Has Romney read Bastiat?

Posted by: Phineas on April 15, 2012 at 1:28 pm

**Posted by Phineas

Frederic Bastiat

Republican nominee-in-waiting Mitt Romney spoke recently at a meeting of the National Rifle Association in St. Louis, where he gave a powerful speech attacking the Obama administration’s insults to our economic liberty. IBD’s Andrew Malcolm posted excerpts from the speech (and the whole thing), and I recommend reading it.

One part in particular jumped out at me, however, wherein Romney explains the hidden costs of Obama’s tax-and-regulate binge:

“The real cost isn’t just the taxes paid and money spent complying with the rules. It’s the businesses that are never started, the ideas that are never pursued, the dreams that are never realized.”

That could come straight from the thinking of Frederic Bastiat, a 19th century French (1) classical liberal and economist. In his essay “That which is seen, and that which is not seen,” Bastiat attacked the idea that government spending could create wealth, arguing instead that such spending, while it would pump money into the economy, came at the expense of the citizen’s ability to spend that same money on those things that would improve his life. To illustrate his point, he used the parable of the broken window:

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.

Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.

In other words, no wealth was created. The glazier may be a bit richer, but the shopkeeper is poorer. (He may have his window, but he’s out six francs.) Worse, his economic liberty to make his life better was infringed, since the breaking of the window forced him to spend money only to put things back the way they were.

The quote from Romney’s NRA speech indicates he understands (2) what Bastiat was talking about: that government spending only moves wealth from one pocket to another (via taxation); that regulations are a form of taxation (through compliance costs); and that both entail hidden opportunity costs (those things we would like to do but now cannot) by restricting economic liberty.

A president who takes Bastiat to heart is far preferable to one who embraces Alinsky.

Footnotes:
(1) A Frenchman advocating limited government? How times have changed.
(2) Yeah, I know: “Romneycare.” Let’s hope he learned from that.

(Crossposted at Public Secrets)

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9 Responses to “Has Romney read Bastiat?”

Comments

  1. Drew the Infidel says:

    Some things seem to be universal in nature. What about broken windows as a result of union thuggery or the expense of police having to monitor “Occupy” gaggles and sanitation departments to clean them up afterward?

  2. Zachriel says:

    Phineas: In other words, no wealth was created.

    That’s right. The broken window represents lost wealth. However, it can stimulate economic activity.

  3. Drew the Infidel says:

    @Zachriel: And your point?

  4. Drew the Infidel says:

    I think it interesting to note that at this same meeting NRA Executive VP Wayne LaPierre called the lamestream media “a national disgrace”.

  5. Zachriel says:

    Drew Infidel: @Zachriel: And your point?

    The Broken Window situation creates economic activity (assuming slack in the glazier industry) at the expense of wealth. There may be circumstances where using existing wealth to generate economic activity might be beneficial.

  6. Carlos says:

    Good, Zachriel! Now, let’s all go out and break windows as per Bastiat’s suggestion so the guvmint won’t have to, and we’ll just stimulate the crap out of this dismal Obama economy.

    Try reading it about eleventy-seven more times, Zach, and maybe you’ll get a notion of what Bastiat was driving at…

  7. Zachriel says:

    Carlos: Try reading it about eleventy-seven more times, Zach{riel}, and maybe you’ll get a notion of what Bastiat was driving at…

    We’re quite aware of Bastiat’s argument. We drew a distinction that is important in modern economics.

  8. Wayne says:

    Zachriel: The Broken Window situation creates economic activity (assuming slack in the glazier industry) at the expense of wealth. There may be circumstances where using existing wealth to generate economic activity might be beneficial.

    You’re missing the whole point. Economic activity where money changes hands, is always at the cost of something else. Weather it’s now (immediate purchases) or later (savings). By forcing someone to replace a capitol good, which should have lasted indefinitely or for a much longer period, they are deprived of that money in the future.

    I think what you’re trying to say is that some people “horde” their “wealth” and they aren’t using it anyway so it makes sense to force them to use it now, when someone else doesn’t have all the work they could be doing. Or so I misunderstand you? Obviously there is no difference in your mind between wealth and money. We all enjoy better standards of living because of wealth. In this sense wealth is a much broader term than just money.

    The truth of the matter is that any “slackness” in an industry could just as easily be made up by lowering prices, right? That’s Econ 101; so why doesn’t the government just force the industry in need of sales to lower their prices? Oh, because everyone knows price controls are bad, but not everyone seems to have a problem with forcing someone to buy something when we call it “simulating” a sector of the economy.

  9. Zachriel says:

    Wayne: You’re missing the whole point. Economic activity where money changes hands, is always at the cost of something else.

    We’re clearly not missing the point, as we said “The Broken Window situation creates economic activity (assuming slack in the glazier industry) at the expense of wealth.”

    Wayne: By forcing someone to replace a capitol good, which should have lasted indefinitely or for a much longer period, they are deprived of that money in the future.

    That’s right.

    Wayne: I think what you’re trying to say is that some people “horde” their “wealth” and they aren’t using it anyway so it makes sense to force them to use it now, when someone else doesn’t have all the work they could be doing.

    We didn’t discuss that in this thread. However, if there is money sitting idle in the King’s vault, and if he spends that money to build a new castle, or borrows to fund a new cathedral, then new economic activity is created at the expense of the King’s wealth.

    Wayne: Obviously there is no difference in your mind between wealth and money.

    Obviously not, as we treated the window unbroken as wealth.

    Wayne: The truth of the matter is that any “slackness” in an industry could just as easily be made up by lowering prices, right?

    Yes, and in a healthy economy, that can create a sort of dynamic equilibrium. However, when there is a general decline, then it can exacerbate that downward movement in prices. Prices drop, but workers resist reductions in their wages, and people with money invested can’t usually extricate themselves immediately. Instead, people get laid off and investment dries up. That reduces demand, which leads to lower prices, and so on. That’s because certain aspects of the economy are ‘sticky’, such as wages and investment, and don’t immediately reflect the market. Similarly with interest rates. In a deflationary period, interest rates would have to be negative to reflect the market, but they can’t be negative as people would just keep their money in their mattresses.

    Wayne: so why doesn’t the government just force the industry in need of sales to lower their prices

    They would have to lower wages and profits to match. But if you reduce wages, people can’t make their payments, so again, the downward pressure increases. Instead, what a government might do is devalue the currency. This spreads the pain through the economy. It makes exports cheaper, encouraging production, while making imports more expensive. It also devalues debt and savings. This can cause investors to question the validity of the currency, but this can be managed with a disciplined approach (or lead to chaotic inflation without).