My political economy class this semester introduced me to the works of Adam Smith and Karl Marx. The writings of other philosophers and economists also provided insight to the group of budding economists at George Wythe, and one of my favorites is Frederic Bastiat. We read Bastiat’s essay “That Which Is Seen, and That Which Is Not Seen.”
If I had to choose one main point of the essay, it is that government intervention always brings unanticipated consequences. Actually, Bastiat claims that a good economist does anticipate the negative consequences of using legislation to “help” the market or “fix” the economy. Bad economists are only able to see “that which is seen.” This is usually the thing they want to fix. Good economists see “that which is not seen”, or the secondary effects of that which is seen.
To demonstrate his point, Bastiat tackles several misconceptions like the broken window fallacy. At face value, a broken window provides an opportunity to employ a glazier. The glazier makes money, which he will spend, thereby stimulating the economy. This is that which is seen. That which is not seen is all of the productive, enjoyable ways the same money might have employed. Bastiat explains it all much better than I can, so do us both a favor, click on the link to his essay, and read it for yourself.
What I do want to share with you here is a recent opportunity I had to apply the principles that I learned from Bastiat’s essay. The TV at work was on a cable news channel, and two anchors were interviewing a man named Jonathan (not me). The anchors were concerned with the Chinese subsidizing solar panel manufacturing. They argued that the absurdly low prices of Chinese solar panels had put american companies out of business. Something like 68 workers lost their jobs. I got the impression that the anchors were in favor of some type of protectionist legislation designed to keep chinese solar panels out of the US in order to increase demand for american panels. They felt this would increase employment and keep more US dollars within the US.
The interviewee handled the questions quite well, but even before he offered wise words to the anchors, I recognized two major problems with the proposition of the anchors. First, just because a person loses a job does not mean he is doomed to terminal unemployment. He could get another job, start his own business, go back to school, etc. Unemployment is high in the US. I get that. It is a serious problem that doesn’t seem to be improving in spite of the focus it gets, or the government’s attempts to fix it, but the unimproved unemployment rate is a symptom of government officials who are unable to perceive much (if anything) beyond that which is seen. Unfortunately, their advisors seem to suffer similar economic myopia.
I saw a second flaw in the anchors’ fearful comments. They expressed great concern in the loss of 68 factory worker jobs. They felt that the US had been robbed of the cumulative gross income of that group of workers, which was harmful to the US economy. Here’s the catch. Solar panels are popular right now, and their popularity seems to grow rapidly. Government offices, parks, homes, professional sport venues, and many other locations are “going green,” and a major component of this green movement is solar energy. If Chinese panels are so much cheaper than ours, that we can’t even compete, then how much money is saved by using these less expensive panels? To forbid the purchase and installation of chinese panels, we would lose much more than the income of 68 workers could make up for.
Some would argue that this is acceptable, because at least the money would be in the US. This is what Bastiat would say is seen. The less obvious result is that extra money must come from somewhere. It will come from the taxpayers, from inflationary monetary policy, from business owners, and individuals. It will come at the expense of other transactions, like purchasing other goods and services, hiring employees, or even investing in the development of improved solar technology that might put us back in the running.
A third point that was made by the guest on the show, and remembered by me only as I typed out this blog, is the irony that the US has also subsidized solar and other green technologies heavily. The most embarrassing account that I recall is the loan guarantee surpassing half a billion dollars to a California-based solar company that took the money and promptly went bankrupt. Ouch.
Whether you feel subsidizing the solar industry is good or bad, I join Bastiat in warning about the importance of looking for the unintended consequences that will surely follow the choices we make.
—Feel free to add a comment or question. I wrote this post in haste, because I already failed to keep a commitment to post it by Wednesday; consequently, there may be flaws in my reasoning. If so, help me better understand.