Bryan Caplan  

Bastiat's "What Is Seen and What Is Not Seen": Who Says "Meh"?

PRINT
Can America Learn?... Paul Krugman Chooses a Word Ca...
Free-market economists almost always love Frederic Bastiat's classic essay, "What Is Seen and What Is Not Seen."  But the central theme of the essay - opportunity cost - is hardly ideological.  It seems like all economists, regardless of ideology, would be thrilled by the way that Bastiat brings a dry textbook topic to life. 

Recently, though, I persuaded one of my favorite liberal economists to read it.  His reaction: "Meh."  Which makes me wonder: How many moderate, liberal, or leftist economists love "What Is Seen and What Is Not Seen"?  How many would love it if they read it?

If you classify yourself as a moderate, liberal, or leftist economist, I'm hoping you'll enlighten me in the comments.  How much do you admire Bastiat's essay?  If you don't love the essay, how does it fall short?

Ideally you'll carefully read or re-read the piece before responding, but I'll take what I can get. :-)



COMMENTS (30 to date)
Gene writes:

People are impressed when they believe they have come across a truth that is counterintuitive, unexpected and/or in conflict with conventional wisdom. Bastiat's truth is none of those; it's quite banal and obvious really, so it lacks the mystery and emotional thrill that a more "transgressive" truth offers. And smart people who think of themselves as supremely rational still have an emotional component to the way they think about things and the way they make decisions. Humans are not Vulcans or robots.

It's hard to imagine a rational person denying that if I take action A in order to solve problem B, I may close off the possibility that desireable outcome C can occur. Nonetheless, many people can acknowledge the truth of Bastiat's insight and yet ACT AS IF isn't true.

Eric Falkenstein writes:

Macro lends itself to extrapolating partial equilibrium analysis, extrapolating demand into aggregate demand via multiplier effects that Keynesians have argued are greater than 1 in real time. Thus they would argue Bastiat's argument isn't relevant to a macroeconomy with underutilization, which in socialist economies is pretty much always.

Pat writes:

I don't know what's worse - that he never read it in the first place or that they said "Meh" when they did

Hard to read Bastiat and still think that increasing G increases C+I+G+NX

Neal writes:

Liberal economic hobbyist. I love the point that you have to consider higher order effects; it's very interesting and leads to aesthetically pleasing counterintuitive results.

Chad writes:

It strikes me as much the same as when conservatives are not convinced by arguments that the stimulus was good "because we'd be even worse off without it."

Obviously that's a counter-factual, but when you talk about the unseen, that's essentially what you're doing.

Granted, it doesn't necessarily make it untrue (and I have intense respect and appreciation for Bastiat, particularly his communication skills), but when faced with counter-factuals, the response always seems to be to fall back on your priors.

Liberals/moderates can easily accept the notion of "the unseen" without applying it practically to economic decision making because they probably already feel they've addressed the alternatives.

Daniel Kuehn writes:

I'm a moderate, and I like the essay. For one thing just the different style of writing is nice. But I agree the subject matter is something that every economist agrees on. "Opportunity cost" is a good way of putting it, but since broken windows are often discussed in the context of policy decisions I often say that what you guys call "the unseen" is what everyone else in the world calls "the counterfactual". Same basic idea.

I find myself mentioning "The Seen and the Unseen" a lot to libertarian critics who seem to be missing a basic counterfactual argument, not because Bastiat does it better than anyone else but just because it is viewed as a "libertarian" text.

Eric Falkenstein writes:

errata: I meant, in nonsocialist economies there is always underutilization.

Daniel Kuehn writes:

Eric Falkenstein (and anyone else interested in another good piece to read) -

It's true that the partial equilibrium nature of Bastiat's discussion really limits how broadly it can be applied. You have to be careful, and a lot of people aren't.

Another discussion of the economic impact of destruction that does get into at least some general equilibrium thinking is Ropke's "Crises and Cycles".

While I like Bastiat, as I said about, more often than not I'm not very impressed with how he's invoked. As someone alluded to above, it strikes people as some profound counterintuitive insight that they get excited to use in every instance they can, when in fact it's an important insight, but one that pretty much everyone already knows and accepts already.

This gets a little into the weeds, but a lot of the reason why people invoke Bastiat so badly is that they're not careful to parse out when they're talking about a stock movement and when they're talking about a flow movement.

Speedmaster writes:

I think that Bastiat piece is a brilliant classic. One of my favs.

As for an economist saying "meh" to it, that seems (to me, anyway) like a mathematician or physicist saying "meh" to some fundamental truth of their field.

Slocum writes:

I often say that what you guys call "the unseen" is what everyone else in the world calls "the counterfactual". Same basic idea.

Perhaps 'direct' and 'indirect' is a better way to look at it. The 'unseen' is more than just a counterfactual--indirect effects can be measured just about as easily as direct effects -- but only if they are anticipated. So in the broken windows case, one could measure both the shopkeepers spending on glass and their spending on non-glass items (before and after their windows are smashed).

But why might liberals not be as enthused? I suspect because they tend to like direct government economic interventions and so sensitivity to indirect effects that might call the wisdom of those interventions into question is not really welcome.

liberty writes:

I think that - as with many Austrian insights (and insights that Austrians focus on but which did not originate with them) - it is somewhat under-appreciated by non-Austrians and somewhat over-appreciated by Austrians.

Many economists who say that it is obvious, accepted by all, etc. probably do not recognize its full implications. They may see it a simply the counter-factual - and not applicable in an economy which is not performing to its fullest potential, etc. They may not realize that resources used in one way really must prevent other possibilities which although not occurring at the time when the action was taken, might have occurred; they might not realize the way that this use might compete and affect other actions occurring at the time; they might think that they are boosting demand when they are simply skewing it; they might, like Krugman, tell an enticing story but fail to see the waste they have engendered. They argue things like "Austerity is self-defeating" and make meme-photos which completely ignore the insights of Bastiat by assuming that there is reduction in demand when government makes cuts, those made unemployed by cuts (obviously) stay unemployed, this lowers economic output, the economy tumbles, etc. You remind them of Bastiat and they call it simplistic. They do not take it fully into account.

And on the other side you have Austrian economists and others who make more of it than it's rightly due. They fail to account for the possibility that in the short term at least those made unemployed by government cuts will suffer and there will be (short-term) consequences. They fail to account for the possibility that when the economy is under-performing borrowing might help - whether public or private, the effect on interest rates may not prevent some benefit from being realized. Just as borrowing in order to invest might help a failing business, when an economy is suffering it may be possible to borrow and help kick-start it.

As in many things in life, there may be two sides to the picture. I use Bastiat quite a lot when friends cite me Krugman's idiocy. But it's not the last word on the matter.

Daniel Kuehn writes:

slocum -
re: "But why might liberals not be as enthused? I suspect because they tend to like direct government economic interventions and so sensitivity to indirect effects that might call the wisdom of those interventions into question is not really welcome."

I'm confused about this statement of yours. Why do you think liberals would be more prone to think about/like direct effects than indirect effects.

I don't see why that would be true.

It's much simpler than that. Liberals tend to be more wary of Bastiat because he was more or less libertarian and is invoked to make libertarian arguments. It's as simple as that.

I don't think they're any denser or more inclined to ignore unintended consequences. Why would they be?

Joe Cushing writes:

Chad,

Except we have tons of evidence about what the unseen is: the fall of Rome and the dark ages that followed, the fall of the Soviet Union, the stagnation of North Korea and Cuba. The rise of new China, the success of Hong Kong, the brief success of Ireland, the success of Estonia. The explosion of America and now the stagnation of America. The lost 20 years of Japan. The rise of Chile. It's all very simple, as government grows, it pushes against the growth of the real economy it steals from until a critical point is reached and the economy stops growing, slides backyards, and crashes. As governments retreat in size, the productive sector grows in response. That is the seen and the unseen all summed up.

Ken writes:

Chad,

It strikes me as much the same as when conservatives are not convinced by arguments that the stimulus was good "because we'd be even worse off without it."

The reason that conservatives are not convinced is because as shown in figure 1, those pushing the stimulus were incredibly wrong. The economy is performing worse than what liberals predicted would happen than if no stimulus had been put into effect. By their own measure of success, the stimulus is a colossal failure.

This leads to only one of two conclusions to draw:

1. The stimulus made the economy worse than what it would have been without the economy.

2. Those pushing the stimulus didn't know what they were talking about.

I believe it is 2. I believe they neither know what the economy would do with the stimulus, nor what it would do without. They were guessing and the story they pushed, not surprisingly, gave them even more power over other people's lives, something few people, much less any in the worst political class in US history, can resist.

"The curious task of economics is to demonstrate to men how little they really know...", yet politicians, and many economists, aren't really known to be humble or think that they shouldn't be controlling large swaths of other people's lives.

Eelco Hoogendoorn writes:
It's much simpler than that. Liberals tend to be more wary of Bastiat because he was more or less libertarian and is invoked to make libertarian arguments. It's as simple as that.

Agreed; 'unintended consequences' is in my perception a phrase most often busied by the (libertarian) right; that alone suffices for a lack of enthusiasm by liberals (in the american sense of the term).

I don't think they're any denser or more inclined to ignore unintended consequences. Why would they be?

Not more so than their counterparts of roughly equal political success, but it is not hard to argue that they fundamentally differ from those who can not be accused of having had success at the ballot box. Democracy is an advance auction of stolen goods. I agree that which constituency one is peddling to should, all else being equal, not matter; the fact that one is in the busines of rationalizing why their voters need more bread and games, probably does.

Urstoff writes:

It's hard for me to gauge these responses without knowing some policy stances. To me, Bastiat's essay strikes right at the heart of arguments for, say, rent control, the minimum wage, protectionism, or industrial subsidies.

jstaples writes:

Gene,
I think you hit the nail on the head. So much of libertarian thought is that way. It is founded so deeply in common sense and basic logic, that it lacks any feeling of profundity. The arguments are all pretty mundane; they are obvious truths that don't need a lot of fancy formulas and algorithms.

Somehow, when government policy is formed, a disconnect occurs and the supremely obvious is willfully ignored because it conflicts with the pursuit of political power.


Tony writes:

Meh. It's basically a political essay. For teaching purposes, there are better treatments of opportunity cost which do not rely principally on loaded examples.

Other negatives: The essay spends most of its time refuting straw men (modern rhetorical flourishes about 'jobs' aside). Even worse, using examples from politics causes many people (including many in the comments section here) to read the essay while glossing over the various qualifications and caveats sprinkled throughout. Using more neutral examples would encourage clearer thinking.

To the extent that it argues political points (if only obliquely), the essay doesn't engage with any serious counter-arguments.

In my view, the most valuable function of the essay is that it reminds us of a tendency to overvalue the certain and immediate over the uncertain and indirect--which is certainly a valuable psychological point and which does have some import to economics and politics.

Dan Carroll writes:

I agree that on the surface it is fairly obvious to the left and the right. I suspect that it is popular among the libertarian right because it articulates their criticism of the left, and expresses their hope in convincing the left of their follies. The left is unimpressed because it is obvious, but they do not agree with its application to their favored policies. Indeed, one could make the argument that the lack of government intrusion results in negative unseen consequences, and while it is not coined in those terms, the argument that is often the basis for regulatory policy rests on the unseen (i.e., bad guys take advantage of the weak when we are not looking).

Note that few on the left who can think disagree with pork barrel subsidies, such as rent control, ethanol mandates, or sugar quotas, as those are politically-driven payoffs (indeed, liberals often think rightly or wrongly of those policies as of republican origin).

DW writes:

Everyone is talking as if this is a "libertarian" essay.

Are you really so sure it is? Brad Delong doesn't seem to think so. Here he specifically cites one passage where Bastiat seems to support something like targeted fiscal stimulus:
http://delong.typepad.com/sdj/2010/03/two-more-economists-support-the-obama-fiscal-stimulus-the-arra.html

But putting that portion of the essay aside, several people have mentioned the libertarian implications of the "broken window parable" for fiscal stimulus.

I think this is really just a case of bringing your own biases to the text. Is government spending always and everywhere destructive? Bastiat apparently didn't think so.

And like others have pointed out, his story doesn't consider the stimulative effects of spending on broken windows in a recession when many resources are being left idle. Why does he ignore those consequences? Because he wasn't writing about counter-cyclical policy!!!! So why are you trying to shoe-horn this parable into a totally different topic?

Greg G writes:

I consider myself a moderate but most on this blog would see me as more to the left than that. Whatever. I don't care that much about labels.

I ran my own business for 33 years. You can't do that without being very conscious of the fact that every decision has an opportunity cost. That is the thing that the political left most often misses in my opinion. Bastiat does a great job of forcing people to consider opportunity cost.

However, the fact that someone realizes that there are opportunity costs is no guarantee he gets the counterfactuals right. Hayek's famous quote about the curious task of economics should also stand as a warning to libertarians who often seem to be so sure they have an adequate understanding of these counterfactuals. The lack of knowledge cuts both ways.

Pave Low John writes:

Here is the short answer to why liberals don't like that essay: It gets in the way of their ideology. But that only covers one side of the spectrum. It actually applies to their political enemies as well.

If people start to worry about unintended consequences, then throwing money at sketchy 'green' companies (Solyndra, to buy enviromentalist votes) or obviously failing auto companies (GM, to buy union votes) suddenly becomes much harder. With regards to the other side of the aisle, the same thing applies with spending ridiculous amounts of money on Comanche helicopters, Crusader artillery systems, Expeditionary Fighting Vehicles or A-12 jets (all programs that got the axe and wasted billions of taxpayer money in order to buy conservative votes). Both liberals and conservatives have been spending gigantic amounts of money to buy votes. That, plus a credit-addicted public, is why we have a 16 trillion(!) dollar national debt. But the public is told that there is no alternative, that all of this money 'must' be spent. So much for the 'Unseen' part of all that spending.

Bastiat cuts both ways, when applied to the the American political system. Liberals just hate it more right now because they are the ones running things in D.C. at the moment.

Eric Evans writes:

How exactly do you consider being forced into one option over all other possibilities, as opposed to freely choosing one option over all other possibilities, an example of opportunity cost?

Costard writes:
Thus they would argue Bastiat's argument isn't relevant to a macroeconomy with underutilization, which in (non)socialist economies is pretty much always.
...his story doesn't consider the stimulative effects of spending on broken windows in a recession when many resources are being left idle.

"Idle resources" is synonymous with "opportunity costs". If there were no idle resources there would be no alternative courses of action, and while I agree this sounds socialist, it's not at all realistic and it's certainly not a convincing read of Bastiat. We can drill all the oil in the world, or we can catch all the fish in the sea, or we can sit under a tree and imagine every idea imaginable; but in the real world we end up doing a little of everything rather than all of anything.

Utility is meaningless without reference to some purpose. To say the economy is underutilized is to say that it is failing to achieve its purpose, which may be easily read as "I have an ideology and this is what it is". What do the seen and the unseen matter, when we have almighty indisputable Truth to contend with....

Greg G writes:

@ Eric Evans

Whether you are forced into an option or freely choose that option, the resources that go into it are still not available for something else after that option is exercised. That is why we are talking about opportunity cost here.

The lost "opportunity" for the alternative use is the "cost." It's the same reason you can't have your cake and eat it too - even if you are forced to eat it.

Eric Evans writes:

Sorry Greg, but that's nonsense.

Virtually everywhere you look for a definition of 'opportunity cost' it is framed as the cost of freely choosing one opportunity over the next best opportunity. Even here on this very site it is framed within examples of free choice between opportunities (going to a movie versus reading a book, going to school versus working full-time over the same time period).

While you may forego opportunities to pay to fix for your broken window, paying to fix it is not an opportunity per se, so it is not the same thing. In one instance you are comparing one opportunity against another, in the other you are comparing opportunity to non-opportunity. The latter is not an example of 'opportunity cost'.

Tom writes:

"throwing money at sketchy 'green' companies (Solyndra, to buy enviromentalist votes)..."

Well, so far the green loan guarantee program has had a better than 90% success rate, which is far better than than Mitt Romney did at Bain. Indicating that Mitt took many more risks and guessed wrong far more often.

Which is fine. One failure is no reason to stop taking risks. We should be placing dozens of bets on risky technologies in the hope that two or three succeed in a major way.

This is what we would do if NASA told us with high confidence that a mile-wide meteor was going to strike the earth 20 years from now, and we didn't know how to stop it. We wouldn't hope that it was going to miss. We would start a crash program to explore dozens of ways to stop it and hope that two or three succeed. Because if they don't we're dead.

ApeMan1976 writes:

Bastiat has the same problem as any very good economist - he could not FORESEE that an army of people would perpetually misunderstand the context in which he was writing, and apply the principles in a way which is clearly wrong.

He has been consigned to the fate of FA Hayek or even, to some degree, Adam Smith himself - his ideas have become associated with sloppy, barking ignoramuses, and are therefore not noticed very much.

Bastiat has something to teach us, but no one wants to learn it. So he has become a tool for right wingers to use to flog their bankrupt ideas. Until they set him down, others will not be able to pick him up.

Yichuan Wang writes:

It seems like the answer comes down to two concepts: externalities and empirics.

I agree many government interventions take from one group to give to another, but this isn't always true. Often there are important reasons for why government intervention improves welfare: pollution and systemic risk quickly come to mind. At this point, the cases for and against intervention have to become more sophisticated. No longer is it "government intervention is always bad" nor "the government can identify all costs and internalize them", now it's "to what extent can the government internalize externalities for society?".

http://synthenomics.blogspot.com/2012/08/what-firms-see-and-not-see.html

John writes:

The most obvious application of his rather obvious insight: right wingers don't understand the paradox of thrift

Comments for this entry have been closed
Return to top