Thursday, November 17, 2011

Bastiat on What Is Seen and What Is Not Seen

It is the title of this essay that made F. A. Hayek praise Bastiat's "genius" in making sound economic ideas public. It has been a good read so far. I highly recommend Bastiat to anyone interested in the major political issues of our time, for two reasons. One, he wrote quite a while ago--over a century and a half--and yet the same fallacies he found himself trying to refute are alive and well today. Two, Bastiat is much easier to read than, say, F. A. Hayek or Adam Smith.

The main point of Bastiat's essay is this:
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous, for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
Fundamentally, according to Bastiat, although these are my words, good economics is a matter of having the right moral outlook. Often proponents of free markets are accused of one of two things. First, we are sometimes accused of not caring at all about the moral constitution of a society. This is utterly false, and in fact all of the classical arguments in favor of free markets are based on a firm commitment to justice. Indeed, it is really those who oppose free markets who also oppose the kind of logic which justice truly demands, for they insist that the ends can justify the means, that the short run must sometimes take precedence over the long run, and that only visible results are of any consequence.

Second, we are sometimes accused of caring only about the long run and never about "what happens in the meantime." Thus it is thought that we wouldn't care if thousands of people suffered in utter poverty for several years, so long as in the long run we reached the most desirable result. But this complaint is made without taking into account both what is seen and what is not seen. Our desire may be to give everyone enough to live on and not be in poverty; but even though we see the good effects of our well-intentioned programs, we may fail to see all the long term damage we are doing.
For instance, passages like the following express beautifully the fundamental error in "public works" programs (emphasis added):
Let us get to the bottom of things. Money creates an illusion for us. To ask for cooperation, in the form of money, from all the citizens in a common enterprise is, in reality, to ask of them actual physical cooperation, for each one of them procures for himself by his labor the amount he is taxed. Now, if we were to gather together all the citizens and exact their services from them in order to have a piece of work performed that is useful to all, this would be understandable; their recompense would consist in the results of the work itself. But if, after being brought together, they were forced to build roads on which no one would travel, or palaces that no one would live in, all under the pretext of providing work for them, it would seem absurd, and they would certainly be justified in objecting: We will have none of that kind of work. We would rather work for ourselves.
Note that Bastiat does not exclude the possibility that a community might actually agree to work together on something. He simply excludes the idea of taxes paying for public works. Why? Because it is all too easy to take money from people without acknowledging that what you are actually taking from them is their labor--that is, in a sense, their very lives.

It must always be remembered that the free market system is not a zero sum game. If you and I exchange something, that means I must have wanted what you had more than what I had, and you must have wanted what I had more than what you had. Otherwise, one of us is a fool. Thus an exchange means a net positive for both of us. So it is with all voluntary exchanges. That is not to say one never regrets certain purchases or ventures; I do not suggest that life can ever be without risks. But on the whole, it is possible for you to gain, while simultaneously everyone else gains from you as well.

However, it must be equally remembered that forced cooperation is a zero sum game, or perhaps even negative. If the government takes money from me and gives it to someone else, nothing has been gained or lost; the same money is there that was there before. Perhaps it will be used by the other person in a wiser way than I would have. How the government could ever know this, I cannot say. More likely it would turn out just the opposite; people who get something for free tend to be more irresponsible with it. Therefore, rather than an exchange which results in a net positive, government redistribution--whether in the form of handouts or programs or all sorts of other expenditures--results in a wash, a zero, or perhaps even less than a zero. For every dollar the government spends, what remains unseen is what else that dollar might have been spent on by the person from whom the government stole.

Anyway, read the whole essay. It's quite good. Here's an excerpt that might be pertinent for today's discussions about military spending:
A nation is in the same case as a man. When a man wishes to give himself a satisfaction, he has to see whether it is worth what it costs. For a nation, security is the greatest of blessings. If, to acquire it, a hundred thousand men must be mobilized, and a hundred million francs spent, I have nothing to say. It is an enjoyment bought at the price of a sacrifice. Let there be no misunderstanding, then, about the point I wish to make in what I have to say on this subject. A legislator proposes to discharge a hundred thousand men, which will relieve the taxpayers of a hundred million francs in taxes. Suppose we confine ourselves to replying to him: "These one hundred thousand men and these one hundred million francs are indispensable to our national security. It is a sacrifice; but without this sacrifice France would be torn by internal factions or invaded from without." I have no objection here to this argument, which may be true or false as the case may be, but which theoretically does not constitute any economic heresy. The heresy begins when the sacrifice itself is represented as an advantage, because it brings profit to someone.

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