ReadingRoom

David Seymour’s turn to review that economics book in a brown paper bag

Those funsters the Taxpayers Union stuck an Ayn Rand-endorsed book on economics in a brown paper bag and sent it to every MP. Labour's Deborah Russell wrote about it at ReadingRoom last week, and now it's the turn of Act leader David Seymour.

Deborah Russell accidentally wrote the strongest endorsement of Henry Hazlitt’s Economics in One Lesson I’ve ever seen. How did a Labour MP and Ayn Rand end up endorsing the same book? Well, in the words of Dave Dobbyn, Russell’s review is desperate to be clever, and in its desperation gets sucker-punched by the book’s powerful simplicity.

Russell’s review is useful in another way, too. It shows how modern Labour misses the blindingly obvious while chasing identity politics and intellectual fads at the cost of their policies actually working.

Hazlitt was a business journalist with millions of printed words under his belt by the time he wrote Economics. It’s accessible and unpretentiously written from first principles. That may be why it sold a million more copies than Deborah’s book on tax that she periodically tweets about. Hard to say.

But let me concede something to Deborah. I too received a copy of Hazlitt’s book in a brown paper bag with an imperious note along the lines of "you should read this, so you know what’s what." I felt the same sense of "screw you, I already know lots and lots" that shines through the Russell review.

I marvelled that only the Taxpayers’ Union could piss off the one MP who has read and truly loves the book by the way they sent it. Unlike Deborah, I realised this was not the book’s fault.

Economics is an elaboration of the much earlier economist Frederic Bastiat’s parable of the broken window into a range of economic debates that were popular in the 1940s. Some of those debates are no longer relevant, some are. The underlying concept most certainly still is.

The broken window thesis is a homily about a crowd gathering around the broken window of a bakery. They speculate that whoever fixes it will get paid, and they might spend that money in myriad ways on people who will then spend it again in ever-widening circles. Before they know it, the crowd have convinced themselves that breaking windows might actually make them wealthier.

But, of course, if the window wasn’t broken the baker would have done something else with the money, and set off an equivalent chain reaction. Net result: breaking the window just made the baker, and the world, one window poorer.

It’s a classic case of WYSIATI (what you see is all there is), which Hazlitt sums up as, "The bad economist looks at only the short-term effects of a policy on some groups, the good economist looks at the long-term effects on all." This remains fantastic advice for politicians today.

The failure of Kiwibuild, for instance, was easily foreseeable to readers of Economics. Why did anyone think a guy who used to run the local branch of Oxfam could build houses more efficiently than, you know, the home building industry? Madness, but that was Labour’s housing policy in a nutshell.

No matter, Russell’s review snootily dismisses the book. Hazlitt says when rents rise people will occupy less space; Russell responds from a great height, "But how much less space can you occupy if you’re living in a car?" The underlying message is clear for all to see. Labour doesn’t care about economics, it cares about PEOPLE.

The context of Hazlitt’s remark was the chapter "What Rent Control Does". He was pointing out that if governments ban rents from rising, people who might have downsized when rents rose will stay put, occupying space that others might have used. Ironically, one possible result of this is people living in cars.

Timing is everything in politics and Deborah might have noticed that the number of people waiting for public housing reached a record high in the week of her review. Why is that? As Housing New Zealand itself laments, “We also have too many three-bedroom homes and not enough smaller units or homes for larger families in areas of demand.”

The rest of the housing market doesn't have such problems because they have market prices to match supply and demand. Only in the world of Housing New Zealand do we have an army of bureaucrats trying to match the right people to the right houses and an official position that they still have the wrong ones. It’s kind to offer low rents, but if it means long-term tenants remain rattling around in Housing New Zealand stock that's too large for them, and other families miss out, then are people better off over all? These are the kinds of questions that Deborah misses in her rush to impress on us that she’s very clever and cares a lot.

So, yes, Economics is an old book written by a man born in 1894. The absence of women seems cringey in 2019. But in life and politics it’s far better to ask "what can I learn from this" than "how can I show I’m too smart for this" which is the one lesson in Russell’s review. For the rest of us Economics is still a very worthwhile read.

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