7 Ways Pro-Government Economists Get It Wrong
Just before he died, Frédéric Bastiat published his works That Which is Seen, and That Which is Not Seen. The very first part, The Broken Window, is his one of his most famous contributions to the world. Although not as humorous as the Candlemaker Petition, it still makes one important point: You cannot create wealth with destruction (breaking windows) or with government subsidies.
Unfortunately, his words of wisdom have been lost with time, and some people actually think that destruction and government intervention creates wealth. Just look at these examples:
1. Natural and Human Catastrophes
During these tragic events, we can easily seed out those who really know about economics from "broken windowers," even if they won a Nobel Prize. Be it Paul Krugman, Peter Morici, CNBC, or Mother Nature Network, all these people rejoice at the sight of destruction since it boosts the economy.
Oh sure, destruction brings forward construction and purchases, and we "see" an increase of the GDP and economic activity. However, we "don't see" that this money could have been put elsewhere more productive. Without the tornado, the entrepreneur would have expanded his plant rather than rebuild it.
2. Government Construction Projects
Instead of prior destruction, this broken window is about construction only. Huge construction projects (dams, roads, bridges, huge international events) are one of governments' favorite tool. By creating these big projects, voters "see" that they can now travel where they couldn't before and that people are put to work, making the economy work.
But voters "don't see" that such projects are usually highly inefficient. Indeed, bridges to nowhere are built to win a few votes at everyone's expense. Also, international events like Olympic Games almost inevitably incur overspending, which means taxpayers will pay for many years for a poorly organized event, however prestigious it was.
3. Green Jobs
In order to fight a probably non existent global warming, governments have pumped billions upon billions in so-called green jobs: solar panels, wind turbines, hydro dams, and the likes. Not only would it be good for the environment, but we would "see" thousands of jobs being created in this new technology.
But environmentalists won't tell you about what you "don't see": Thousands of jobs being destroyed, increased CO2 emissions because green energy is highly unreliable, dozens of green company failures despite billions in subsidies (i.e. money from your taxes), and skyrocketing energy costs.
4. Fuel Alternatives
In order to be less "dependent" from Middle Eastern oil, governments have heavily subsidized alternative sources such as ethanol from corn. It sounded like a great idea at first: a new fuel would be made from a wholly renewable source, we wouldn't have to import as much oil and we would "see" thousands of jobs being created everywhere, from agriculture to engineering the famous E85 cars.
However, the same governments "didn't see" the oncoming truckload of problems with their scheme. Among them are an explosion of the price of the resource, which could explain some of the Mexican immigration problems — corn is a Mexican staple crop — and increased air and water pollution. Also, it didn't influence oil imports.
5. Restrictions to Commerce
In order to "create" jobs, governments never run out of ideas. One of them is to restrict or ban the importation of certain products so they can be produced domestically. Alexander Hamilton was a strong defender of such restrictions in order to protect infant industries. His logic: By developing industries inside the country, we will "see" new industries and jobs being created, and maybe one day they will be able to compete on the international market.
But protectionists will work hard to hide what you "don't see" about protectionism: an increase in prices. Indeed, since domestic buyers can't import cheaper products, they have to buy them domestically at a higher price. Therefore, they have less money to spend elsewhere. Can you imagine how much more money industries would have if they didn't have to pay a 30%+ tariff of steel? How much more money you would have in your pockets if certain types of meat and produce didn't have a 30%+ tariff?
This all amounts to what Bastiat was talking about in his petition: protection of inefficient domestic industries against more competent foreign competitors.
Many people have feared technology for a long time, especially when it comes to machines. They were seen as a curse that steals jobs and destroys entire communities.
Yes, it is true, we "see" that some people, usually the lower-skilled ones, lose their jobs when a new machine comes around. However, we "don't see," at least in the short run, that these new machines actually create more jobs (also known as creative destruction), but also that people pay less for their products or get more productive. Although horse rearer Tim lost his job with the creation of the automobile, engineer Tom was able to find a job, and florist Jane can now deliver her products farther away, making her richer. Also, shoemaker Peter did lose his job with the invention of the steam engine, but creating the machine gave a job to John and helped Laura to pay less for her shoes, which helped her invest in a new oddity: a steel horse that moves on rails.
7. Work Restrictions
Another "great" ideas governments have to create jobs is to restrict employment, be it by imposing a certain number of hours per week like France or by a hyper division of labor in construction as is happening in Quebec. With such measures, we "see" (in theory at least) that more people are working since employers can't hire workers overtime or they can only address a specific worker for a specific task.
But what we "don't see" with such measures in a phenomenal increase in cost and time. Indeed, if a brick floor can only be set by a bricklayer rather than a carpet installer, entrepreneurs have to call them in for this small task before the rest of the work can be done. As for the 35 hour workweek in France, it didn't improve employment; on the contrary, some people even took second jobs or moved to smaller companies so they could work as they see fit.