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Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly
A masterful introduction to the key ideas behind the successes―and failures―of free-market economics
Since 1946, Henry Hazlitt’s bestselling Economics in One Lesson has popularized the belief that economics can be boiled down to one simple market prices represent the true cost of everything. But one-lesson economics tells only half the story. It can explain why markets often work so well, but it can’t explain why they often fail so badly―or what we should do when they stumble. As Nobel Prize–winning economist Paul Samuelson quipped, “When someone preaches ‘Economics in one lesson,’ I Go back for the second lesson.” In Economics in Two Lessons , John Quiggin teaches both lessons, offering a masterful introduction to the key ideas behind the successes―and failures―of free markets.
Economics in Two Lessons explains why market prices often fail to reflect the full cost of our choices to society as a whole. For example, every time we drive a car, fly in a plane, or flick a light switch, we contribute to global warming. But, in the absence of a price on carbon emissions, the costs of our actions are borne by everyone else. In such cases, government action is needed to achieve better outcomes.
Two-lesson economics means giving up the dogmatism of laissez-faire as well as the reflexive assumption that any economic problem can be solved by government action, since the right answer often involves a mixture of market forces and government policy. But the payoff is understanding how markets actually work―and what to do when they don’t.
Brilliantly accessible, Economics in Two Lessons unlocks the essential issues at the heart of any economic question.
Since 1946, Henry Hazlitt’s bestselling Economics in One Lesson has popularized the belief that economics can be boiled down to one simple market prices represent the true cost of everything. But one-lesson economics tells only half the story. It can explain why markets often work so well, but it can’t explain why they often fail so badly―or what we should do when they stumble. As Nobel Prize–winning economist Paul Samuelson quipped, “When someone preaches ‘Economics in one lesson,’ I Go back for the second lesson.” In Economics in Two Lessons , John Quiggin teaches both lessons, offering a masterful introduction to the key ideas behind the successes―and failures―of free markets.
Economics in Two Lessons explains why market prices often fail to reflect the full cost of our choices to society as a whole. For example, every time we drive a car, fly in a plane, or flick a light switch, we contribute to global warming. But, in the absence of a price on carbon emissions, the costs of our actions are borne by everyone else. In such cases, government action is needed to achieve better outcomes.
Two-lesson economics means giving up the dogmatism of laissez-faire as well as the reflexive assumption that any economic problem can be solved by government action, since the right answer often involves a mixture of market forces and government policy. But the payoff is understanding how markets actually work―and what to do when they don’t.
Brilliantly accessible, Economics in Two Lessons unlocks the essential issues at the heart of any economic question.
408 pages, Hardcover
Published April 23, 2019
65 people are currently reading
620 people want to read
About the author
John Quiggin
28 books19 followersJohn Quiggin (born 29 March 1956) is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government.
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February 8, 2020
In short, this is a deeply inadequate economics primer that the "uninitiated" should probably not read, least those who already sympathise with Quiggin's policy prescriptions. If you want a "balanced" economics primer, you'd be better off starting any of the many better options (suggestions down the bottom).
In discussions I have with well-meaning friends who have not formally studied economics, I often find myself coming to a point where I'll say something like "But obviously a firm will not employ a worker if the hourly revenues generated by that worker are exceeded by the wage of that worker", the friend will give me a blank look, and I will promptly remember that I have no good economics primer to lend to them. To remedy this situation, I purchased Quiggin's Economics in Two Lessons and its predecessor, Henry Hazlitt's Economics in One Lesson, since I was concerned that, even though Hazlitt is the classic and substantially shorter than Quiggin, Economics in One Lesson might be unbalanced. On that basis, I wanted a "back-up", albeit one with less renown or conciseness. After having read both, I am astounded to say the dead opposite: despite my broadly centre-left policy views, I found Hazlitt to do exactly what an economics primer should do (dispel common economic falsehoods that echo around the mediascape and introduce its readers to the "economic way of thinking" with minimum bias) and Quiggin to do exactly what an economics primer shouldn't do (heavily reinforce a specific policy prescription without giving a sufficient grounding to enable readers to discern for themselves which economic statements in the mediascape are still equivocal and which are assuredly false).
Quiggin isn't entirely accurate in what kind of book he's trying to write, and he doesn't portray his opponents with any degree of fairness, and the combination of those two would lead someone with no economic background deeply astray.
What do I mean by “he isn’t accurate in what kind of book he’s trying to write”? Well, to explain by way of contrast, Hazlitt is very clear about what his book will accomplish:
This last sentence is especially salient, as it means that Hazlitt is free to criticise economics as it is crudely discussed in the press and in politics without necessarily arguing that such crudeness is endemic to an entire school and without attacking specific individuals where Hazlitt believes such an attack is unwarranted. Quiggin makes no such qualification, and in attacking “One Lesson” economists (his term for “laissez-faire” or “free-market”), he tars with the same brush everyone from corporate lobbyists through to well-meaning academics economists who are simply sceptical of government power. As a result, Quiggin jumps between views that almost all laissez-faire economists would genuinely hold (e.g. “governments will generally be less efficient than private enterprise in implementing the same project”) and views that virtually none of them would hold (e.g. “all people are literally Homo economicus”). He spends most of the book therefore attacking a straw man and therefore pleasantly avoiding having to respond to the best criticisms of the laissez-faire group. An example of the ridiculousness this leads him to is best exemplified in his repeated claims that “One-Lesson” economists have apparently failed to study what would constitute basic components of any undergraduate economics major:
What?! Like, by all means, I’m sure some poorly read conservative politicians genuinely think that “free markets always without exception lead to efficient prices”, but anyone who actually knows what the First Fundamental Theorem of Welfare Economics is would absolutely know what the Second Fundamental Theorem is! They’re generally presented in the same lecture in a second- or third-year microeconomics course!
Again, Hazlitt can get away with his more polemical style because he’s clear in predominantly attacking lobbyists, and he’s very clear when he’s attacking a specific economist whose specific view he doesn’t like. Quiggin just seems to genuinely believe that everyone to the right of Elizabeth Warren is genuinely motivated by cartoonish stupidity and selfishness.
On that point, this book contains a simply astonishing amount of ad hominem. Economists like Hayek are respected by modern laissez-faire economists, but they’re not held as infallible prophets whose works are scripture — the only people who act like that are politicians and lobbyists (again, this is the danger of attacking all your intellectual opponents with the same brush). In spite of this, Quiggin devotes an astounding amount of time irrelevantly attacking historical economists as people. A few choice selections:
Again, to those who know nothing about economists, maybe these seem like relevant points, but if you do know anything, they clearly aren’t! If you don’t know anything about Hayek, maybe it seems reasonable to decry him as an dogmatic “amoral free-marketeer” (as opposed to someone who certainly saw a substantial role for government, though in certain circumscribed spheres, and someone who cared deeply about the welfare of all). If you don’t really know what Pareto-optimality is, maybe the fascist connections of Vilfredo Pareto seem relevant (even though they’re clearly not, since Pareto-optimality can be introduced as a bland technical definition, and in the first instance is introduced in virtually all economics courses in the context of “you want to exhaust all possible Pareto-optimal options first since nobody is worse off, though clearly the distribution of wealth matters a lot too”). If you don’t know the literature, maybe it seems like there is an overwhelming empirical consensus that labor markets are all monopolistic, meaning minimum wages can be introduced without penalty (even though this isn’t unequivocal, as is demonstrated by the Seattle minimum wage study). This is a big problem with Quiggin’s book: because this is an introductory text, most readers won’t know enough to differentiate between his genuine argument and his polemic. These ad-hominem attacks are virtually all presented in advance of the dissection of the authors’ key ideas, if the key ideas are presented at all, which reinforces Quiggin’s contention that “One Lesson” economists are all evil corporatist trolls but hardly helps a reader to know truth.
In addition to all of this, Quiggin seems more keenly motivated in some sections by self-aggrandisement than by a desire to educate, which makes his already polemical and scattered work even more polemical and scattered. For instance, he has a bad habit of needlessly giving etymologies or original-language equivalents even when it adds nothing:
He spends a large section of the book poorly outlining the science of climate change, even though a.) this will clearly convince nobody who was not already convinced, b.) it substantially lengthens an already lengthy section on negative externalities where the simple acid rain example would have served perfectly adequately, and c.) it seems to be there mostly so that he can accuse One Lesson economists of being climate deniers, which is clearly not universally or even mostly true (there are obviously many economists who are merely sceptical of the capacity of the government to remedy the problem rather than being sceptical of the underlying science). Even outside the self-aggrandisement, his polemic results in his giving sloppy definitions that would certainly confuse an uninformed reader (for instance, he defines a public good as something that “must be supplied equally to the entire population”, which a.) confuses the normative and descriptive uses of “must” for someone who doesn’t know he’s speaking descriptively b.) would confuse a reader new to economics since “public education” appears by this definition to be a public good).
In short, I don’t know whom this book would actually help. Hazlitt provides a good defence against really bad lobbyist arguments if that’s what you want out of an economics primer. Something like Economics Rules by Dani Rodrik provides a relatively accessible introduction to how academic economics could be better (hint: he doesn’t just accuse them all of being “One Lesson”). Someone like Tim Harford in The Undercover Economist does as good a job of explaining economic intuition and opportunity cost without diverting into ideological and misrepresentative tirades. If you want a good critical introduction, go for John Kay’s “The Truth About Markets”. Put this book down. Get something better.
In discussions I have with well-meaning friends who have not formally studied economics, I often find myself coming to a point where I'll say something like "But obviously a firm will not employ a worker if the hourly revenues generated by that worker are exceeded by the wage of that worker", the friend will give me a blank look, and I will promptly remember that I have no good economics primer to lend to them. To remedy this situation, I purchased Quiggin's Economics in Two Lessons and its predecessor, Henry Hazlitt's Economics in One Lesson, since I was concerned that, even though Hazlitt is the classic and substantially shorter than Quiggin, Economics in One Lesson might be unbalanced. On that basis, I wanted a "back-up", albeit one with less renown or conciseness. After having read both, I am astounded to say the dead opposite: despite my broadly centre-left policy views, I found Hazlitt to do exactly what an economics primer should do (dispel common economic falsehoods that echo around the mediascape and introduce its readers to the "economic way of thinking" with minimum bias) and Quiggin to do exactly what an economics primer shouldn't do (heavily reinforce a specific policy prescription without giving a sufficient grounding to enable readers to discern for themselves which economic statements in the mediascape are still equivocal and which are assuredly false).
Quiggin isn't entirely accurate in what kind of book he's trying to write, and he doesn't portray his opponents with any degree of fairness, and the combination of those two would lead someone with no economic background deeply astray.
What do I mean by “he isn’t accurate in what kind of book he’s trying to write”? Well, to explain by way of contrast, Hazlitt is very clear about what his book will accomplish:
This book is an analysis of economic fallacies that are at last so prevalent that they have almost become a new orthodoxy... When analyzing fallacies, I have thought it still less advisable to mention particular names than in giving credit. To do so would have required special justice to each writer criticized, with exact quotations, account taken of the particular emphasis he places on this point or that, the qualifications he makes, his personal ambiguities, inconsistencies, and so on. I hope, therefore, that no one will be too disappointed at the absence of such names as Karl Max, Thorstein Veblen, Major Douglas, Lord Keynes, Professor Alvin Hansen and others in these pages. The object of this book is not to expose the special errors of particular writers, but economic errors in their most frequent, widespread, or influential form. Fallacies, when they have reached the popular stage, become anonymous anyway. The subtleties or obscurities to be found in the authors most responsible for propagating them are washed off. A doctrine becomes simplified; the sophism that may have been buried in a network of qualifications, ambiguities or mathematical equations stands clear. I hope I shall not be accused of injustice on the ground, therefore, that a fashionable doctrine in the form in which I have presented it is not precisely the doctrine as it has been formulated by Lord Keynes or some other special author. It is the beliefs which politically influential groups hold and which governments act upon that we are interested in here, not he historical origins of those beliefs. (p.7-11, emphasis mine)
This last sentence is especially salient, as it means that Hazlitt is free to criticise economics as it is crudely discussed in the press and in politics without necessarily arguing that such crudeness is endemic to an entire school and without attacking specific individuals where Hazlitt believes such an attack is unwarranted. Quiggin makes no such qualification, and in attacking “One Lesson” economists (his term for “laissez-faire” or “free-market”), he tars with the same brush everyone from corporate lobbyists through to well-meaning academics economists who are simply sceptical of government power. As a result, Quiggin jumps between views that almost all laissez-faire economists would genuinely hold (e.g. “governments will generally be less efficient than private enterprise in implementing the same project”) and views that virtually none of them would hold (e.g. “all people are literally Homo economicus”). He spends most of the book therefore attacking a straw man and therefore pleasantly avoiding having to respond to the best criticisms of the laissez-faire group. An example of the ridiculousness this leads him to is best exemplified in his repeated claims that “One-Lesson” economists have apparently failed to study what would constitute basic components of any undergraduate economics major:
The difference between One Lesson and Two Lesson economists is neatly reflected in the theory of welfare economics. One Lesson economists read the theory as far as the First Fundamental Theorem [of Welfare Economics] and then close the book, satisfied that they have discovered everything they need to know. They ignore the more important and interesting Second Theorem and fail to recognise that the allocation of property rights is the critical factor in determining which of the infinite range of possible market equilibrium outcomes is realised. (p.148)
What?! Like, by all means, I’m sure some poorly read conservative politicians genuinely think that “free markets always without exception lead to efficient prices”, but anyone who actually knows what the First Fundamental Theorem of Welfare Economics is would absolutely know what the Second Fundamental Theorem is! They’re generally presented in the same lecture in a second- or third-year microeconomics course!
Again, Hazlitt can get away with his more polemical style because he’s clear in predominantly attacking lobbyists, and he’s very clear when he’s attacking a specific economist whose specific view he doesn’t like. Quiggin just seems to genuinely believe that everyone to the right of Elizabeth Warren is genuinely motivated by cartoonish stupidity and selfishness.
On that point, this book contains a simply astonishing amount of ad hominem. Economists like Hayek are respected by modern laissez-faire economists, but they’re not held as infallible prophets whose works are scripture — the only people who act like that are politicians and lobbyists (again, this is the danger of attacking all your intellectual opponents with the same brush). In spite of this, Quiggin devotes an astounding amount of time irrelevantly attacking historical economists as people. A few choice selections:
The idea of opportunity cost was brought into the mainstream of economics by Austrian and Austrian-influenced economists, most notably F.A. Hayek, Ludwig von Mises, and Lionel Robbins. Unfortunately, all three were dogmatic One Lesson economists, who stripped von Wieser’s idea of its egalitarian implications. (p.27)
Before explaining this [Pareto-efficiency], it’s important to understand Pareto’s broader body of thought, one that led him in the end to support the fascist regime of Benito Mussolini. (p.145)
Over time, however, the view that many, perhaps most, labor markets are monopolistic has gained ground, at least among those economists open to empirical evidence. (p.186, emphasis mine)
Again, to those who know nothing about economists, maybe these seem like relevant points, but if you do know anything, they clearly aren’t! If you don’t know anything about Hayek, maybe it seems reasonable to decry him as an dogmatic “amoral free-marketeer” (as opposed to someone who certainly saw a substantial role for government, though in certain circumscribed spheres, and someone who cared deeply about the welfare of all). If you don’t really know what Pareto-optimality is, maybe the fascist connections of Vilfredo Pareto seem relevant (even though they’re clearly not, since Pareto-optimality can be introduced as a bland technical definition, and in the first instance is introduced in virtually all economics courses in the context of “you want to exhaust all possible Pareto-optimal options first since nobody is worse off, though clearly the distribution of wealth matters a lot too”). If you don’t know the literature, maybe it seems like there is an overwhelming empirical consensus that labor markets are all monopolistic, meaning minimum wages can be introduced without penalty (even though this isn’t unequivocal, as is demonstrated by the Seattle minimum wage study). This is a big problem with Quiggin’s book: because this is an introductory text, most readers won’t know enough to differentiate between his genuine argument and his polemic. These ad-hominem attacks are virtually all presented in advance of the dissection of the authors’ key ideas, if the key ideas are presented at all, which reinforces Quiggin’s contention that “One Lesson” economists are all evil corporatist trolls but hardly helps a reader to know truth.
In addition to all of this, Quiggin seems more keenly motivated in some sections by self-aggrandisement than by a desire to educate, which makes his already polemical and scattered work even more polemical and scattered. For instance, he has a bad habit of needlessly giving etymologies or original-language equivalents even when it adds nothing:
The same cannot be said of Friedrich von Wieser, the Austrian economist who coined the term “opportunity cost” (Opportunitätskosten in German)… (p.26)
A similar mix of private and common property is found in an apartment complex organized as a condominium (the term is derived from the Latin for “shared property”). (p.104)
The term “monopoly” means “one seller” (from Greek). (p.177)
He spends a large section of the book poorly outlining the science of climate change, even though a.) this will clearly convince nobody who was not already convinced, b.) it substantially lengthens an already lengthy section on negative externalities where the simple acid rain example would have served perfectly adequately, and c.) it seems to be there mostly so that he can accuse One Lesson economists of being climate deniers, which is clearly not universally or even mostly true (there are obviously many economists who are merely sceptical of the capacity of the government to remedy the problem rather than being sceptical of the underlying science). Even outside the self-aggrandisement, his polemic results in his giving sloppy definitions that would certainly confuse an uninformed reader (for instance, he defines a public good as something that “must be supplied equally to the entire population”, which a.) confuses the normative and descriptive uses of “must” for someone who doesn’t know he’s speaking descriptively b.) would confuse a reader new to economics since “public education” appears by this definition to be a public good).
In short, I don’t know whom this book would actually help. Hazlitt provides a good defence against really bad lobbyist arguments if that’s what you want out of an economics primer. Something like Economics Rules by Dani Rodrik provides a relatively accessible introduction to how academic economics could be better (hint: he doesn’t just accuse them all of being “One Lesson”). Someone like Tim Harford in The Undercover Economist does as good a job of explaining economic intuition and opportunity cost without diverting into ideological and misrepresentative tirades. If you want a good critical introduction, go for John Kay’s “The Truth About Markets”. Put this book down. Get something better.
June 30, 2019
I listened to this on Audible, and really enjoyed it (though I think I would have liked to see some of the charts in the physical volume). A few thoughts:
1. The book presents many of the same issues that are covered in standard "principles of economics" courses (or intro macro/micro courses), but it links these together by use of the concept of *opportunity cost* (and in particular, of the total *social opportunity cost* of various interventions). While this concept is usually presented in intro courses, Quiggin does a *much* better job in showing its centrality in understanding things like price signals, distributions of property rights, notions of "efficiency" and "Pareto optimality" and so on. I think this book would be an excellent companion to any standard textbook (as well as being a great stand-alone intro for those with some basic background knowledge in econ).
2. Quiggin's "two lessons" are presented as a correction to Hazlitt's famous "Economics in One Lesson" (the lesson apparently being that the cost of government interventions in markets always ends up outweighing the costs, once everything has been taken into account). While this is obviously nonsense, something like this still seems to inform the viewpoint of both large schools of professional economists (of the Austrian and Freshwater variety) and many more armchair economists (mostly libertarian and "big business" conservatives). Quiggin's book is a good antidote to this, and I particularly thought his presentation of the role of property rights as dependent upon a certain *choice* (which can be evaluated in terms of opportunity cost) was well done.
3. For the curious, Quiggin's two lessons are: (1) "Market prices reflect and determine opportunity costs faced by consumers and producers" and (2) "Market prices don’t reflect all the opportunity
costs we face as a society". One-lesson economists (as Quiggin calls them) are happy with lesson one, as it emphasizes the importance of a well-functioning price mechanism (of the type allowed by markets) in providing information about opportunity costs to *individuals.* However, lesson 1 is radically incomplete, both because it ignores extra-market decisions (such as how to allocate the property rights necessary to make markets function in the first place) and what to do about market failures. W/r/t market failures Quiggin discusses both climate change (unsurprisingly) and unemployment (since, in conditions of high unemployment, workers willing to work at the market wage can't find a job). He also discusses the equity premium as a market failure, which I'd never thought of (but I am now convinced by).
My guess is that the "targets" of this book (i.e., One-lesson economists) will complain that Quiggin ignores the flaws of governments or something of the sort. This is both incorrect (he recognizes this as an issue in standard cases such as rent control), and clearly beside the point. After all, the point here is most certainly NOT that government action is always preferable to "free" markets. Rather, it is that the *conceptual* arguments given by One-Lesson economists in favor of markets (and against governments) don't actually hold any water. And so, if the One-lesson economists want to oppose government in any specific instance (and they might have good reasons to!), they'll need to provide a much different sort of argument (i.e., one much more closely tied to empirical evidence, and less beholden to DSGE models, etc.) than the ones they have customarily favored.
In any case, there's a lot more here than I have mentioned (including a section on IP laws, which I liked). I highly recommend the book.
1. The book presents many of the same issues that are covered in standard "principles of economics" courses (or intro macro/micro courses), but it links these together by use of the concept of *opportunity cost* (and in particular, of the total *social opportunity cost* of various interventions). While this concept is usually presented in intro courses, Quiggin does a *much* better job in showing its centrality in understanding things like price signals, distributions of property rights, notions of "efficiency" and "Pareto optimality" and so on. I think this book would be an excellent companion to any standard textbook (as well as being a great stand-alone intro for those with some basic background knowledge in econ).
2. Quiggin's "two lessons" are presented as a correction to Hazlitt's famous "Economics in One Lesson" (the lesson apparently being that the cost of government interventions in markets always ends up outweighing the costs, once everything has been taken into account). While this is obviously nonsense, something like this still seems to inform the viewpoint of both large schools of professional economists (of the Austrian and Freshwater variety) and many more armchair economists (mostly libertarian and "big business" conservatives). Quiggin's book is a good antidote to this, and I particularly thought his presentation of the role of property rights as dependent upon a certain *choice* (which can be evaluated in terms of opportunity cost) was well done.
3. For the curious, Quiggin's two lessons are: (1) "Market prices reflect and determine opportunity costs faced by consumers and producers" and (2) "Market prices don’t reflect all the opportunity
costs we face as a society". One-lesson economists (as Quiggin calls them) are happy with lesson one, as it emphasizes the importance of a well-functioning price mechanism (of the type allowed by markets) in providing information about opportunity costs to *individuals.* However, lesson 1 is radically incomplete, both because it ignores extra-market decisions (such as how to allocate the property rights necessary to make markets function in the first place) and what to do about market failures. W/r/t market failures Quiggin discusses both climate change (unsurprisingly) and unemployment (since, in conditions of high unemployment, workers willing to work at the market wage can't find a job). He also discusses the equity premium as a market failure, which I'd never thought of (but I am now convinced by).
My guess is that the "targets" of this book (i.e., One-lesson economists) will complain that Quiggin ignores the flaws of governments or something of the sort. This is both incorrect (he recognizes this as an issue in standard cases such as rent control), and clearly beside the point. After all, the point here is most certainly NOT that government action is always preferable to "free" markets. Rather, it is that the *conceptual* arguments given by One-Lesson economists in favor of markets (and against governments) don't actually hold any water. And so, if the One-lesson economists want to oppose government in any specific instance (and they might have good reasons to!), they'll need to provide a much different sort of argument (i.e., one much more closely tied to empirical evidence, and less beholden to DSGE models, etc.) than the ones they have customarily favored.
In any case, there's a lot more here than I have mentioned (including a section on IP laws, which I liked). I highly recommend the book.
November 5, 2022
Economics in Two Lessons offers various perspectives on markets and educates us about the opportunity costs of each activity, actions, initiative, etc.
The book is divided into 2 lessons and starts with the explanation of opportunity cost. As the book progresses, the author makes distinction of 2-lesson approach from the 1-lesson approach to economics. Things such as No Free Lunches and how this school of thoughts differs from 1-lesson economists who have a different thought and the opportunity costs associated with it if there is any such Free Lunches have been described very well. The importance of information in an economy and the implications of natural disasters and war on an economy have been brought up and discussed as well.
When the book proceeds to lesson 2, we get to learn about Business cycles. We learn about unemployment associated with recession and how a true opportunity cost cannot be measured during such times which is contradictory to 1-lesson economics. Monopoly market and its effect on the consumer pricing has been discussed in good detail. Externalities, public policies, minimum wages, public enterprises, environment policies and taxation have all been touched.
At many instances, the author takes a dig at the proponents of 1-lesson economics and tries to justify how certain economic conditions and markets cannot be explained by them. Also at many instances, the author provides good advices on various things such as what Governments can do to boost employment during recessions, how direct distribution of income is more beneficial than providing subsidies, how geometric mean rather than an arithmetic mean is a better measure of inequality, how much the top 1% earners should be taxed and many more.
This book is recommended for those who want to learn something about economics. It will help them gain a basic understanding of how markets work under various conditions. The readers will walk away with fair amount of knowledge in economics.
The book is divided into 2 lessons and starts with the explanation of opportunity cost. As the book progresses, the author makes distinction of 2-lesson approach from the 1-lesson approach to economics. Things such as No Free Lunches and how this school of thoughts differs from 1-lesson economists who have a different thought and the opportunity costs associated with it if there is any such Free Lunches have been described very well. The importance of information in an economy and the implications of natural disasters and war on an economy have been brought up and discussed as well.
When the book proceeds to lesson 2, we get to learn about Business cycles. We learn about unemployment associated with recession and how a true opportunity cost cannot be measured during such times which is contradictory to 1-lesson economics. Monopoly market and its effect on the consumer pricing has been discussed in good detail. Externalities, public policies, minimum wages, public enterprises, environment policies and taxation have all been touched.
At many instances, the author takes a dig at the proponents of 1-lesson economics and tries to justify how certain economic conditions and markets cannot be explained by them. Also at many instances, the author provides good advices on various things such as what Governments can do to boost employment during recessions, how direct distribution of income is more beneficial than providing subsidies, how geometric mean rather than an arithmetic mean is a better measure of inequality, how much the top 1% earners should be taxed and many more.
This book is recommended for those who want to learn something about economics. It will help them gain a basic understanding of how markets work under various conditions. The readers will walk away with fair amount of knowledge in economics.
January 17, 2020
A real corker of an economics book! I especially liked the further reading suggested at the end of each chapter.
September 18, 2022
The tagline of this book should be changed to "Citation needed". The author repeatedly makes assertions of what "One Lesson economists" believe with actual references to justify these assertions few and far between. Indeed, with the exception of a handful of quotes taken from the introduction and beginning chapters, there is scant evidence that Quiggin has ever read "Economics in One Lesson".
For example, in the introduction, Quiggin states, "Broadly speaking, Hazlitt's simple answer is 'leave markets alone, and all will be well.'" Though this sentiment is put in quotes, one will search in vain to find any such idea put forward by Hazlitt. Indeed, those of us who have actually read "Economics in One Lesson" will remember his chapter entitled "The Curse of Machinery" where he points out that large numbers of people are genuinely hurt by creative destruction.
Quiggin wants to give his readers the impression that "One Lesson economists" have only told half the story and Quiggin is here to complete their education. However, chapter after chapter he demonstrates he has no idea what these "One Lesson economists" actually believe. In the opening paragraph of section 7.2, Quiggin states, "As we saw in section 2.4, the core of Lesson One is that, in a perfect competitive equilibrium, prices exactly match opportunity cost." Once again, one will search in vain for any such position espoused by Hazlitt or any other Austrian economist. Austrian economists do not hold to neoclassical equilibrium theory. Quiggin doesn't understand this and so is shoehorning beliefs into his opponents' minds. As a result, when neoclassical equilibrium fails to exist in the market, Quiggin views this as proof that "One Lesson economics" must be deficient.
I'll finish with one more example. In my opinion, this is the most egregious mischaracterization that Quiggin makes. In the opening paragraph of chapter 8, Quiggin asserts, "According to One Lesson economics, recessions ought to be impossible ..." Words almost fail me. Remember that Hazlitt held to the Austrian school of economic thought. One of the most famous ideas from the Austrian school is how artificially low interest rates cause recessions. Quiggin's ignorance of this well-known theory is akin to someone criticizing Keynesians for not incorporating aggregate demand into their models.
In conclusion, this is one of the worst books I've ever read. Read if, for the sake of fairness, you feel that you must hear what the other side has to say but don't expect to learn any actual economics.
For example, in the introduction, Quiggin states, "Broadly speaking, Hazlitt's simple answer is 'leave markets alone, and all will be well.'" Though this sentiment is put in quotes, one will search in vain to find any such idea put forward by Hazlitt. Indeed, those of us who have actually read "Economics in One Lesson" will remember his chapter entitled "The Curse of Machinery" where he points out that large numbers of people are genuinely hurt by creative destruction.
Quiggin wants to give his readers the impression that "One Lesson economists" have only told half the story and Quiggin is here to complete their education. However, chapter after chapter he demonstrates he has no idea what these "One Lesson economists" actually believe. In the opening paragraph of section 7.2, Quiggin states, "As we saw in section 2.4, the core of Lesson One is that, in a perfect competitive equilibrium, prices exactly match opportunity cost." Once again, one will search in vain for any such position espoused by Hazlitt or any other Austrian economist. Austrian economists do not hold to neoclassical equilibrium theory. Quiggin doesn't understand this and so is shoehorning beliefs into his opponents' minds. As a result, when neoclassical equilibrium fails to exist in the market, Quiggin views this as proof that "One Lesson economics" must be deficient.
I'll finish with one more example. In my opinion, this is the most egregious mischaracterization that Quiggin makes. In the opening paragraph of chapter 8, Quiggin asserts, "According to One Lesson economics, recessions ought to be impossible ..." Words almost fail me. Remember that Hazlitt held to the Austrian school of economic thought. One of the most famous ideas from the Austrian school is how artificially low interest rates cause recessions. Quiggin's ignorance of this well-known theory is akin to someone criticizing Keynesians for not incorporating aggregate demand into their models.
In conclusion, this is one of the worst books I've ever read. Read if, for the sake of fairness, you feel that you must hear what the other side has to say but don't expect to learn any actual economics.
July 29, 2019
John Quiggin, a progressive Australian economist ("the Krugman of the antipodes") writes a response to Economics in One Lesson: The Shortest & Surest Way to Understand Basic Economics, a classic of the laissez faire crowd.
This isn't an anti-market screed. I'd say it's in opposition to unfettered markets, but his main theme is that there is no such thing. He's very good at dissecting a lot of the human inventions (such as what gets defined as "property") that will determine economic outcomes.
I did find a lot of the early stuff is fairly rote but really liked it as it got into greater depth.
This isn't an anti-market screed. I'd say it's in opposition to unfettered markets, but his main theme is that there is no such thing. He's very good at dissecting a lot of the human inventions (such as what gets defined as "property") that will determine economic outcomes.
I did find a lot of the early stuff is fairly rote but really liked it as it got into greater depth.
January 13, 2021
I am mixed on this book. Parts of it are great, and parts seem to really miss the mark. As a fan of the book Economics in One Lesson that this book is based on, and a response to, I expected some reference to the work. I also listened to it on audiobook, so did not look at any charts/graphs.
The field of economics will continue to develop, so it is not a surprise over the 70 years since Hazlitt put out his well known book, that there has been criticism and response to it. With one lesson economists, Quiggin argues, would focus too much only on the time when the economy is working optimally, and does not account enough for the economic downturns that represent a significant minority of overall times. It also criticizes one lesson economists for not having an adequate response to issues like pollution, especially as that impacts people in other countries than the ones creating it. Many of the Austrian economists of the 19th and early 20th century were living in a different world than the one Quiggin is now responding from. I would be interested into seeing what response would now be given from that school of thought, as those seem like valid points.
In response to the environmental concerns with one lesson economists, however, Quiggin seems to want a strong governmental role. Some of the worst polluters in history have been in this sort of position (I am thinking of the USSR in general, and the Aral Sea in particular, as just one example).
On a whole he attempts to continue the discussion, and although i don't agree with all his reasoning or conclusions, it is generally a rational response to a differing economic viewpoint which should hopefully spur further discussion.
The field of economics will continue to develop, so it is not a surprise over the 70 years since Hazlitt put out his well known book, that there has been criticism and response to it. With one lesson economists, Quiggin argues, would focus too much only on the time when the economy is working optimally, and does not account enough for the economic downturns that represent a significant minority of overall times. It also criticizes one lesson economists for not having an adequate response to issues like pollution, especially as that impacts people in other countries than the ones creating it. Many of the Austrian economists of the 19th and early 20th century were living in a different world than the one Quiggin is now responding from. I would be interested into seeing what response would now be given from that school of thought, as those seem like valid points.
In response to the environmental concerns with one lesson economists, however, Quiggin seems to want a strong governmental role. Some of the worst polluters in history have been in this sort of position (I am thinking of the USSR in general, and the Aral Sea in particular, as just one example).
On a whole he attempts to continue the discussion, and although i don't agree with all his reasoning or conclusions, it is generally a rational response to a differing economic viewpoint which should hopefully spur further discussion.
February 7, 2020
4.5/5
Hazlitt taught Economics in one lesson.
1. Leave markets alone and things will work out.
If you have a friend who claims to be an economist or understand economics who doesn't have an economics degree, they are likely a libertarian. And they stopped their economics education after Lesson 1. When you point out Lesson 1 failures they wave their hands and blame the government. I this book is a pretty good refutation of that belief.
True, under fairly strict conditions, Lesson 1 works, however if the underlying assumptions are wrong, this lesson quickly fails(great depression, great recession, unemployment ...)
Half of this book is Quiggin looking at lesson one and pointing out it's successes and failures. The other half is Quiggin illustrating a second lesson.
2. Market prices don't reflect all the opportunity cost we face as a society.
The book is 16 (?) chapters of using opportunity cost as a lens to explain failures in lesson 1. Why do Keynesian multipliers exist during a recession but not a boom*? ...
A very fascinating book that I highly recommend!
P.S. Tyler Cowen (half of the excellent Marginal Revolution) points out "The third lesson, however, is government failure..." This book doesn't address that.
* In a recession before being hired by the government the worker is doing nothing, in a boom the worker must be taken from some other job. In the first case the opportunity cost is minimal, in the second it is substantial.
Hazlitt taught Economics in one lesson.
1. Leave markets alone and things will work out.
If you have a friend who claims to be an economist or understand economics who doesn't have an economics degree, they are likely a libertarian. And they stopped their economics education after Lesson 1. When you point out Lesson 1 failures they wave their hands and blame the government. I this book is a pretty good refutation of that belief.
True, under fairly strict conditions, Lesson 1 works, however if the underlying assumptions are wrong, this lesson quickly fails(great depression, great recession, unemployment ...)
Half of this book is Quiggin looking at lesson one and pointing out it's successes and failures. The other half is Quiggin illustrating a second lesson.
2. Market prices don't reflect all the opportunity cost we face as a society.
The book is 16 (?) chapters of using opportunity cost as a lens to explain failures in lesson 1. Why do Keynesian multipliers exist during a recession but not a boom*? ...
A very fascinating book that I highly recommend!
P.S. Tyler Cowen (half of the excellent Marginal Revolution) points out "The third lesson, however, is government failure..." This book doesn't address that.
* In a recession before being hired by the government the worker is doing nothing, in a boom the worker must be taken from some other job. In the first case the opportunity cost is minimal, in the second it is substantial.
October 31, 2025
Economics in Two Lessons offers an exploration of why mixed economies are not just practical but necessary. It provides a nuanced understanding of how markets work and more importantly, when they fail.
The first lesson highlights the strengths of market-based systems, such as their efficiency in resource allocation and their ability to drive productivity. For readers familiar with Economics in One Lesson (like myself, having read it earlier this year), this section can feel somewhat repetitive, though it lays a solid foundation.
The real strength of the book emerges in the second lesson, which examines the limitations and failures of markets. The author addresses issues such as inequality, monopoly and monopsony power, environmental harm, and economic instability. These discussions clearly demonstrate why government intervention is often essential, particularly in mitigating recessions and tackling pollution.
Perhaps the most eye-opening point is the argument that property rights are not inherent or “natural,” but rather constructs created and enforced by the state much like many other legal rights.
Overall, Economics in Two Lessons is a compelling and balanced work that makes a powerful case for mixed economies, where markets and government each play vital roles. It was a very good read!
Some excerpts that I liked:
"War gives great urgency to the D part if R&D"
"The long run is a misleading guide to current affairs. In the long run we are all dead"
The first lesson highlights the strengths of market-based systems, such as their efficiency in resource allocation and their ability to drive productivity. For readers familiar with Economics in One Lesson (like myself, having read it earlier this year), this section can feel somewhat repetitive, though it lays a solid foundation.
The real strength of the book emerges in the second lesson, which examines the limitations and failures of markets. The author addresses issues such as inequality, monopoly and monopsony power, environmental harm, and economic instability. These discussions clearly demonstrate why government intervention is often essential, particularly in mitigating recessions and tackling pollution.
Perhaps the most eye-opening point is the argument that property rights are not inherent or “natural,” but rather constructs created and enforced by the state much like many other legal rights.
Overall, Economics in Two Lessons is a compelling and balanced work that makes a powerful case for mixed economies, where markets and government each play vital roles. It was a very good read!
Some excerpts that I liked:
"War gives great urgency to the D part if R&D"
"The long run is a misleading guide to current affairs. In the long run we are all dead"
October 5, 2022
I enjoyed this, though probably largely because it's written accessibly and confirms my prejudices about the importance of externalities ("opportunity costs" here) and dumps repeatedly on market dogmatism.
I can't help feeling there should be a few more than just two lessons, though - nor that Quiggin somewhat misrepresents the classical / neoclassical / Austrian view of markets through oversimplification and generalisation.
I can't help feeling there should be a few more than just two lessons, though - nor that Quiggin somewhat misrepresents the classical / neoclassical / Austrian view of markets through oversimplification and generalisation.
October 7, 2025
This book shows how One Lesson economics can be appealing with it’s simple solutions and critics. John Quiggin argues the fact that Hazlitt had no real answer when it came to externalities, unemployment and the distribution of property rights. This book deconstructed most of Hazlitt’s arguments to show that there is no one solution to one problem in economics and that the reality of economics is much more complicated.
February 19, 2020
Well-written and lucid approach to economics and many of the pitfalls of basic micro 101 knowledge most people/media/politicians rely on. Would recommend to anyone as a fantastic casual econ 102 book. Found myself surprised at how well complex ideas were explained on several occasions. I also really liked the endnotes that gave lots of material for further reading.
September 9, 2021
An okay book - probably too technical. The beauty of Hazlitt's Economics in One Lesson was that it was simple - this book, in many places, isn't. Spends way too much time attacking detractors (would anyone understand what the Austrian School is from reading this?). Views on crypto look kinda silly.
January 12, 2020
easy read economics, great summary of hips of original economic books and papers, plus fantastic add-in to all the earlier literature - the world is not as simple as theory suggests, and the free markets cannot be tottally free as the theoretics would love to see it.
December 27, 2025
What this book is: challenging the assumptions of economics "leave it and let the market handle it" types.
What this book is not: an easy read, especially for an introduction.
Mainly a series of essays about why economics is complex. A good read, but not an easy one.
What this book is not: an easy read, especially for an introduction.
Mainly a series of essays about why economics is complex. A good read, but not an easy one.
December 23, 2019
Excellent, clear explanation of macro economics, and it affects our lives.
February 3, 2020
Lucid and contemporary overview of economics, its pitfalls, and straightforward ways of reconceptualizing phenomena which is absurd to the layman but commonplace to the traditional economist.
October 4, 2021
Half a book on opportunity cost? It’s a bit much.
November 13, 2021
Very clear and addresses the original theory by Hazlitt and it's flaws well. Not groundbreaking but very approachable.
August 13, 2023
Tries to evaluate economic including second order effects. Laudable but very basic. There's not much here not already covered by any basic economics intro.
June 9, 2019
How many lessons do you need in economics? Listening to the impenetrable jargon of commentators in the media, you might think you need a lifetime’s worth of them.
Read the rest at: https://medium.com/@timothyjamesdymon...
Read the rest at: https://medium.com/@timothyjamesdymon...
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