Thursday, October 29, 2015

What Is Not Seen

By Don Boudreaux

No single essay or article in economics is more vital than Frederic Bastiat’s “What Is Seen and What Is Not Seen.”  The fact that its simple but widely missed point is made crystal-clear by a writer intent on communicating in an easy and accessible style should not cause this essay to be viewed as an exercise in mere pop-econ.

So if you’ve not yet read Bastiat’s brilliant essay, do so.  Do so ASAP.  Then re-read it.  Ponder it.  Keep pondering it.  Never forget it or its lesson.  Let it prompt you always to ask about the visible that all-important question that probes the ever-present invisible: “As compared to what?”  By doing so you will thereby become a better economist than thousands of econ-PhD-sporting people today.

Pondering Bastiat’s essay prompts a realization that there are different ‘levels’ of the not-seen.


One level (Level One) is where an individual decision-maker explicitly and expressly choses to do X rather than Y.  In each such case, the individual decision-maker sees not only the X that she chooses to pursue but also the Y that she chooses not to pursue.  People other than the decision-maker, however, see only the X; they never see the Y – although they know (if they think about the matter as a good economist does) that some Y was sacrificed in order that a concrete X could be pursued.

The housing-developer’s decision to build on a particular plot of land a dozen single-family homes results in a dozen houses that are seen.  This same decision also results in the apartment building that the developer would have built (had he not built the single-family homes) not being built.  The apartment building is what is not seen by the public.

A second level (Level Two) of the not-seen is the level emphasized by Bastiat: currently incurred, economy-wide opportunity costs.  When demand for product X rises, resources are diverted from elsewhere in the economy to produce more X.  No single person decides exactly which other products – whether A or B or Y or Z (or, more likely, some combination of these) – will decline in production.  But the good economist knows that corresponding to the increase in the production of X (which is easily seen and quantified) is a corresponding decrease in the production of A or B or Y or Z (or some combination of these).  This decrease in production elsewhere in the economy is not-seen and, hence, it is practically difficult, if perhaps not impossible, to reliably quantify – especially in an economy with so many moving parts as every modern market economy has.  Unlike at Level One, at Level Two no individual mind ever knows just what exactly is the ‘not-seen.’  Educated guesses about the details of the not-seen are the best that anyone can possibly offer – but such guesses about the details are, at least, possible.

A third level (Level Three) exists at which the not-seen is much more mysterious and unfathomable than – but every bit as real as is – the not-seen at Levels One and Two.  This third level is the one that I take Jon Murphy to have hinted at in this post on the unseen consequences of the minimum wage.  At this third level, decisions made today alter profoundly the course of economic activity through time.  Today would have turned out very differently from how it actually turned out had yesterday’s decisions been different.  The details of the not-seen cannot at this level even be guessed at with any reliability.

Take an extreme counterfactual example.  Suppose that Uncle Sam in the early 20th century had, with a hypothetical Ludd Act, effectively prohibited the electrification of American farms, businesses, and homes.  That such a policy would have had a large not-seen element is evident even to fans of Bernie Sanders.  But the details of this not-seen element would have been impossible today even to guess at with any reliability.  Attempting to quantify it econometrically would be an exercise in utter futility.  No one in a 2015 America that had never been electrified could guess with any sense what the Ludd Act had cost Americans (and non-Americans as well).  The not-seen would, in such a case, loom so large and be so disconnected to any known reality that it would be completely mysterious.

A continuous 77-year history of a national minimum wage in the U.S isn’t as extreme as is my hypothetical Ludd Act.  Yet the Ludd Act hypothetical helps us to see (!) the – to see Jon Murphy’s – important point.  As the time span over which obstructions to certain economic exchanges lengthens, the exchanges that would have, but didn’t, take place accumulate.  The businesses that would have been created absent a minimum wage – but which, because of the minimum wage, are never created – grow in number and variety.  The instances of on-the-job worker training that would have occurred – but, because of the minimum wage, didn’t occur – stack up increasingly over time.  The U.S. economy today, at least that portion of it directly involving low-skilled workers, looks unimaginably different from what it would have looked like had there never been a minimum wage.

The inability – an inability that is not just practical, but theoretical – to find in the objective data evidence of these not-seen consequences of the minimum wage does not mean that these not-seen consequences are unreal or unimportant.  Yet those who insist that only that which can be measured and quantified with numerical data is real must deny, as a matter of their crabbed and blinding scientism, that such long-term effects as mentioned above are not only not-seen but also, because they are not-seen, not real.  Such scientismists, refusing to gaze beyond quantifiable data, remain blind to reality.

The above originally appeared at Cafe Hayek.

4 comments:

  1. Imagine if the military spending for the last 80 years, the social spending for the last 60 years, had been earning compound interest instead of costing it. Instead of old people depending on worthless government bonds they could own shares in fusion power companies and much of the third world could have twice the standard of living.

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    1. In addition, think of all the brilliant scientists, engineers, technicians, etc. who spent their years working for the military industrial complex developing new cruise missles, fighter jets, germ warfare, etc. instead of new useful technologies.

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  2. A huge factor of Level Three is indoctrination. Each generation after the initial act grows up in the reality altered by the act. Each generation after seems to experience more amnesia of a world without the act.

    Most of us have grown up with a welfare/warfare state, central banking, fiat money, income tax ... with no memory of any other world. For the younger generations they have not existed without the homeland security state and constant war.

    Most of us have to reeducate ourselves to have a chance at seeing what was unseen.

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