Once again circumstances are proving that Henry Hazlitt’s classic book Economics in One Lesson will never be outdated. In his 1946 book, most recently republished in its 50th anniversary edition back in 1996 with a Foreword by Steve Forbes, Hazlitt has a chapter titled “Saving the X Industry.” In this chapter the issue that is addressed is government bailouts of industries. And even more to the point, the chapter is about bailing out businesses for a particular purposes. As Hazlitt points out:
“We are concerned only with a single argument for saving the X
industry?that if it is allowed to shrink in size or perish through the
forces of free competition… it will pull down the general economy with it, and that if it
is artificially kept alive it will help everybody else.”
Hazlitt goes on to show that by saving the X industry, contrary to the Bush/Paulson argument for bailing out the banks or or the auto industry, the government will simply facilitate a transfer of resources from successful industries to the favored industry and will hinder aggregate productivity by reducing overall economic efficiency.
If you haven’t read Hazlitt’s book, it is an easy read and contains the most common sense economic analysis you will find anywhere–no graphs, no charst, just plain English. If you have read it, this is a good time to go back and take a look at “Saving the X Industry.”
