Hazlitt's Economics in One Lesson

So yeah, Henry Hazlitt, Economics in One Lesson. What are your initial thoughts?

I thought it was very interesting. Um, it opened with the fallacies of economics instead of actually going into the, uh, like what it does and like meaning and stuff, which I thought was interesting because I know that there's a lot of— remember, it's not perfect and people aren't perfect at it. Um, it went over How economists can either be nearsighted or farsighted. So like only thinking about the long term, only thinking about the short term, and how a good economist should think about both. And also how a good economist thinks about all groups and the consequences on all groups, not just one, which people probably don't think about all the time. I feel like just hearing other people talk about it.

No, thank you for that brief overview. What did you think economics might be, or was, or is prior to reading this?

Um, I, I associated it with money and spending money and making financial decisions for people.

I actually meant to look up the actual definition, but So when you say you were surprised because it started about fallacies, started with fallacies rather than what it is, do you have a sense from the way Hazlitt frames things of where he is going in terms of what economics is?

Do you mean what he's gonna talk about next?

Yeah, how he's using this setup. Clearly he's setting things up.

It's—

the chapter is titled The Lesson. And so given the chapter on the lesson, do you have any sense for where he's going to go with respect to what he thinks economics is?

I think he's gonna go in— I think he even said it, but I think he's gonna go into examples of those fallacies and then beyond that, maybe what economics is as a whole.

Does it make— so he talks about policy. Do you have a sense for what policies are?

Um, when you said policy, I thought of the government and the president. I don't know, he's showing a policy for whatever tax or anything like that.

Okay. Um, well, one, it might be helpful. He's, he is going to do a bunch of examples. You're right. So he has this kind of abstract general opening, um, which you summarized, and then he's going to go through a bunch of examples, but it might be interesting to kind of play around with, um, Just how you think of— so some— how you think of very basic economic situations. So something that, um, you know, everybody has a home, you know, lives somewhere, or almost everybody. Obviously there are homeless people, but— and most people either buy or rent their home. Um, what a famous— there are famous policy discussions about rent. Have you ever heard of rent control?

Um, that sounds familiar, but I don't know exactly what that means.

Do you know what rent is?

Yes, I do.

Um, so what determines— you know, typically there are many people say that we should spend no more than maybe about a 3rd of our income on rent or mortgage. Mortgage is when you buy the home. Rent is, you know, when you're renting it. Um, but what, what determines the price of rent? Why Why do you think some places to rent are expensive and some less? Do you have any idea where the price of— how the price of rent is determined?

Um, I think it's based on a lot of things: the value of the home, the location, um, I don't know if it's been redone over the past couple years, or if it's highly sought. I don't think it even needs to be very high in all those categories, but if it's popular, then It's expensive as well.

So the quality— it sounds like you're, you're focused right now on the various qualities of the apartment. So some people might pay more for better location, nicer home, recently remodeled. Other people might pay less for lower categories. Um, does that— those— do those kind of things, call it the qualities of the apartment, are those the only things that determine the price of rent?

I don't, I don't think they are. I guess I was thinking of mostly the physical qualities. I can't really think of any others right now, but I'm sure there's something else.

Okay. Um, so many people, some people complain about the price of rent. Is there anything that government should do if rent is too high, or if people are saying that rent is too high?

Um, you could say that they could pay their rent for them, but that would kind of defeat the whole purpose, right? Um, I don't know if that's really an issue that government can solve because it's up to you to pay for your living, I guess.

So the one possibility it sounds like you considered and rejected is for government to pay your rent. Is that correct?

Yes. Yeah.

Just to give you another common proposal, and sometimes there are various ways the government does that, especially for poor people. But another approach is the rent control is when the government says the landlord cannot charge more than, you know, $1,000 a month or $2,000 a month or whatever it is. And the idea by people who advocate for that is that Um, you know, if rent is going up and becomes too high, we should— we, the government, should stop landlords from increasing rent. Any thoughts on that kind of a policy proposal?

Um, I disagreed with that initially because it takes away the freedom of the landowners and being able to charge what they want. Um, if the home or the apartment or whatever is valued at $2,000 or $2,300, then it's up to the landlord to make that decision. And if people aren't— can't afford it, or they can't find any tenants because it's too high, then they lower the price. Isn't that like free market or something? I don't know. But yeah.

Got it. So, and that's you, Alana, giving your perspective. And what some people might say is, what if the landlords are really rich and getting richer and the tenants are really poor And can't afford it and might become homeless if they don't get— if they get kicked out of their apartment. You know, you said the freedom of the landlords. What would you say to somebody who said the landlords don't need the freedom? They already have plenty of money. The poor people are going to get kicked out and become homeless, need to have the rent stopped, rent controlled. What would you say to an argument like that?

I mean, is the landlord gonna be super rich and be able to not need a tenant every single time? I feel like that's not how it would work normally, but in that situation, I don't— I mean, in that situation, it would be nice to be like, you can't put it like this, um, you can't make it that expensive, um, but would it? I don't know. I really don't know, honestly.

Okay. Um, so, yeah, your first point, it may not be the case that all landlords are rich. There are certainly some people who are landlords who are barely getting by. But you're saying if it is the case that the landlord is very rich and the tenant is very poor and might be homeless, to make it even more painful, homeless with young children and You know, everybody's sick and everything, so really kind of gruesome. Um, and you're— it sounds like you're at least tempted to consider rent control in that scenario. Is that an accurate summary of where you are?

Yeah, I mean, I think so. But what's the incentive for the landlord to make the prices so high if no one can afford it? Would that— is that realistic? Would that actually happen?

Well, so this, this is where things begin to be interesting. Um, you know, Hazlitt is saying let's think about the consequences. And so I think maybe before kind of evaluating all of these, we should begin to think through the consequences. So first, if the, um, if the landlord has priced the apartment at a price that's too high for people to pay, then you're saying that's a bad or a foolish or stupid move on the landlord's part because, um, he couldn't keep, couldn't keep the apartments full. Is that correct? Is that kind of what you're saying?

Yeah. And since he can't keep it full, then he would lower the price so that people can afford it.

Okay.

Yeah.

So that's a plausible mechanism, but suppose, um, he's got a poor tenant right there. But have you heard of gentrification?

Again, that sounds super familiar, but I'm not sure.

That's kind of a common expression for when, say, there's a poor neighborhood, but higher income people are moving in. And so what sometimes happens is And sometimes it's because a particular neighborhood that wasn't fashionable becomes fashionable. And maybe, you know, poor people have been living there, but then young professionals who can afford more rent move in there. And so what if you have a scenario where the landlord is kicking out all the poor people who can't afford the rent, and so they are going on the streets, but he is able to attract all these young, capable professionals who can pay the higher rent? Then is it fair to say that he does have an incentive to raise the rent?

Yeah, that's definitely an incentive, and I think I've seen examples of that. So I, I understand, and I honestly don't know. I don't really know what you would do in that situation. I guess the poor people would just be forced to move. They can't afford the rent there anymore.

So, um, in which case, you know, going back to the part of you was tempted by rent control, are there any other, um, Going back to Hazlitt, what is— what's the seen and the unseen? If you started rent control, might there be any other implications to imposing rent controls?

I'm a little confused. What do you mean?

So suppose, um, Alana is the mayor of Los Angeles, and she sees that these yuppies are moving in and landlords are charging them $5,000 a month, and the poor people that have been paying $2,000 a month can't afford it anymore, and they're kicked out, they're homeless and everything. Alana the mayor says, okay, rent control, nobody can increase rent anymore. And that way, you know, the people who are not getting kicked out anymore, but would there be any other consequences if Alana the mayor did that to, you know, imposed rent control?

People wouldn't be able to move in, or those new people wouldn't move in. The only other one I can think of right now is that it would make it unfair for the landlords because they can't control how much they pay or how much they charge. But I think I could see where you're getting at there. There's going to be consequences for other people.

Got it. Well, I do have to hop off for now, but this is sort of a good— this is the beginning of economics, is thinking through all the consequences of all the things. And as we get into another chapter, other chapters of Hazlitt, you'll start to see how we think through the consequences of things. So let's read the next chapter for next time. Sounds good?

That sounds good. Thank you.

All right. You're welcome. Bye-bye.

Bye.