The following article originally was published July 23 by Grand Junction’s Free Press.
Hazlitt and Bastiat answer today’s economic fantasies
by Linn and Ari Armstrong
According to today’s great economic fantasy, the way to make everybody better off is to forcibly take money away from some people and give it to others. Such legalized theft is what many of today’s celebrated economists call a “stimulus package.” We call it Fraudonomics.
Unfortunately, such economic “stimulus” sophism often breaks down the walls of common sense and shows up in the writings of self-serving activists and pretentious newspapermen.
Take a few recent examples. The Denver Post’s editorial board recently claimed that corporate welfare for solar panel producers “will provide immediate jobs.” In a separate opinion, the Post argued that declining to pay people more not to work “could hurt the U.S. economy.” (Those with a lick of common sense will notice that paying people not to work tends to induce more people not to work.) An activist group opposing tax-cut measures on this year’s ballot claims those measures “could cost jobs” by cutting government spending.
Now, it is possible to offer other arguments for corporate and personal welfare and against tax cuts, and we will be happy to rebut those arguments elsewhere. Here the point is simply this: forcibly transferring wealth from some people to others does not in itself “stimulate the economy” or “create jobs.”
The 20th Century’s greatest common-sense economist, Henry Hazlitt, addresses this point beautifully in Economics In One Lesson. This is a book that you owe it to yourself and your children to read and promote. Give copies to your elected officials. We’ve often longed to see an essay contest for high school and college students about that book. Hazlitt counsels us to remember the unseen as well as the seen.
Let us say that some misguided politician robs a thousand dollars from Peter and gives the money to Paul to “stimulate” Paul’s budget. If you only look at Paul, this seems like a pretty good deal. Paul might spend that money on a new pair of sneakers, a concert ticket, new tires, and a restaurant meal. All of the businesses where Paul shops see a corresponding increase in revenues, and in turn they buy more from their suppliers.
But look at the unseen. Look at Peter. Peter no longer has his thousand dollars. He can no longer use that money to put food on his table, support his family, and invest in his business. All of the businesses where Peter would have shopped lose out, as do their suppliers.
It is easy to see the “jobs created” by Paul’s spending. It takes a little common sense to remember the jobs lost by forcibly taking wealth away from Peter.
Moreover, forcibly transferring Peter’s wealth to Paul actively destroys wealth. The bureaucrats charged with the transfer take a sizable cut to fund their bloated budgets. Paul’s incentive to work hard takes a hit, as does his ability to plan for his economic future. This remains true when applied to the economy as a whole: so-called “stimulus” programs destroy wealth and hurt the economy.
While there is not yet an essay contest for Hazlitt’s book, Students for Liberty has launched such a project for one of Hazlitt’s key inspirations, the 19th Century French economist Frederic Bastiat, author of classic works such as The Law and Economic Sophisms.
High school and college students may register for the essay contest, with a $1,000 top prize, by December 1; see http://tinyurl.com/bastiatproject. Just by registering, students receive a free book with selections by Bastiat.
Bastiat’s 1845 essay on candlemakers remains the greatest, most hilariously satirical annihilation of economic protectionism of all time. Bastiat argues that, if we’re serious about protecting certain businesses at the expense of competitors and consumers, we ought to block out the sun to help the candlemakers. Much of Bastiat’s analysis also applies to so-called “stimulus” spending; read it for yourself at http://bastiat.org/en/petition.html.
Another of Bastiat’s classics is his 1850 essay on the seen and the unseen, the work toward which Hazlitt says he owes his greatest debt. You can find it at http://tinyurl.com/bastiatseen. In this essay, Bastiat explains the “broken window fallacy.” Does not breaking a window “keep industry going?” “What would become of the glaziers if no one ever broke a window?”
Bastiat answers: “Your theory stops at what is seen. It does not take account of what is not seen. It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library.”
Americans should return to the common-sense wisdom of truly great economists such as Hazlitt and Bastiat. Our economic future depends on it.