Audio Clips

24 June 2011

Unseen Effects

Frederic Bastiat wrote a fantastic essay about 150 years ago called "That Which is Seen and That Which is Not Seen". If you haven't read it I highly recommend it. I've read it several times and I think every economist should have to read it to graduate. Barton Hinkle has written a great article about the unseen impact of the stimulus on jobs. The White House, of course, argues that the stimulus saved or created hundreds of thousands of jobs. Well, sure, but what about the jobs that weren't created because of the money that was taken from taxpayers to do the stimulus. Read the article here. This is an excerpt that might whet your appetite.

Analogy time. Consider a robber who steals a purse containing $500, who then uses the money to buy himself a new TV. It is categorically undeniable that the theft has created a sale for the TV store. Conservatives who pretend the stimulus has not created any jobs whatsoever stand in the position of an observer trying to deny the TV has been sold.
Yet the liberal analysis lacks any recognition that the purse owner now has $500 less to spend on the laptop computer she was going to buy. The theft has generated one sale only by destroying another.
The first effect is easily seen. The second is not. But only the economically illiterate would conclude that just the first effect occurred, and that therefore the way to increase consumption is to encourage more purse-stealing. So in addition to looking at the number of jobs created or saved by the stimulus, shouldn't we also consider the number of jobs destroyed or forestalled?

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