By Dave Smith, Senior Contributor, USA Daily Chronicles.
“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen…. “ – Frederic Bastiat (June 30, 1801 – December 24, 1850)
When discussing the aftermath of some sort of hurricane, earthquake, or mass destruction of property, there is often some commentary that the overall impact of the event could be positive – that the resulting rebuilding efforts will stimulate the economy and create jobs. During an economic downturn, a common response is a call for government spending on job programs. Specific factory closings or lost reduction are often used as justification for restrictions, quotas, or tariffs on imported goods and services. Each of these concepts is rooted in a common fallacy: looking only at the obvious, visible results – what is seen – and ignoring the unintended, unseen, unmeasured impacts.
Writing in the 1840s, French economic philosopher Frederic Bastiat (profiled here) brilliantly showed the folly of these arguments and illustrated the importance of looking at the entire picture – of all the impacts that result from government action or even just a broken window. Using the latter as an example, Bastiat told a parable of a shopkeeper whose son breaks a window that results in more business for the local glassmaker. The extra money for the glassmaker is “that which is seen”. But what is unseen is that the shopkeeper thus has less money to spend on a new pair of shoes or a book. Instead of a window and new shoes, the shopkeeper has less money and only the window; additionally, the shoe cobbler sees no increase in business. These effects comprise “that which is not seen”.
Bastiat also challenged the idea of using a military force as a jobs program. While acknowledging that “to a nation, security is the greatest of advantages”, and the potential necessity of hiring soldiers to provide protection against invasion or insurrection, Bastiat noted that each soldier must be paid with money “taken from the pockets of the taxpayers” and therefore couldn’t be spent to benefit or enrich the individuals paying the taxes.
When discussing trade and the attempt by special interests to have the government enact protectionist trade tariffs, Bastiat pointed out the negative impact of these tariffs on consumers and the absurdity of the idea that higher prices promoted economic prosperity. He used an example of a new train system that decreased transportation costs between two countries, providing cheaper goods and services for both – an obvious gain. But if in response to the competition both countries sought to re-raise prices through tariffs, then the benefits of the train are nullified – the train might as well have been built broken: a “negative railroad”.
In drawing attention to the unintended consequences of government actions, Bastiat championed economic liberty for individuals. Over 150 years ago he provided analysis and commentary that still resonates today – and whose lessons remain unlearned by many: advocates of sugar imports point out the jobs created in Florida, while ignoring the higher cost of food; advocates for steel tariffs point to the windfall for steelworkers, while ignoring the negative impact on automakers and construction firms. The benefits to the few are obvious – they are seen – while the cost borne by the many often remain unseen.
Born in the same county as Davy Crockett in East Tennessee, Dave found his way to Texas where he works in the petrochemical industry. He’s written and spoken about politics on various media outlets including Fox, ABC, and Townhall. He is a graduate of Tennessee Tech with a degree in chemical engineering. Dave writes a popular feature at USDR called “Dave Smith Said That”. Follow Dave on Twitter: @semperlibertas.