Economics in One Lesson
Our thanks to Philip Michelbach of the
Free Enterprise Institute for providing these updates to Hazlitt's
- National income was $6.2 trillion in
1989 (1993)dollars). Taxes equalled $2.4 trillion, or approximately
40% of the national income. (“What is the Optimal Size of
Government?” Gerald W. Scully, NCPA Report No. 188, November
- In a 1992 essay written for the Dallas
Federal Reserve Bank by economists W. Michael Cox and Richard Alm,
the authors point out the constant process of job creation.
Economist Joseph Schumpeter first recognized this “creative
destruction,” whereby technological innovation creates new job
opportunities as it frees up labor from old jobs. Cox and Alm
explore the explosive growth of employment in this century from
29,000,000 U.S. workers in 1900 to 116,000,000 in 1991. (“The
Churn,” W. Michael Cox and Richard Alm, Federal Reserve Board of
Dallas Annual Report, 1992.)
- The $5,000 figure Hazlitt uses is not meant
to be exact. The average price of a new car now borders on $20,000.
(“Fun and Games With Inflation,” David R. Henderson, Fortune,
March 18, 1996, p. 36.)
- The situation has not gotten better since
Hazlitt added the footnote. According to Investor’s Business
Daily (September 29, 1995), “From 1986 through 1993,
the cotton program’s costs totaled $12 billion and averaged
$1.5 billion a year. And like many farm programs, large payments
went to a small number of producers. In 1993, just under
96,000 growers divvied up the proceeds.” The additional
costs to consumers are also high. According to a GAO study released
July 20, 1995, the program cost society $738 million on average each
year for the previous eight years. The same GAO report concluded
that “the cotton program has evolved into a costly, complex maze
of domestic and international price supports that benefit cotton
producers at the cost of government and society.” Attempts by the
104th Congress to reform this program have failed.
- The minimum wage is now $4.25 an hour. A
forty-hour week based on this wage costs an employer $170 in wages
- Since Hazlitt added the footnote, the
minimum wage has been increased three times: in 1981 it was
increased to $3.35, in 1990 to $3.80, and in 1992 to $4.25.
Increases in unemployment (especially teenage minority unemployment)
and decreases in job creation followed each of these increases.
(“Should the Federal Minimum Wage Be Increased?” Richard Vedder
and Lowell Gallaway, NCPA Policy Report No. 190, February 1995.)
- The percentage of the labor force now
unionized is 15.5% (Investor’s Business Daily, November 14, 1995.)
- Compensation as a percentage of national
output has remained fairly constant at about 60% over the past forty
years, reported Investor’s Business Daily, January 4, 1996.
Economist Kenneth P. Voytek reports that hourly non-farm
compensation increased 2.4% annually from 1959—1972. Annual growth
in compensation slowed to .8% from 1973—1994. This was due
to increased productivity which averaged 2.4% from 1959—1972, but
only 1% from 1973—1994. Overall, compensation as a percentage of
national income has increased about 4% since 1959, while union
membership dropped precipitously. Increases are often in non-wage
compensation like health-care and job training. (Investor’s
Business Daily, January 8, 1996.)
- For more current figures on wages and
salaries as a percentage of national income, see 8 above.
- According to economist Kenneth P. Voytek,
before-tax corporate profits averaged 10—12% during the 1960s and
1970s. They declined to less than 8% during the 1980s and have risen
to around 9% in the 1990s. (Investor’s Business Daily, January 8,
- For more current figures on corporate
profits, see 10 above.
- Economist David R. Henderson reports that
“in the 56 years since 1939, inflation has averaged 4.4% a year.
Although that sounds small, even moderate inflation adds up over
time. Actually, it doesn’t add up. It multiplies up. Inflation,
like interest, compounds. Net result: Since 1939, prices have
increased 998%.” (“Fun and Games with Inflation,” David R.
Henderson, Fortune, March 18, 1996, p.35.)
- By 1992 the budget deficit had reached $290
billion. Since then the shortfall declined to “only” $165
billion in 1995. (Investor’s Business Daily, October
- Great Britain had a 40% top tax rate on
income, a 17.5% VAT, and a 33% capital gains tax. (1996 Index of
Economic Freedom, Brian T. Johnson and Thomas P. Sheehy, The
Heritage Foundation, 1996.) Taxes absorbed 34% of GNP in 1994.
(The Economist, February 9,1995, p. 99.)
- Annual inflation rates for various
countries’ currencies in 1994: USA 2.8%, France 1.7%, Japan
-2%, Sweden 4.5%, UK 2.4%, Italy 4%,Spain 45%, Brazil 2,500%,
Uruguay 40%, Chile 11%, Argentina 5%.(1996 Index of Economic
Freedom, Brian T. Johnson and Thomas P. Sheehy, The Heritage
- The Social Security tax rate is now 15.3%.
It is estimated that the program will become insolvent in