To read mainstream economics reporting regularly is to encounter one blood pressure-raising falsehood after another.
According to the Wall Street Journal’s Justin Lahart, the savings without which there would be no economic progress are economically harmful.
Lahart’s colleague Greg Ip agrees about savings, oddly thinks that copious amounts of what’s essential for progress were what caused the late 2007-2009 “financial crisis,” and presumes that imports in great quantity bring economic stagnation. Over at the New York Times, Neil Irwin tells readers that falling prices damage them.
All three think economic growth causes inflation despite the unassailable truth that growth is the greatest enemy of rising prices, for it coincides with the very investment in production enhancements that always and everywhere pushes prices down.
Economics Reporters Need Bastiat
To navigate the musings of Ip, Irwin, and Lahart is to wish that their editors would require them to read the great 19th century French political economist, Frederic Bastiat (1801-1850). If they were to read what’s essential, they would never report on economics or economic policy in the same way again.
Freed from the discredited notions that define economic thinking, and that inform their reporting, they would soon enough be telling endlessly uplifting stories of progress that are all about abundant savings, investment, falling prices, and imports.
Happily for the reporters mentioned, and many more, the Liberty Fund has released the most comprehensive collection of Bastiat’s brilliant writings yet, Economic Sophisms and “What Is Seen and What Is Not Seen.” Even if the reporters don’t read this thoroughly excellent book, readers should. Anyone who does will never read a newspaper the same way again—or think the same way again, either.
If there’s a difficulty that comes in reading Bastiat, it has to do with the happy truth that nearly everything he writes is worth underlining. Bastiat is common sense personified, and there are lessons in seemingly every subject the great Frenchman chose to comment on. If one only skimmed, one would miss crucial lessons.
And then there’s a timeless quality to Bastiat’s writings that will uplift readers, cause them to marvel at how little things have changed, or both. Donald Trump campaigned on the idea that Americans were being ripped off by exports from China, Germany, Japan, and other economically productive countries. Bastiat properly saw imports as the surest sign of prosperity, noting that “Mankind’s wealth lies in the abundance of things.” Absolutely. Work is all about the getting, about the fulfillment of wants. Imports are the rewards that result from exports.
Bastiat’s clarity is all the more remarkable for the fact that he was a political economist beset by politicians and economists who saw the world backwards. To the small minds in his midst, imports were the cause of France’s problems. Bastiat asked, “Do we not hear this every day: ‘Foreigners are going to swamp us with their products’?”
Today’s Protectionism Is Nothing New
In short, Trump’s protectionism is hardly new, and neither is the economic illiteracy that fills our most esteemed newspapers and online opinion-writing. Reading Bastiat, one imagines the fun he would have had with instant responses to the bilge one sees on blogs, in Facebook posts, and on Twitter feeds.
To the silly idea that foreigners could injure us by “swamping us with their products,” Bastiat’s reply was quick and to the point:
Do not worry about it. If we are flooded, it is because we will be able to pay, and if we cannot pay we will not be flooded.”
A visit to any impoverished country that is bereft of imports will likely cure any reasonable person of an aversion to the world’s plenty, and to the principles that describe how the plenty came about.
What is the source of Bastiat’s genius? Arguably it is that he analyzes all things economic through the eyes of the individual. Economies aren’t living, breathing blobs; they’re just collections of individuals. And for an individual, “It is only too obvious that abundance would be advantageous to him.” As individuals, we’re all too aware of how few of life’s necessities or luxuries we could produce on our own. And if imports are wondrous for the individual (whether from across the street, or the other side of the world), which they are, they’re wondrous for an economy that is merely a collection of individuals.
So, too, are robots, automation, and all labor-saving devices wondrous. They accentuate the genius of man at work, as opposed to rendering man unfit for work, or unemployable. Bastiat observed that a solitary man would never “envisage breaking tools that spared him effort.” Of course not. That which frees the individual from work enables the pursuit of new production. Just as no sane man would refuse labor-saving devices, neither should a collection of people who comprise what we call an “economy.” There will always be something else to do. As Bastiat saw it, “sparing people work is nothing other than progress.” (Emphasis in original.)
Bastiat’s Common Sense
What’s interesting about Bastiat’s common sense is how much both sides of the political aisle shunned what was logical in his time, and continues to be. Through protection, governments “create” what he called “diverted work.”
The latter was and is a function of protection. Through tariffs, a government could protect an industry and its jobs. Bastiat’s reply was a persistent version of why? That Paris was arguably not the ideal location for agriculture and livestock didn’t mean Parisians would go without either one or, for that matter, any good or service not produced inside the city.
As Bastiat so sensibly points out, there are two ways to attain anything that’s desirable, “The first is to make it; the second is to make something else and trade this something else abroad for” the desired good.
He understood what’s too often forgotten, that “commerce is just a series of barter exchanges, products for products and services for services.” (Emphasis in original.) We can only “import” insofar as we “export.” Our production is the source of our demand, our exports an expression of our desire for imports, and since they are, logic dictates that we pursue the work that most elevates our unique skills, all the while leaving the rest to others. The more productive we are, the more that we’ll be able to attain in exchange for our work.
We must never forget Bastiat’s axiomatic point that “Mankind’s wealth lies in the abundance of things.” A division of labor across cities, states, and countries is the quickest path to the abundance that is wealth.
Protectionism Doesn’t Work
Which brings us back to “diverted work.” Bastiat’s writings roundly dismissed the idea of protection given the basic truth that businesses aren’t established with “capital from the moon.”
More realistically, the establishment of a business or economic activity springs from the withdrawal of capital from somewhere else. When a business or industry is protected, some jobs are no doubt “saved,” but only at the expense of the unseen—the jobs that never emerged thanks to unproductive (but well-connected) industries’ being propped up by the state.
Bastiat likened all this to expensive butter. No doubt there was a way to produce it in Paris back in the 19th century, but it would be very costly, the City of Lights being “ill-suited to this industry.” With “products for products” foremost in mind, Parisians should do what amplifies their skills the most, and “import” the butter.
In our context, and hard as it is for conservatives to admit this, the United States is plainly “ill-suited” to oil exploration. By which I do not mean to knock fracking, only to point out that it has only proven economical insofar as oil prices are subsidized with a weak dollar that keeps the price per barrel up above $40 or $50. But when oil was trading at $12 a barrel in the late 1990s, the United States didn’t have much of an oil industry to speak of, but Americans were hardly struggling.
More than conservatives would perhaps like to admit, the great Bastiat would plainly question their worship of U.S.-sourced oil. Oil being a commodity like any other, the cost of bringing it out of the ground in fracking locales is quite expensive. Oilfield work is “diverted work” that only exists insofar as the rest of the U.S. economy must suffer subdued investment wrought by a weaker dollar.
If Bastiat is a hero to any Americans (he’s not a well-known figure), they would be conservatives and Republicans—yet his critiques of protectionism would surely extend to the Republican in Trump, and to conservatives enraptured by the subsidized extraction of a commodity that could easily be imported.
As for those on the Left who decry “draconian” cuts in government spending that are anything but, Bastiat has an answer for them, too:
Whatever you do, sirs, you can give money to some only by taking it from others. If you genuinely wish to drain taxpayers dry, go ahead, but at least do not mock them and say to them, ‘I am taking from you to compensate you for what I have already taken from you.’ (Emphasis in original.)”
Readers can hopefully see that Bastiat was more than wise to the fiction that is “government spending.” What could government possibly spend that it hasn’t previously been taken from us, the creators of the wealth that it consumes? Those “draconian” spending cuts that enrage the Left despite being illusory are merely a plea from the creators of wealth that politicians cease consuming and wasting what those politicians didn’t create.
When it comes to Frederic Bastiat, one cannot review a collection of his writings without leaving on the proverbial cutting-room floor all sorts of valuable insights. The only way for readers to truly understand Bastiat’s greatness is to read Economic Sophisms and “What Is Seen and What Is Not Seen.” It would be impossible to overstate what a useful book this is. You’ll see why from the opening pages. And if you agree, please pick an economics reporter to send an extra copy to.
John Tamny is a Forbes contributor, editor of RealClearMarkets, a senior fellow in economics at Reason, and a senior economic adviser to Toreador Research & Trading. He’s the author of the 2016 book Who Needs the Fed? (Encounter), along with Popular Economics (Regnery Publishing, 2015).