Friday, August 16, 2013

What is seen and what is not seen

Over at Cafe Hayek, Don Boudreaux has an excellent, short post in which uses a quotation identifying Calvin Coolidge as an economic hero as a spring board to a discussion on the important distinction between "what is seen and what is not seen".  He applies his analysis to the auto bail to show the distinction.  After noting that it was easy to see the outcomes of the bailout to the auto companies (i.e., they received money and stayed alive), he points out what we don't see:
In the case of the auto bailout, the output and businesses and jobs not created elsewhere because of the resources that were forcibly transferred to G.M. and Chrysler are not seen.  One cannot see what would have existed – but which is never actually created – because of such subsidies.  In addition, compared to the still-employed autoworkers and the new vehicles rolling off of G.M.’s and Chrysler’s assembly lines, the visibility of the weakened incentives of auto executives to get their companies to perform as efficiently as possible are invisible.  Also invisible is the line of causation from ever-greater government intrusion into the economy to the dampening and distortions of commerce caused by such intrusions.

Almost always, governmental intrusion into economic activity generates both results that can be seen and identified, and results that are virtually invisible and, as a consequence, are not known by most.  In addition to showing this, Boudreaux points out that politicians generally understand this (at varying degrees, admittedly!) and use it to their advantage.  But that's enough -- I urge you to read his post!