Monday, October 29, 2012

That Which is Seen and That Which is Not Seen: Bastiat on Hurricane Sandy

From MarketBeat:

The Cold Math of Hurricane Sandy
...However, economically speaking, the clean-up is sure to generate its own visible effect on the economy. John Challenger, CEO of Challenger, Grey, put it this way:
If there is any silver lining in all the destruction the storm is expected to cause, it’s that such storms tend to provide a boost to the economy in their wake.  After the initial shocks to the economy related to lost output and productivity, we will probably see an employment surge in construction, skilled trades and other professions needed to help repair the damage.  There will also be an increase in business and consumer spending and companies and homeowners replace damaged equipment, household items, etc.  While much of it will be paid for with insurance money, the injection of money into the economy will be beneficial nonetheless....
The post is decent up to that point but it is a shame that Mr. Challenger said this in public. Back to Econ 10 with you John.

From Chapter One of Bastiat's 1850 gem That Which is Seen, and That Which is Not Seen, The Broken Window Fallacy:

I. THE BROKEN WINDOW

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

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...MORE
"The money is always there, it's only the pockets that change"
-Gertrude Stein,
Also attributed to Coco Channel as:
"Money is money is money, it's only the pockets that change".