Economic Sophisms: Introduction

The seen.

The unseen.

Perhaps one of Bastiat’s most powerful ideas is presented in the essay “That Which is Seen and That Which is Not Seen.” The good economist will not merely look at the immediate and seen consequences of human action, but will look to the unseen.

E.g. My city levies a new tax to pay for renovations of the downtown and draw in new businesses.

The seen: downtown is renovated and unemployment rates go down as people are hired by the construction company who won the bid to build.

The unseen: taxpayers have less disposable income and saving rates decline. This decline in saving rates will cause the supply of loanable funds to shift to the left, while the demand for loanable funds will shift right as more companies look to borrow money to build downtown. The inevitable result of these two results is an increase in interest rates.

Bastiat’s classic example of the “Broken Window Fallacy” can be found here.

In the introduction Bastiat explains his “little volume” will refute some of the arguments made against Free Trade. Protectionism on the surface appears to be more beneficial, but when one looks below the surface and follows the implications of protectionism to the end it becomes clear that the benefits of freedom outweigh protectionism.

This is the journey we now embark on…seeking the unseen implications of Protectionism (the use of tariffs to protect domestic industry from unfair foreign competition) and Free Trade (the removal of all trade barriers.)

For the complete text of Economic Sophisms click here.

For our first discussion please comment on why you are a Free Trader or Protectionist. Alternatively, propose an example of an unseen/seen situation involving political economy.