Posts Tagged ‘Frederic Bastiat’

The economic thinking behind “buy local” campaigns is typically terrible. One such example is the claim that a dollar “circulates more” when you spend it locally. The rate of circulation of a dollar doesn’t create any wealth. Try it out: circulate a dollar among a group of friends and feel your standard of living stay the same. In general, “buy local” activism commits the broken-window fallacy: ignoring opportunity costs. Spending more on the same product because it’s local means you can’t spend on other things that make you happy. And you are part of the local economy!

At e3ne.org, I have a longer critique of the fallacies behind “buy local” and “buy American” campaigns. An excerpt:

[I]magine that everyone bought local, all the time. Cars, airplanes, software, clothing, food… everything would have to be made and exchanged in the town where you live. What would happen to everyone’s standard of living? It would fall dramatically. (How many skilled airplane manufacturers does your town have?) The same principle applies at the national level, or any other geographic level you choose. If you buy everything within that circumscribed area and exclude everything outside it, your community will be worse off than it would be if it bought from any willing seller.

Now, that’s an extreme example, but it illustrates the principle. Some things are impossible to make locally (airplanes). Other things are difficult and costly to make locally (shipping and retailing of plastic bins). A few things will be most efficiently and affordably made locally, and you will want to buy them locally without having to be goaded into doing so – they’ll simply be the best products for the price. Goading your community into buying shoddier or more costly products just because they’re local or American or whatever just makes your community poorer.

Read more.

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Inspired by Marc’s post, I would like to reprint a State of the Union address—really an inauguration speech—that Frédéric Bastiat offers in his 1850 Economic Harmonies:

“You have invested me with the power of authority. I shall use it only in cases where the intervention of force is permissible. But there is only one such case, and that is for the cause of justice. I shall require every man to remain within the limits set by his rights. Every one of you may work in freedom by day and sleep in peace at night. I  take upon myself the safety of your persons and property. That is my mandate; I shall fulfill it; but I accept no other. Let there be no misunderstanding between us. Henceforth you will pay only the slight assessment indispensable for the maintenance of order and the enforcement of justice. But also, please note, each one of you is responsible to himself for his own subsistence and advancement. Turn your eyes toward me no longer. Do not ask me to give you wealth, work, credit, education, religion, morality. Do not forget that the motive power by which you advance is within yourselves; that I myself can act only through the instrumentality of force. All that I have, absolutely all, comes from you; consequently, I cannot grant the slightest advantage to one except at the expense of others. Cultivate your fields, then, manufacture and export your products, conduct your business affairs, make your credit arrangements, give and receive your services freely, educate your children, find them a calling, cultivate the arts, improve your minds, refine your sentiments, strengthen your bonds with one another, establish industrial or charitable associations, unite your efforts for your individual good as well as for the general good; follow your inclinations, fulfill your individual destinies according to your endowments, your values, your foresight. Expect from me only two things: freedom and security, and know that you cannot ask for a third without losing these two.”

[H/T Nikolai Wenzel.]

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A colleague of mine pointed me to this anti-Romney ad, adding that he thought it was “effective” because of its focus on one compelling story. Have a watch:

I did not find it effective. It does focus on one story, and it does make it sound like this person was made worse off by Romney. But capitalism is about creative destruction—and you cannot have creation without destruction. The computer I am writing on now (and that my colleague wrote on to send me that link), for example, came into being in part by destroying the manual typewriter manufacturing sector. How many plaintive stories were there about displaced manual typewriter workers? How many people lost jobs when their companies went out of business because of the success of the phone on which I first viewed the ad? Similar stories could be told about countless other cases.

That is not to say that the person (the people) whose story is told in this ad did not suffer displacement, disappointment, anxiety, or frustration. But they are much, much better off overall for living in a place where capitalism’s creative destruction is allowed to continue. What car does he drive? What medical care does he receive? What medicines does he take? How is his home heated and cooled? How fast is his home internet connection, and how many channels does he have on his high-definition television? Do we suppose he, or we, would be able to enjoy such things if we did not allow capitalism’s creative destruction?

As Bastiat pointed out in the nineteenth century (and Adam Smith pointed out in the eighteenth century), production of wealth is not only about the “seen,” but also about the “unseen.” So we see that this man and his co-workers lose their jobs. But what is done with the wealth that is thereby saved, and put to other uses? If Romney and Bain Capital made a profit in this transaction, what did they do with that money? Put it in a coffee can and bury it in the backyard? Carry it around in great big fanny packs? No, they reinvested it elsewhere, in places where it was put to better use, where it was more highly valued.

We could create a lot of jobs by outlawing farm machinery. Just think of how many people would have to be employed by farms, doing with their hands what far fewer people can do today with machines. If you think that would be a good idea, then you are not taking a full view of the situation. You are focusing only on the seen, the jobs people will have working on the farms; you are not considering the unseen, all the things those people would have been doing if they did not now have to work with their hands—all the productive labor in which they would otherwise have engaged, all the wealthy they would otherwise have created.

We should not discount the pain and suffering of people who lose their jobs. It is real, and those of us who can help them, should. But condemning the system that has given rise to the greatest increase in prosperity in human history because it involves displacements and disappointments would be like condemning modern medicine because many treatments hurt.

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I had an interesting conversation recently about what were the three or four best all-time readings on political economy. If you could read, or have others read, only a handful of relatively short things, what would they be? That question is surprisingly challenging. Here are the suggestions of my interlocutors:

1. F. A. Hayek’s 1945 “The Use of Knowledge in Society.”

2. Frederic Bastiat’s 1850 “What Is Seen and What Is Unseen.”

Specifically on the topic of property, the suggestion was:

3. David Schmidtz’s 1994 essay, “The Institution of Property.” (This essay has been published in revised form in Schmidtz’s Person, Polis, Planet: Essays in Applied Philosophy (Oxford, 2008).)

I agree that the above articles are canonical, central contributions to the field. They should be included in any “Introduction to Political Economy” syllabus. What else should be included? I will post separately more detailed thoughts about this, including seminal works that challenge the broadly classical liberal worldview. But for now let me list a handful of suggestions.

First, I feel compelled to add something from among David Hume’s essays. He has so many, it is difficult to choose. Perhaps these two together:

4, 5. Hume’s “Of the Rise and Progress of the Arts and Sciences” and “Of Public Credit” (both available here).

I might also add two essays that, though coming from opposite ends of the political spectrum, come to remarkably—and, I think, frighteningly—similar conclusions:

6, 7. Albert Jay Nock’s 1939 essay, “The Criminality of the State“; and V. I. Lenin’s July 11, 1919 lecture delivered at the Sverdlov University under the name, “The State.”

A different list might include books and other longer formats. Keeping with the spirit of this list, however, what else would you include?

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1. New Jersey Governor Chris Christie wants to cut subsidies to public libraries from $14 million annually to $3.6 million. The New Jersey Record calls this “severe,” adding that Governor Christie has “chosen to devastate the budget for public libraries and thrust a knife into the heart of the common good.” The Record then intones gravely, “Libraries matter.” But do they? We live in a digital age, after all, with millions and millions of books, periodicals, magazines, and articles available online, many of them for free. Moreover, we in New Jersey have dozens of college and university libraries if we wanted to do actual research. So what purpose, really, are the tiny public libraries that dot the state serving—especially if the total subsidy was a relatively paltry $14 million?

2. Also from the “You Wish Christie Were Your Governor, Don’t You?” file: The governor’s intrepid Education Commissioner Bret Schundler has laid out a reform plan for NJ’s public schools. One plank is that up to 50% of teachers’ evaluations for promotion and tenure would comprise objective data of their students’ improvement, achievement, and performance.  The New Jersey Education Association opposes allowing merit to play any part in teacher promotion or pay increase. According to reports, a spokesman for the NJEA claimed that “many factors outside the classroom affect pupil performance, such as parental support, poverty and illness, and sometimes teachers face a particularly challenging group of students.” I wonder if the NJEA and Charles Murray might agree on this? The suggestion from the NJEA spokesman would seem to be that some proportion of student performance is incorrigible; isn’t that Murray’s argumenttoo?

3. Widening the focus a bit, this picture from the New York Times gives fresh and arresting visual life to Bastiat’s claim that “The State is the great fiction through which everybody endeavors to live at the expense of everybody else.” (H/T: Tyler Cowen.)

4. Is it just me, or has The Economist, which has long been one of my favorite magazines, been warming to centralized intervention in markets? In last week’s leader “Acropolis now,” for example, the editors argue that “a bail-out is justifiable on the same logic: doing nothing would cost them [i.e., other European nations, including in particular Germany] even more.” But of course every state intervention and program in history has been justified on similar grounds. They continue: “Financial markets have no idea who is in charge. Europe’s Byzantine decision-making structure does not help but Germany needs to ensure that decisions are reached fast, that Europe speaks with one voice”; moreover, they recommend that “the euro zone should set up a single crisis-management committee, with the power to make decisions.” Since when does an allegedly free-market magazine lament that no one is “in charge” of markets, recommend that Europe speak with “one voice” on fiscal matters, and call for a committee of geniuses “with the power to make decisions” about managing markets?

5. Finally, on a more whimsical note, a prominent NFL player, Brian Cushing of the Houston Texans, has just been suspended for four games without pay because of steroid use. (This site includes alleged before and after photos.) My question: Why is steroid use in the NFL taken so much less seriously than it is in Major League Baseball. In the latter, your career is ruined and you are a permanent villain; in the former, you’re suspended for a few games and then right back at it. Perhaps since in baseball  individual statistics matter a lot, whereas football is more of a team sport, and in football, unlike baseball, aggressive muscle-bound monsterism is desirable, we mind steroid use less in football than in baseball. But if it’s wrong, shouldn’t it be wrong?

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