sergio Marchionne, after discussions with Prime Minister Harper and Ontario Premier Kathleen Wynne: “I think we’ve got all the makings of a potentially successful transaction. You need to let the parties work diligently at carving out what is best suited for the Canadian government, the Province of Ontario, and Fiat-Chrysler.”

In any other industry, Marchionne’s comments would be disquieting. In fact, to some, Marchionne’s comments are disquieting. The implicit guarantee between North America’s automotive industry and the Canadian and American governments is akin to crony-capitalism and those who suffer are consumers.

Most business ventures succeed without direct government intervention, contrary to Marchionne’s assertion that state subsidies are part of the “makings” of commerce. Indeed, Marchionne is holding hostage consumers, in addition to his own employees, while he gerrymanders the political environment toward favouring Chrysler Group’s “potentially successful transaction.” He also had the audacity to discuss opportunities that are more attractive for Chrysler in Brazil and Mexico, indicating that the decision to invest in Canada has less to do with economics, and more to do with political handouts. Fortunately, though, Marchionne asserted that he does not expect Canada to provide the same level of support. How very kind of him to relieve Canadian taxpayers, if only slightly, of supporting an industry that requires constant government assistance just to consider staying their operations in North America.

It is time for Canadians to detach themselves from the automotive industry. The blatant contradiction between Marchionne’s assertion that North American pride is a key to the industry’s success and the looming threat of relocating to other countries where government assistance is more rewarding has gone too far. Marchionne and the executives at Ford and General Motors should decide to invest in Canada on their own merits and if they choose not to, then that is fine. Life will go on. “Securing” their investment using political incentives, however, reinforces the expectation of taxpayer support and awards the automotive industry undue influence over Canada and Ontario’s economic future.

It is time to end corporate welfare. Cutting fat in Canada’s automotive industry is a good place to start.

Shaun Fantauzzo is a policy analyst at the Atlantic Institute for Market Studies

Tagged , , , , , , , , , , , , ,