In January we wrote about how a number of events occurring in Washington D.C. and the country more broadly were predicted by French classical liberal, economic journalist and legislator Frédéric Bastiat in an obscure 1850 pamphlet, “The Law.”
In a recent tweet, Senator Ted Cruz (R-TX) noted a parallel to today stemming from Frédéric Bastiat’s most famous essay, “That Which Is Seen and That Which Is Not Seen,” comparing by implication Bastiat’s broken window parable to Obamacare.
Obamacare… It’s kind of like this: pic.twitter.com/vW6mvJEUeV
— Ted Cruz (@tedcruz) April 5, 2014
In Bastiat’s broken window parable, he discusses a scenario in which a boy breaks a windowpane — a destructive act perceived by many as beneficial — because it creates the “seen” benefit of work for a glazier and thus economic activity. Neglected in this view is the fact that the money used to pay the glazier could have been used for any of an infinite number of other goods and services, as opposed to leaving the person whose window was broken six francs poorer and no better off for his troubles.
As such, both the consumer forced to buy the new windowpane, and the hypothetical producers who would have received the consumers’ six francs are left poorer, while only the glazier benefits.
Senator Cruz’s “Broken Window Theory of Obamacare” is similar to the scenario proposed by Bastiat, except in this case the government represents a glazier who employs a gang of troublemaking boys (government employees) who smash all windows (altering or forcing people off of their existing healthcare plans), requiring consumers to go to the glazier to purchase only glazier-approved windows (healthcare plans that meet government specifications).
Title: That Which Is Seen and That Which Is Not Seen: The Unintended Consequences of Government Spending
Author: M. Frederic Bastiat
If we were to follow Bastiat’s (or Cruz’s) economic logic to its conclusion, that breaking the window had actually been a net positive for society as a result of the commercial activity created, then the smartest policy would be to destroy all windows, or entire buildings altogether, since rebuilding them would create the associated benefits of the need for new businesses, jobs, not to mention streams of revenue (that can be taxed).
Extending this Keynesian or Krugmanian view to the real world, one might analogize the government with the boy who breaks the window, in the form of programs like “Cash for Clunkers” and public works projects that are purported to be stimulative, not to mention as Cruz argues, Obamacare.
At its most extreme, economists have argued that everything from natural disasters, to wars, to alien invasions are economically beneficial because they create a need for government spending on things like infrastructure which can offset decreases in private spending and investment due to underlying economic conditions.
Yet as Bastiat notes, ”Society loses the value of things which are uselessly destroyed;” and we must assent to a maxim which will make the hair of protectionists stand on end – To break, to spoil, to waste, is not to encourage national labour; or, more briefly, “destruction is not profit.”
Further, in context of the current or future funds taken out of the economy due to public works spending:
“As a temporary measure, on any emergency, during a hard winter, this interference with the tax-payers may have its use. It acts in the same way as securities. It adds nothing either to labour or to wages, but it takes labour and wages from ordinary times to give them, at a loss it is true, to times of difficulty.
As a permanent, general, systematic measure, it is nothing else than a ruinous mystification, an impossibility, which shows a little excited labour which is seen, and bides a great deal of prevented labour which is not seen.”
More broadly, Bastiat’s summary of economics remains timeless:
“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: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil.
In fact, it is the same in the science of health, arts, and in that of morals. It often happens, that the sweeter the first fruit of a habit is, the more bitter are the consequences.”