Why a 1946 book about economics remains startlingly relevant in our age of trillion-dollar stimulus, trade wars, and housing crises
In 1946, journalist Henry Hazlitt published a slim volume that would become one of the most influential economics books of the 20th century. “Economics in One Lesson” distilled complex economic principles into a single, powerful insight: “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.”
Nearly eight decades later, as we navigate post-pandemic inflation, housing shortages, trade tensions with China, and debates over minimum wages, Hazlitt’s central lesson feels remarkably prescient. From Biden’s 100% tariffs on Chinese electric vehicles to California’s rent control policies that slashed housing construction by 50%, the economic debates of 2023-2024 offer a fascinating real-world laboratory for testing Hazlitt’s timeless principles.
But there’s another character in Hazlitt’s story who deserves our attention—someone he called “the Forgotten Man.” This figure, borrowed from sociologist William Graham Sumner’s 1883 essay, represents perhaps the most important concept for understanding modern economic policy. As Sumner explained:
“As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X… What I want to do is to look up C… I call him the Forgotten Man… He is the man who never is thought of. He is the victim of the reformer, social speculator, and philanthropist.”
In today’s policy debates, C—the Forgotten Man—is everywhere: the taxpayer funding subsidies, the consumer paying higher prices due to tariffs, the renter unable to find housing because of construction restrictions. Understanding this dynamic is crucial for evaluating the economic policies that shape our daily lives.
Let’s examine how recent events from 2023-2024 illuminate both the enduring wisdom and the limitations of Hazlitt’s economic philosophy.
The Broken Window Fallacy in Action
Hazlitt’s Argument
Destruction doesn’t create net economic benefit. Money spent on repairs is money that can’t be spent on new investments or improvements. The glazier benefits from the broken window, but society loses the suit the shopkeeper would have bought instead.
Supporting Evidence from 2023-2024
Post-Hurricane Reconstruction
Hurricane reconstruction in 2024 created visible construction jobs but diverted resources from sustainable infrastructure investment. While GDP measures showed short-term gains from clean-up and rebuilding, these ignored the long-term wealth loss from destroyed assets. Resources spent rebuilding damaged infrastructure represented opportunity costs—investments in new productive capacity that never materialized.
Infrastructure Stimulus Programs
Government infrastructure spending designed to boost employment demonstrated the classic broken window dynamic. While creating visible jobs in construction and manufacturing, these programs diverted capital from private-sector investment. The opportunity cost—the private projects that didn’t happen because resources were redirected—remained largely invisible to policymakers and the public.
Challenging Evidence
Economic Multiplier Effects
Post-disaster reconstruction did create immediate employment in economically depressed regions, providing crucial income during recovery periods. Some infrastructure improvements, particularly those building more resilient structures, provided genuine long-term benefits beyond mere replacement.
Aggregate Demand Maintenance
Government infrastructure spending helped maintain aggregate demand during economic slowdowns, potentially preventing deeper recessions that could have caused even greater economic losses.
Minimum Wage Laws: The Data Revolution
Hazlitt’s Argument
Minimum wage laws cause unemployment by making it illegal to hire workers whose productivity falls below the mandated wage. The policy helps some workers at the expense of others who lose their jobs entirely.
The 2024 Research Revolution
Recent research using comprehensive tax data has fundamentally challenged traditional assumptions about minimum wage effects. A groundbreaking 2024 study examining business tax records found that minimum wage increases had “little effect on employment among potentially vulnerable firms and workers.”
Key Findings:
- Median employment elasticity of -0.13 across 72 academic studies, meaning only 13% of workers experience job displacement
- Small businesses adapted through moderately lower hiring rates but higher retention rates
- Most employment reduction concentrated among teenagers in part-time positions paying less than $4,000 annually
- Evidence of monopsony power among large firms suggested wages were below competitive levels before increases
Supporting Hazlitt’s Concerns
The research confirmed some of Hazlitt’s predictions:
- Reduced hiring concentrated among the least experienced workers
- Some small businesses reported difficulty hiring entry-level workers at mandated wages
- Focus on visible wage gains often ignored less visible employment effects
The Complexity Modern Economics Reveals
However, the data also revealed market dynamics Hazlitt’s framework didn’t fully capture:
- Monopsony Power: Large employers often had sufficient market power to pay below-competitive wages
- Efficiency Wages: Higher wages sometimes increased productivity enough to offset increased costs
- Dynamic Adjustments: Businesses found creative ways to adapt beyond simple employment cuts
Tariffs and the Forgotten Consumer
Hazlitt’s Argument
Tariffs reduce overall economic efficiency by protecting inefficient domestic producers at the expense of consumers and efficient industries. They represent a hidden tax on consumers while providing concentrated benefits to protected industries.
Biden’s 2024 Trade Policy: A Case Study
President Biden’s 2024 tariff increases provide a perfect illustration of Hazlitt’s principles in action:
The Policy:
- 100% tariffs on Chinese electric vehicles (up from 25%)
- 50% tariffs on solar cells (up from 25%)
- 25% tariffs on EV battery components and critical minerals
- Effective September 2024
Immediate Visible Effects:
- Protection for domestic EV and solar manufacturing
- $17 billion in announced U.S. solar manufacturing investments
- Preservation of American jobs in protected industries
The Forgotten Man: American Consumers
Research confirmed that tariffs functioned exactly as Hazlitt predicted—as a tax on consumers. Studies found “no reduction in pre-tariff import prices,” meaning higher costs were passed directly to American buyers. A BYD electric vehicle that might have cost $15,000 became economically unviable at $30,000 after tariffs.
Broader Economic Effects:
- Higher prices for imported components increased costs across supply chains
- Construction and automotive industries faced persistent price pressures from steel and aluminum tariffs
- Capital flowed to protected markets rather than most efficient uses
Strategic Considerations Beyond Hazlitt
The 2024 tariff debate also highlighted factors Hazlitt’s framework didn’t fully address:
- National Security: Domestic manufacturing capacity in critical industries
- Geopolitical Competition: Economic policy as a tool of strategic rivalry
- Industrial Policy: Coordinated efforts to build domestic capabilities in emerging technologies
Rent Control: The California Experiment
Hazlitt’s Argument
Price controls create shortages by reducing supply and increasing demand, ultimately harming those they intend to help. Rent control leads to housing shortages and deteriorating quality.
California’s 2023-2024 Natural Experiment
California’s experience provided dramatic real-world validation of Hazlitt’s predictions:
The Policy Changes:
- Statewide rent control cap of 5% plus local inflation (implemented 2024)
- Stricter local rent control measures in major cities
- Enhanced tenant protection laws and eviction restrictions
The Results:
- Multifamily housing permits plummeted from 60,000 (2023) to 30,000 (2024)—a 50% decline
- Construction decline coincided with qualification of Proposition 33 for the ballot
- Property owners increasingly converted rental units to condominiums
- Housing quality declined as landlords reduced maintenance investment
The Forgotten Man: Future Renters
While existing tenants benefited from rent caps and eviction protections, the policy created a new class of forgotten victims: people seeking housing who found fewer available units at higher market prices. The California Apartment Association warned that reduced construction would worsen long-term affordability despite short-term tenant benefits.
Market Failure Corrections
Rent control advocates pointed to legitimate market failures:
- Power imbalances between landlords and tenants in tight housing markets
- Prevention of price gouging during housing crises
- Community stability by allowing long-term residents to remain
The Forgotten Man Principle in Modern Policy
The concept of the Forgotten Man—Sumner’s “C” who pays for policies designed to help “X”—appears throughout contemporary economic policy debates. Understanding this dynamic is crucial for evaluating policy proposals.
Examples from 2023-2024:
Student Loan Forgiveness:
- A and B (politicians and advocates) propose helping X (student borrowers)
- C (taxpayers, including those who didn’t attend college) pays the cost
- The Forgotten Man: working-class taxpayers funding relief for college graduates
Green Energy Subsidies:
- A and B propose helping X (renewable energy companies)
- C (electricity ratepayers and taxpayers) funds the subsidies
- The Forgotten Man: households paying higher energy costs to fund corporate incentives
Small Business COVID Relief:
- A and B propose helping X (small businesses during lockdowns)
- C (taxpayers and future generations) bear the debt burden
- The Forgotten Man: those who will pay higher taxes or face reduced services to service the debt
Inflation and Monetary Policy: The Hidden Tax
Hazlitt’s Argument
Inflation is a form of hidden taxation that distorts economic calculation and ultimately impoverishes society by redistributing wealth from savers to debtors and from fixed-income earners to asset owners.
Post-COVID Inflation: Validating Hazlitt’s Warnings
The 2021-2024 inflation cycle provided a textbook illustration of Hazlitt’s concerns:
Monetary Policy Response:
- Federal Reserve expanded balance sheet by $120 billion/month in Treasury and MBS purchases
- Interest rates held near zero through 2022
- Rapid rate hikes of 525 basis points (5.25%) from March 2022 to August 2023
Inflation by Category (2024 vs. 2016-2019 average):
- Food: 1.6% (vs. 0.2% pre-pandemic average)
- Energy: -1.1% (vs. 4.2% pre-pandemic average)
- Housing: 4.7% (vs. much lower pre-pandemic levels)
- Core Services: 3.5% (persistent above-target inflation)
The Forgotten Man: Fixed-Income Earners
Cumulative inflation reached 24% from February 2020 to 2024, effectively imposing a flat tax on cash holdings and fixed incomes. A $2,500 monthly rent in 2020 became approximately $3,100 by 2024, while wages in many sectors lagged behind.
Asset Price Effects:
Monetary stimulus disproportionately boosted asset prices, benefiting property and stock owners while penalizing savers and wage earners. This validated Hazlitt’s warning that inflation acts as a regressive tax, often hitting the poor harder than the rich.
Modern Monetary Theory Challenges
However, the inflation experience also revealed complexities Hazlitt’s framework didn’t fully anticipate:
- Supply Chain Disruptions: Non-monetary factors played major roles in price increases
- Sectoral Variations: Inflation affected different goods and services very differently
- Labor Market Dynamics: Tight labor markets eventually led to wage gains that partially offset price increases
The Function of Profits and Market Signals
Hazlitt’s Argument
Profits and market prices efficiently allocate resources by signaling where production should increase or decrease. Attempts to suppress profits or manipulate prices distort these crucial signals.
Supporting Evidence from 2023-2024
Supply Chain Adaptations:
Post-pandemic price signals successfully redirected resources to areas of shortage. Higher prices for semiconductors, medical equipment, and other scarce goods incentivized rapid expansion of production capacity.
Energy Market Responses:
Profit incentives drove rapid development of domestic semiconductor capacity and renewable energy infrastructure. Market prices coordinated complex global supply chains without central planning.
The Real Estate Protection Racket
Trump’s economic policies create systematic advantages for his core business—real estate development—while imposing costs on the broader economy:
Corporate Tax Structure: The 2017 Tax Cuts and Jobs Act disproportionately benefits real estate through:
- Enhanced depreciation schedules for real property
- 20% pass-through deduction for real estate businesses
- Opportunity zone investments favoring real estate development
- Like-kind exchanges protecting real estate capital gains
Construction Material Tariffs: Trump’s tariff regime creates artificial scarcity benefiting established developers:
- 50% tariffs on steel and aluminum increase barriers to entry³
- 25% tariffs on auto parts reduce transportation competitiveness relative to real estate⁴
- Selective exemptions create rent-seeking opportunities for connected developers
Trade Policy as Personal Leverage
International Business Leverage: Trade disputes enhance Trump’s ability to extract concessions for international business interests. Countries facing tariffs become more receptive to Trump Organization projects—a clear conflict of interest that subordinates national trade policy to personal business advantage.
Political Brand Monetization: Trade wars enhance Trump’s political brand as a “tough negotiator,” directly increasing the value of his media empire and licensing agreements, regardless of economic consequences for the nation.
Donald Trump’s 2024-2025 economic policies represent a systematic subordination of national economic interest to presidential self-interest, violating fundamental economic principles established by Henry Hazlitt and Ha-Joon Chang.
Challenging Evidence
Market Power Distortions:
Evidence of monopsony power in labor markets suggested prices didn’t always reflect true supply and demand. Concentrated market power in some industries led to above-competitive pricing that persisted despite normal market forces.
Information Asymmetries:
Complex modern markets often prevented efficient price discovery, particularly in healthcare, finance, and technology sectors where consumers lacked perfect information.
Lessons for Modern Economic Policy
The 2023-2024 and the current economic period provides rich examples both supporting and challenging Hazlitt’s principles. While his emphasis on considering long-term, economy-wide effects remains valuable, contemporary events also highlight important nuances:
Where Hazlitt’s Framework Remains Strong:
- Unintended Consequences: Policies consistently produced effects beyond their intended scope
- Opportunity Costs: Resources directed to one use always came at the expense of alternatives
- The Forgotten Man: Every policy created winners and losers, with costs often falling on those least visible politically
Where Modern Economics Adds Complexity:
- Market Failures: Real-world markets often deviate from perfect competition assumptions
- Distributional Concerns: Efficiency gains don’t automatically translate to broadly shared prosperity
- Strategic Considerations: Economic policy serves multiple objectives beyond pure efficiency
- Information and Power Asymmetries: Modern markets involve complex dynamics Hazlitt’s framework didn’t fully capture
The Enduring Relevance of Economic Thinking
Perhaps the most important lesson from applying Hazlitt’s framework to contemporary events is not whether his specific policy prescriptions were correct, but whether his methodological approach remains valuable. The discipline of asking “and then what?” and “who pays?” continues to illuminate policy debates across the political spectrum.
Key Questions for Any Policy Proposal:
- Who is the Forgotten Man? Who bears the costs of this policy?
- What are the opportunity costs? What beneficial activities won’t happen because resources are directed elsewhere?
- What are the long-term effects? How will people and markets adapt over time?
- Who benefits and who loses? Are the costs and benefits distributed fairly?
Conclusion: The Lesson Restated for Our Time
Henry Hazlitt’s central insight—that good economics requires looking at all the effects of a policy on all groups over time—remains as relevant today as it was in 1946. The economic debates of 2023-2024, from tariffs to rent control to inflation policy, consistently demonstrate both the power and the limitations of this approach.
The tariff debates showed how policies that appear to protect American workers actually function as taxes on American consumers. California’s rent control experiment validated predictions about housing supply while raising questions about market power and tenant rights. Post-pandemic inflation illustrated how monetary policy creates winners and losers in ways that aren’t immediately visible.
But perhaps most importantly, the concept of the Forgotten Man—Sumner’s “C” who pays for policies designed to help “X”—provides a crucial lens for understanding modern policy debates. Whether it’s taxpayers funding student loan forgiveness, consumers paying higher prices due to trade protection, or future renters unable to find housing due to construction restrictions, someone always pays for policies that appear to offer something for nothing.
This doesn’t mean all government intervention is wrong or that markets are perfect. The 2023-2024 evidence revealed real market failures, from monopsony power in labor markets to information asymmetries in complex industries. But it does mean that honest policy analysis requires acknowledging trade-offs, identifying who bears the costs, and considering long-term consequences alongside short-term benefits.
The modern economy is far more complex than the world Hazlitt wrote about in 1946. Global supply chains, digital platforms, climate change, and geopolitical competition create challenges his framework didn’t anticipate. But the fundamental discipline of economic thinking—tracing consequences, identifying opportunity costs, and remembering the Forgotten Man—remains essential for navigating these complexities.
As we face new economic challenges in the years ahead, from artificial intelligence to climate policy to demographic transitions, Hazlitt’s lesson provides not a set of predetermined answers, but a method for asking the right questions. In a world of competing claims and political rhetoric, the simple discipline of asking “and then what happens?” may be the most valuable economic insight of all.
The Forgotten Man is still with us, still bearing the costs of policies designed to help others, still deserving our attention and consideration. Remembering him—and the broader lesson he represents—may be the key to crafting economic policies that truly serve the common good.
This analysis is based on verified data from government sources, academic research, and contemporary economic studies. While every effort has been made to ensure accuracy, readers should consult primary sources for the most current information on specific policies and their effects.
Sources and Further Reading:
- Hazlitt, Henry. “Economics in One Lesson” (1946)
- Federal Reserve Economic Data (FRED) – Inflation and monetary policy statistics
- U.S. Bureau of Labor Statistics – Employment and wage data
- California Department of Housing and Community Development – Housing permit data
- Academic studies on minimum wage effects using tax data (2024)
- U.S. Trade Representative – Tariff policy announcements and analysis