The French classical Liberal Frederic Bastiat penned a famous essay titled That Which is Seen And That Which is Not Seen. In it, Bastiat dealt with several basic fallacies in economic thinking. Given that Bastiat was perhaps the clearest economic writer in history, one would hope that the fallacies would have faded, but such is not the case. Fallacies repeat themselves over and over, subject to an intellectual form of Gresham’s Law: bad ideas drive out good.
The fallacy Bastiat points out is the thinking that, because money is spent upon a particular purchase by someone, it must be of economic benefit. His example is that of the now-famous broken window. It is argued that, if a window is broken in a shop, it must be fixed. Therefore, broken windows are good because it brings about commerce between a shopkeeper and a glazier. This is what is seen, but there is another side to the coin, which Bastiat takes pains to point out:
It is not seen that our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.
This is a small example of what happens we are forced to make economic choices we wouldn’t otherwise choose to make. In applying this lesson to government spending today, one cannot help but be horrified at how much is not seen. In 2009, a Democrat-controlled Congress passed a “stimulus” bill, purportedly designed to lift the nation out of its economic slump. This $830 billion dollar spending spree has so far resulted in… nothing of notice. Ostensibly passed to prevent unemployment from rising, the bill was a cover for the desire to hand our pork to every Democratic constituency in the nation. Years later, we still see little of recovery despite raising government expenditures from $3 trillion per annum initially to $3.5 trillion in 2009. This writer spent the entire Recession seeing the economy from the bottom, in low-wage positions. Despite all the talk of how much we’ve recovered, I strangely have yet to see it.
Bastiat also wrote, “Experience teaches effectually, but brutally. It makes us acquainted with all the effects of an action, by causing us to feel them; and we cannot fail to finish by knowing that fire burns, if we have burned ourselves.” If only Bastiat were correct, and mankind were not so intransigently set upon having the economically impossible. European nations, most notably Greece, have shown their unwillingness to take on necessary austerity measures, to keep their nations solvent. Canada, once called an “honorary member of the third world,” has managed to cut its federal government while the United States fails to do so. We do not learn because we do not wish to learn. Economic reality is unpleasant when one seeks what Sowell calls “cosmic justice.” What is not seen will remain unseen, because we do not want to see it. When attention is called to the hidden side of our economy, everyone want someone other than themselves to pay the price.
Now for the punch-line. The Broken Window Fallacy is still with us today. It is still argued, by various neo-Keynsians that government spending benefits the economy. From the debates last year over austerity measures and the government shutdown, to the advice that George Soros gave to Germany to avoid austerity, many are still convinced that government spending is the same as private spending.
There are, then, two differences between what we do economically and what the government decides to do in our name (and its own interests.) The first is that what we do is what we choose, of our own wills, to do. We choose certain economic actions and avoid others to satisfy our own wants and needs. The state, by contrast, chooses what it thinks is in our best interest. Even when this is correct, it is become so bureaucratized that it is likely to be poorly executed: witness how long it took the rebuild the World Trade Center. The second difference is that, just as we are free to choose, we are free also to not choose, or to save rather than to spend. When the state chooses, it deprives us of the choice we originally had to save rather than spend.
What we seen is this: government claims to do good for all of us, presuming that it alone knows what we all need. The government proceeds to either tax or borrow to fund its do-goodery. Government then proceeds to spend the money it acquired on what it thinks is proper. This is usually done with a great deal of wheeling and dealing, usually by politicos vying for the most pork for their district or state. The money is spent and the results are, as in the case of Solyandra, morally questionable.
What we do not see, however, is more important: Government spending done for our good is done for the good of politicians who seek reelection. The money they spend is garnered from us, or must be paid back by us in time. The money spent is usually spent badly upon things many of us would likely never choose given the opportunity. How many of us would spend on research for green energy sources, when those sources are known to be faulty? Would the average American fund academic studies in women’s history, or black literary criticism? Likely not.
There is an argument to be made for government spending. But it is not one which claims that government alone is competent to choose what is best for all of us. Nor is it one which claims that, without government spending, the economy, the arts and the sciences are doomed to failure. Government action is like an iceberg: we see only a tenth of its reality.