A Lesson in the Unseen

A while ago, I engaged in a long debate regarding protectionism with a blogger named “MarxistMax”, author of the blog The Red Threat. After our long exchange, MarxistMax posted this on his blog as a final response to me. Now, I’m not going to respond to the points he made regarding the topic of Protectionism; I’m giving him the last word on that front.

Instead, I am going to give a lesson in what is not seen; a lesson stressed heavily by Henry Hazlitt in the best-selling economic text, “Economics in One Lesson” and Frederic Bastiat in his famous essay, “What is Seen and What is Unseen.” Frederic Bastiat said, “The Bad Economist takes account of only what is seen. The Good Economist takes into account that which is seen, and that which is unseen.”

I mention all of this because MarxistMax, who I assume is a Marxist due to his name and the name of his blog, paid me a few very high compliments which, coming from a Marxist, is very huge.

Quote from MarxistMax: “Recently I’ve engaged in a very lengthy debate with a fellow WordPress blogger, kenpruitt666. His blog is very well written, and I have no doubt that his writings are full of intellectual rigour and professionalism. It’s clear that he’s a very intelligent chap, even if we don’t agree on this issue.

Surprisingly enough, I’m willing to concede that I’m losing the debate. This I do without bitter feelings, because I don’t underestimate the capabilities of my opponent. He truly is a tough nut to crack.

My capabilities, as MarxistMax put it, lies in detecting the unseen consequences of a given set of policies. The unseen is what is perceptible to the mind only, i.e., it doesn’t show up on any statistic or any other formal system of measurement. Let me give you a popular example.

The Broken Window Fallacy

Suppose you have a bakery sitting on the street corner. Suddenly, some punk throws a brick through the glass pane and shatters it to a million pieces. The baker comes out mad as hell. Why? Because his window has been broken. He now has to pay the Glazier $250 to fix his window. The crowd who gathered around the bakery to see the spectacle sees one of its members say, “Wait, this isn’t a bad thing. Think about it for a moment. The money that the Baker gives to the Glazier is money that the Glazier can spend at the tailor, and he can in turn spend that money at a bookstore, etc.. The destruction of the window has enabled the circulation of income that wouldn’t have happened without it. So, this isn’t a bad thing at all.”

The fallacy with the above quotation is paying attention to what is seen and not to what is unseen. While it is true that the money the Baker gives the Glazier is money that the Glazier can spend on X Y and Z, it fails to consider what the Baker would’ve done had he not had to spend the $250 to replace his window. He could’ve spent that money at a tailor, or he could’ve replaced his old shoes with new shoes, or he could’ve bought some new books, he could’ve put it away in a savings account which means the money would’ve been lent out to entrepreneurs looking to start a new business (which creates opportunities for a whole set of other businesses), or he could’ve invested that money back into his own business.

The point is; you have the same set of opportunities (except for the Glazier of course) without the broken window. This is forgotten in the above example because the person in the crowd only sees two parties in the above transaction; the Baker and the Glazier. He doesn’t see that there is a third person to be considered here, and to make this even harder on the person in the crowd, we don’t even know who this third person is. He could be anyone; tailor, shoemaker, etc.. And indeed, the statistics will show an increase in GDP as a result of the broken window, but the statistics do not, and cannot, capture the opportunities foregone as a result of the Baker having to pay the Glazier $250 to fix his window.

The broken window hasn’t created new wealth by allowing for the circulation of money that wouldn’t have existed without it, it has simply made society as a whole less wealthy to the tune of one window.

This is all simple enough to figure out, if you simply give it a little thought, and it applies to an entire range of economic issues, including Protectionism (an example of which I used in my debate with MarxistMax). Of course, all of the above is really just an exercise in observation and deductive reasoning, but nonetheless, it gives us the tools we need to understand what we need to understand about exchange and human behavior in the market. Such things as econometrics are unnecessary.


Posted on June 29, 2013, in Economics and tagged , , , . Bookmark the permalink. 1 Comment.

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