That Which Is Seen and That Which Is Not Seen — Frédéric Bastiat | Summary & notes
My thoughts 💭
An excellent book. Tiny and focused on a single lesson that Bastiat applies to a multitude of examples. And even if it dates back to the 19th century, both the lesson and the examples are 100% current.
Grab a copy and read it. You’ll finish it in no time and you’ll gain a new way of framing the world. This perspective does not come naturally to us and doesn’t align with the usual political propaganda, which travels in the opposite direction.
Moreover, even though the book refers to politics/economics, this lesson applies in general to everything we do.
PS: if you read the book, let me know because I have a question for you.
My notes 📓
The lesson, so simple and yet so rarely applied:
In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen: it is well for us, if they are foreseen.
Every act influencing the economic sphere will cause both visible and less visible effects. To evaluate how good that act is, we need to consider all consequences, not only the obvious ones.
Does destruction fuel the economy?
A vandal breaks Jake’s window. Well, look at the silver lining — the people passing by say — this damage stimulates the economy.
What is seen: the glassmaker will gain $50 (hypothetical cost of restoration) and, in turn, Jake will get a new window.
What is not seen: if the vandal didn’t break the glass, Jake could’ve used his money to buy something else. Let’s say a pair of trousers. It’s true, the glassmaker made a profit of $50, but it’s also true that the trousers shop didn’t. Moreover, Jake could’ve had both the window and the trousers but must be satisfied with only the window. It’s a loss for society as a whole.
Do unneeded public employment stimulate the economy?
There are 100 public employees whose job is not needed anymore, so the government has to decide whether to lay them off or not.
A classical line of thought of people opposing the lay-off: those employees spend their money, thus stimulating the economy. After the lay-off, they wouldn’t have any money to spend, which would be a loss for the national economy.
What is seen: just after being laid off, those people won’t have that money to spend.
What is not seen: that money doesn’t come out of thin air but from the taxpayers. After the lay-off, it can go back to them, which can use it however they please. The economy won’t lose anything. Moreover, this spending could create the need for different jobs.
Let’s simplify to an extreme case where there are only two people in the society:
- When there is no unneeded public employee
- Mr. A does a valuable job
- Mr. B pays Mr. A $10 for that job
- When there is an unneeded public employee
- Mr. A does an unneeded job
- Mr. B pays $10 in taxes that go to support Mr. A
Taxes and public employment have to be evaluated based on their usefulness
Not all taxes are always wrong. But when we discuss them, we should ground the evaluation on their destination.
Example of a good reason: we need some taxes to pay for law enforcement to guarantee the security of the population.
Example of a bad reason: those taxes are good because the government will use them to pay someone, and this will stimulate the economy.
What is seen: the government spends money, thus stimulating the economy.
What is not seen: the money that the government can spend comes from the taxpayers, which can’t use it anymore. So there was no gain for the economy as a whole because the total expenditure didn’t increase.
And what is true for taxes is true for public employment too. We usually think the government is creating new jobs. The truth is that work was artificially moved from the private sector to the public one, perhaps toward nonproductive businesses, with the justification of “creating jobs”.
The true parasite is the public sector, not the private one
Some blame the private sector for being a parasite, and they would like the government to take matters into its own hands. It’s the opposite. Public employment is imposed, while private one is not and follows the needs of the market.
When you impose public employment, you’re sucking it from the private sector in two forms. Directly as labor, but also as taxpayer money, since it represents the work needed to earn it.
Creating public employment means redistributing jobs and expenditure
When you create public employment, you’re also forcibly changing the distribution of jobs and spending.
Let’s imagine we create a new ministry in Rome. We hire 100 people, and we need $3.000.000 to pay them. In this situation, we are concentrating in Rome not only the people but also the money.
What is seen: the new public employees will spend their money in Rome, the expenditure will increase by $3.000.000, and this will attract new businesses (even private ones).
What is not seen: those $3.000.000 collected through taxes were previously distributed on the territory. We impeded, outside of Rome, both that spending and the labor that that money would’ve paid.
Slow or no consequences = slow or no learning
If all consequences of our actions fell on us only, then learning would be quick. But this far from being always true.
Instead, in some instances, positive consequences fall on the author while negative ones on someone else. In these cases, you would need to wait for this someone else’s reaction to rebalance the situation.
It’s also possible that this reaction is nonexistent or extremely slow, mainly when negative consequences spread over many people. The more they spread, the less they impact any person, and later will people notice them.
Let’s say that there is a bankrupt company and we rule to use 10 billion dollars to save it. This money, as always, isn’t made out of thin air but is collected through taxes. Therefore, given that the total expense spreads over many individuals, each of them will have to pay, for instance, only $170.
Will these people react in any way? If so, when?