Column by Alex Schroeder.
Exclusive to STR
There have been few intellectuals who have communicated the virtues of the free market as effectively as Frederic Bastiat, the 19th Century French economist. Though he wrote in a milieu that would be largely alien to contemporary Americans, the essence of his arguments is timeless, readily applicable to present circumstances. I continually find myself invoking Bastiat’s insights to refute leftist argumentation.
A common tactic employed by reactionary parties to justify the leviathan State is to highlight the supposed good government does, dropping context along the way. Absent context, I have no disagreement with many such contentions. To take but one example, having access to a State-subsidized student loan may enable one to attend college and obtain a valuable degree. Viewed in total isolation, devoid of context, a student having the opportunity to get a university education is a good thing. Leftists typically point out such phenomena, angrily wondering how one could be so callous as to oppose programs of this sort.
One could interpret this view as merely another manifestation of Bastiat’s famous broken window fallacy. Isn’t is good, pondered Bastiat in jest, if a shopkeeper discovers one day when opening his store that someone had broken the shop’s window? After all, the shopkeeper will then hire someone to repair it, putting money in the pocket of the window specialist, enabling her to spend money that she otherwise would not have made. This money will circulate through the economy, goes the argument, not only monetarily benefiting the enterprise the window repairwoman patronized with her marginal income, but also other parties down the line.
But the error in such thinking becomes apparent when one considers the concept of opportunity cost. Bastiat held that what separates the good economist from the bad economist, and I would argue what separates the economist from the non-economist, is the ability to look beyond that which is seen. We must not merely consider the immediate, apparent effect of a given phenomenon, but also consider the conditions that would have prevailed absent that phenomenon. In other words, what would the shopkeeper have done with that money had the vandalism not occurred? Perhaps he would have hired someone to repaint the exterior of his building, spent the money on dinner at the local restaurant, even hired another worker for a week to help with the seasonal rush. There are an infinite number of plausible possibilities. There is simply no way one can contend that the positive effect of the broken window (i.e., more money in the pocket of the window repairwoman) is on balance preferable to what would have otherwise transpired. This is true not only because we cannot know what the shopkeeper would have done with the money spent to fix the window, but also because value is inherently subjective and interpersonal utility comparisons cannot be made. One cannot validly claim that the benefit the repairwomen derived was higher than the benefit that others would have derived in our alternate universe.
So let’s return to our initial scenario. We must recognize that the State is funded by means of theft, euphemistically referred to as taxation. In order for the government to provide anything of value to any group or individual, it must first take that money from others. Therefore, for our hypothetical student to enjoy the State-subsidized loan, money must be taken from others beforehand. There are again infinite plausible circumstances that could have prevailed if this money were left in the hands of the marginal taxpayer required to provide the subsidized loan. Maybe she would have donated that money to a charitable organization assisting the needy, purchased a good or service from a company that was in desperate need of business to boost its bottom line and remain open, or sent her own child to university without taking advantage of government loot. The possibilities are endless; again, there is no way one can realistically assert that the student loan program is a net benefit to society.
This scenario is intended to illustrate a broader pattern at a micro level. There are countless government programs that, when one drops all context, do positively contribute to the well-being of those who benefit from them. Some accordingly say that we must strengthen, or at the very least preserve in their current form, such programs. The appropriate way to render such claims baseless is not to deny the fact that a benefit is being derived from the program, but rather to challenge the Statist to look beyond that which is seen, to that which is unseen.