Les Jones

“Economics in One Lesson” on government loans and government-backed credit

Tuesday, October 21st, 2008 | Economics, Political Survival Kit |

(LATER: Links weren’t working before. Fixed.)

From the Credit Diverts Production chapter of Economics in One Lesson (emphasis mine):

The case against government-guaranteed loans and mortgages to private businesses and persons is almost as strong as, though less obvious than, the case against direct government loans and mortgages. The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is limited in supply, and that they are helping identified B at the expense of some unidentified A. Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief in the long run they do not increase overall national production but encourage malinvestment.

A contemporary reflection of the economic mess in 2008? Nope. Economics in One Lesson was written in 1946, with the last update in 1978. Here’s the one lesson: “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.”

• 1. The Lesson
• 2. The Broken Window
• 3. The Blessings of Destruction
• 4. Public Works Mean Taxes
• 5. Taxes Discourage Production
• 6. Credit Diverts Production
• 7. The Curse of Machinery
• 8. Spread-the-Work Schemes
• 9. Disbanding Troops and Bureaucrats
• 10. The Fetish of Full Employment
• 11. Who’s “Protected” by Tariffs?
• 12. The Drive for Exports
• 13. “Parity” Prices
• 14. Saving the X Industry
• 15. How the Price System Works
• 16. “Stabilizing” Commodities
• 17. Government Price-Fixing
• 18. What Rent Control Does
• 19. Minimum Wage Laws
• 20. Do Unions Really Raise Wages?
• 21. “Enough to Buy Back the Product”
• 22. The Function of Profits
• 23. The Mirage of Inflation
• 24. The Assault on Saving
• 25. The Lesson Restated
• The Lesson After Thirty Years

2 Comments to “Economics in One Lesson” on government loans and government-backed credit

Paul Simer
October 22, 2008

The links aren’t working.

Rebecca
November 27, 2008

I accidently came across this book while browsing at Barnes and Nobles a couple of years ago. I bought it and found it easy to read, and as relivant today as it was when it was written. As a matter of fact, I didn’t realize it had been written so long ago when I first purchased it.

I highly recommend the book for all novices like myself that would like a little background on how economics works.

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