Henry Hazlitt Economics in One Lesson Journal—Part Two
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Chapter 16: “Stabilizing” Commodities
16.1 How does the presence of speculators protect farmers from risk?
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16.2 Explain how farm policies that restrict production lead to inefficient farming techniques.
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16.2 Read Joel Millman, “Visions of Sugar Plums South of the Border --- U.S. Candy Makers Work In Mexico, Changing Face of the Industry,” Wall Street Journal, p. A15, 2/13/2002 (you can read this article by going to the UTA library’s Wall Street Journal search database at http://library.uta.edu/JDBC/DBs/dbAtoZ.jsp#w, clicking on “Wall Street Journal” and entering appropriate search terms and dates). How does this relate to the material in this chapter?
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16.3 Read Carolyn Cui, “Price Gap Puts Spice In Sugar-Quota Fight,” Wall Street Journal, p. A.1, 3/15/2010 (you can read this article by going to the UTA library’s Wall Street Journal search database at http://library.uta.edu/JDBC/DBs/dbAtoZ.jsp#w, clicking on “Wall Street Journal” and entering appropriate search terms and dates). How would an increase in sugar quotas affect efficiency in sugar markets?
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Chapter 17: Government Price-Fixing
17.1 Why will government fixing of a good’s price below its natural market level lead to persistent shortages of the good?
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17.2 Since persistent shortages occur when the government fixes prices below their natural market level, the government must either establish rationing systems, control the costs of production, or subsidize the producers of the good. What are the problems with these “solutions”?
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Chapter 18: What Rent Control Does
18.1 Rent control is a special form of price control. How does rent control encourage wasteful use of space?
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18.2 Explain why the effects of rent control become worse the longer the rent control continues.
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18.3 Read Nancy Keates, "Only in New York: Luxury at $8 a Day," Wall Street Journal, 1/23/1998 (you can read this article by going to the UTA library’s Wall Street Journal search database at http://library.uta.edu/JDBC/DBs/dbAtoZ.jsp#w, clicking on “Wall Street Journal” and entering appropriate search terms and dates). Explain how this is related to the material in this chapter.
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Chapter 19: Minimum Wage Laws
19.1 Minimum wage laws are a special form of price control. Go to http://www.dol.gov/whd/minwage/chart.htm for nominal values of the federal minimum wage. What is the current federal minimum wage rate?
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19.2 Why is it hard for firms to pass the burden of higher wages to consumers?
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19.3 Relief programs (such as welfare or unemployment compensation) are designed to take care of the unemployment caused by the minimum wage rate. What problems arise for the unemployed person if relief payments are less than that person’s lost wages?
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19.4 What work disincentive arises for those who keep their jobs when relief payments are made to those who lose their jobs?
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19.5 What effect does minimum wage legislation have on the natural rate of unemployment?
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Chapter 20: Do Unions Really Raise Wages?
20.1 What does Hazlitt say is the legitimate function of labor unions?
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20.2 Explain the difference Hazlitt draws between a legitimate and an illegitimate strike.
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20.3 When wages for unionized workers rise, explain why unemployment rates tend to rise.
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20.4 When wages for unionized workers rise, explain why wages for nonunionized employees will likely fall.
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20.5 Why, in the long run, can’t an increase in wages for unionized employees be gained at the expense of the profits of employers?
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20.6 Part of GM’s collapse in May 2009 was due to the above-market wages and benefits (especially pension benefits) that its union workers had successfully bargained for over the years. Explain why this exploitation of capital by labor could not persist.
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20.7 Read Frank Langfitt, “Idled Auto Workers Tap the Job Bank,” All Things Considered, 2/2/2006, available at www.npr.org/templates/story/story.php?storyId=5185887 and Jeremy Peters, GM’s Jobs Bank Looms as Major Obstacle on Road to Survival, The New York Times, 3/28/2006, available at http://www.nytimes.com/2006/03/28/business/28jobsbank.html. Explain the job bank’s role in GM’s ability to compete with other car manufacturers.
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Chapter 21: “Enough to Buy Back the Product”
21.1 What are the best prices?
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21.2 What are the best wage rates for labor?
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21.3 What is the best level of profits?
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Chapter 22: The Function of Profits
22.1 Profits guide and channel resources to their best use better than can bureaucracies. Explain what it is a sign of if there is no profit in making an article.
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22.2 Explain how free prices and free profits (that is, prices and profits unconstrained by the government) maximize production and relieve shortages quickly.
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22.3 Periodically Irving-based Exxon Mobile (XOM.N) is reviled for racking up record profits and support grows for passage of a “windfall profits tax” to take away its “excessive” profits. Meanwhile little focus is paid to the massive investments Exxon has made in capital structure. This is like comparing Bob, who owns 1 hot dog stand and made a profit of $1000 with Joe, who owns 100 hot dog stands and made a profit of $100,000 last year, and concluding that Joe earned “excessive profits.” Wouldn’t you hope that Joe earned more profits since he has made a bigger investment? Before you draw any conclusions about whether a firm or industry is earning “excessive profits” you should consider return on investment or return on equity. When you consider return on investment, Exxon’s profits are not out of line with profits of other companies. Go to http://www.reuters.com/finance/stocks/ and compare Exxon’s ROE or ROI with that of other firms of your choosing, for instance with Starbucks (SBUX.O), Coach (COH.N), or Amazon (AMZN.O).
Once you enter the company’s stock symbol, scroll down and look for this:
Considering your findings, do you think Exxon alone (or along with other large oil companies) should be subject to a windfall profits tax? Explain.
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Chapter 23: The Mirage of Inflation
23.1 List five reasons why some people want more money created.
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23.2 Explain why an increase in the money supply does not mean that everyone’s relative or absolute wealth and income will remain the same as before.
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23.3 Explain why inflation is ruinous to the whole community in the long run.
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23.4 Explain why poor people tend to be hurt more by inflation than rich people.
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23.5 Use the Wall Street Journal search button at my website or at the UTA library website to find and read David Reilly, “The Lure of Inflation's Siren Song,” Wall Street Journal, 3/17/2010. How is this article related to this chapter?
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Chapter 24: The Assault on Saving
24.1 Why is saving a form of spending?
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24.2 What is the difference between saving and hoarding?
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24.3 “At times when there is capricious government intervention in business, and when business does not know what the government is going to do next, uncertainty is created.” Relate this passage to our current economic situation by giving an example of a recent government policy that has increased uncertainty for business.
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24.4 Explain why saving leads to economic growth (hint: an increase in total production is economic growth).
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24.5 Explain why banks might choose to hold idle funds, rather than lend those funds out to borrowers.
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Chapter 25: The Lesson Restated
25.1 What is economics about?
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25.2 Now that you have worked through the entire Henry Hazlitt text, write a short essay discussing your thoughts on his work.
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