September, 2009

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A Vicious Cycle

Wednesday, September 30th, 2009

As I was reflecting upon Bastiat’s essays, I was reminded of a book I once read called “That’s Not What We Meant to Do: Reform and Its Unintended Consequences in the Twentieth Century” by Steven Gillon. His basic argument was this: the government would identify a problem, then approve legislation to fix that problem. Out of that solution, however, came more unintended problems that subsequently also needed legislation to fix them. Thus, a vicious cycle was started and has become inescapable. 

 

The reality of this cycle is all too true. As government officials rush to get things done and make their mark during their term, they take a short-run perspective. Rather than taking the necessary time to fully research issues and think them through, politicians let deadlines and outside demands press them to quickly pass legislation.

 

In terms of immigration policy, this same method has been applied. Many of the policies were established with good intentions, but have become something of a hydra. For example, the policy which allows close family members to immigrate too, has led to entire extended families being allowed citizenship, many of whom are not educated and don’t even speak English. The allowance of all this immigration, however, has led to a dependence on the immigrants themselves. Like Sonia said in the movie “How do you make the invisible, visible? You take it away.” As a result, immigration policy has developed a series of contradictions. While I cannot offer any solid solution to this, I do believe that history has shown that life is perpetual change and that people are only trying to make their lives the best they can be amidst that change.

Every Abundance Creates a New Scarcity

Wednesday, September 30th, 2009

I remember back in ’07 there was a sudden the interest in corn-based biofuels, and the policy to favor ethanol production as a solution to energy demands.  The initiative fizzled when the law of unintended consequences (what Bastiet described as ‘the unseen’) revealed itself as food costs increased with the demand for corn.  A policy intended to protect consumers from rising energy costs had the effect a rise in something much more essential to consumers.
I’ve been told that in economics every abundance creates a new scarcity, and I wonder if that’s a factor in answering Diana’s question relating to why public policy can sometimes lead to unintended consequences.  Abundance in property law leads to a scarcity in property rights and expropriation.  Abundance in communist paranoia and suspicion leads to a scarcity in free speech and public unity.  Abundance of corn subsidies for biofuels leads to a scarcity of corn for food.
The state has the ability to operate independent to the basic rules that maintain the free market, and can be felt far and wide throughout markets.  When policy-makers take it upon themselves to act upon the economy their effect spreads well beyond the intended target, and permeates far into the ‘unseen’.  The result is a collateral damage that is inversely proportional to the thought that went into making the policy.  Political decisions made in haste, or made based on emotions like fear or uncertainty often lead to the most disastrous public and foreign policies.

-A Davis

Enslaved to “Progress”

Wednesday, September 30th, 2009

Probably the greatest lesson to be learned from Fredric Bastiat is that government policy always has seen and unseen consequences. While most legislators concern themselves with what is seen, the wise will probe those issues which remain largely unseen.

Bastiat’s well-known example of a broken window demonstrates the contrast between the seen and unseen. While one laborer (the glazier) may find the accident to be profitable, other laborers in the community are disadvantaged according to the priority given the glazier. This is an important concept, for Bastiat is not only arguing for the welfare of the individuals affected, but the entire community: “Destruction is not profitable,”(3) and such actions have far-reaching effects. When any amount of economic benefit is given to one individual, it is being taken from another- better yet, the economic aid isn’t really even given, it is merely transferred.

What is unseen is the effect that centralized planning has on peers and competitors of those businesses or individuals benefited by the government’s policy. After all, “public spending is always a substitute for private spending”- while the legislation does encourage spending (that is seen), the unseen consequences are that in order to have public spending, private funds must be exhausted and individuals disadvantaged.

Centralized planning enslaves us to a false notion of “progress.” While the aim may appear noble enough (i.e. subsidizing the arts), the results of such government action are most always disappointing, for in order to bring a profit to one, the profits of others must be sacrificed. Is this real progress? Can wealth be created under the direction or centralized planning, or is such “growth” nothing more than transfers of money?

Trying to Make Everyone Happy…

Tuesday, September 29th, 2009

I once heard a comedian tell a joke that went a little something like this…

So, I don’t understand people who hate Mexicans, one of their arguments is that Mexicans are lazy, they are always slacken on the Job. Their other argument is that Mexicans are comin’ in here and stealing all our jobs! So which is it? Are they lazy or are they stealing your job?

My mind kept falling back to this joke time and time again as this movie played on. Bastait describes the seen results and the unseen results in great detail emphasizing the importance of predicting outcomes. At one point he even states that “…it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous and vice versa”. The movie showed this argument when the protesters pushed to have all the “Mexicans” removed, and what to them would be a favorable outcome, turned out to be disastrous. Many jobs were lost such as the border patrol, and the farm managers. Technology digressed and the streets were covered in trash.

So, why is it so impossible for public policy to achieve the goal they proclaim. The obvious answer is because we are all different. Any decision made by a small group of people that restricts a large population will never satisfy everyone.

It seems in all of our discussions there is simply an attack on the way our government is run. Checks and Balances are a good thing, but what about alternative solutions. Yes sometimes legislation doesn’t end the way we want it to. However, what is the point of just mocking the poor decisions without making better ones. Do we all really want a land with no legislation? Also, if we got rid of the legislation we have what “unseen” disasters might occur?

Feel the Burn

Tuesday, September 29th, 2009

I remember sitting in Dwight Israelsen’s Econ 1500 class and thinking, “Finally, I can study something that will help me to understand just how the world works!”  My concept of the power of economics was based on a desire to understand the drivers of decision-making so well as to be able to manipulate behavior according to what I thought was best.  

The real power in economics is in the simple understanding that what is most beneficial to society as a whole is to allow each individual to decide for themselves how they will seek personal happiness.  There is a reason that legislation that goes beyond just creating a sphere within which the individual members of society can freely and gainfully interact–does not work.  The reason is this: the aggregate of preferences that combine to define market demand are truly as varied as the individuals that they belong to.  People do not react to invasive legislation uniformly.  They each will continue to seek their chosen level of happiness, and with increasingly creative means due to whatever legislation is changing the rules by which “the game” is played.  And yet, each new piece of legislation passed assumes the same inane thing: due to the brilliant way this legislation is crafted, everyone is going to act just as we are expecting them to.  Unfortunately for this kind of thinking, each person will adjust their choices according to the changed landscape of costs and benefits.  

The quote that stuck me most powerfully ties the aforementioned faulty assumption to the reason that it still underlies much of the “frightful moral disorder” being created in our current system.  “On a false path there is always inconsistency; if this were not so, mankind would be destroyed.  We have never seen and never shall see a false principle carried out completely.  I have said elsewhere:  Absurdity is the limit of inconsistency.  I should like to add:  It is also its proof.” (p. 33)

Have you ever started to eat really spicy corn chips and realized that they are burning your mouth, but that the burn only really kicks in once you stop eating?  So you do the only rational thing and keep eating to keep the burn at a bearable level.  Unfortunately this leads to an inordinately large amount of chips consumed (which has all kinds of effects which are unforeseen, but only the first time this happens.)  Legislation is the same way!  Once we get a “few bites” into the legislation we realize how quickly the seen consequences wear off and as we start to feel the “burn” of the unforeseen consequences.  We then come up with more legislation which only temporarily assuages the sting of the unforeseen consequences of the former legislation by garnering more short-term effects.  It becomes a vicious feedback loop which never is “completed.”

I don’t see

Tuesday, September 29th, 2009

A day without a Mexican is an attempt to make the unseen seen. The large Hispanic population is a result of legal and illegal immigration. The visible affects of the Hispanic population was the increasing prevalence of Spanish over English, lots of Hispanic food, and a demand for Hispanic reporters. Illegal immigrants (often being paid less than minimum wage) affected Non-Hispanic unemployment, and crime were other “seen” factors. But, at least based on the movie, many things went unseen. Illegal immigration created jobs for the border patrol. Illegal immigrants actually contributed more than they received in healthcare as well as providing key services. An unseen consequence of illegal immigration is much cheaper produce because many of the illegal immigrants receive less than minimum wage—it’s amazing that an estimated 90% of farm workers aren’t in the country legally. I’m torn on the solution to this though—I’m waffling between doing away with immigration restrictions and getting rid of minimum wage laws…how about both?

Human ingenuity is really quite impressive. Someone somewhere always seems to find a loophole in any policy that they can exploit to their own advantage. Ah those good old unintended consequences. I still believe that a big part of the problem is that public policy measures usually have some end goal in mind (which isn’t completely a bad thing), but sometimes more attention is placed legitimizing the ends than ensuring that the means will truly achieve it. Another problem is that government incentives don’t always align with policy success. Politicians want a policy that will get them reelected, and bureaucrats want policies that maximize their budget and control.

We need the Unseen

Tuesday, September 29th, 2009

     In Frederic Bastiat’s Political Economy, he talks about the difference between a good economist and a bad economist, which stems from the difference in foresight of the ‘seen and unseen’.  In our society, politics and economy can go hand in hand, even in a democratic free market.  Why then do economic politics fail us if we have a free market with the government to stimulate the economy?  The truth is that the health of an economy is based on being able to foresee the disadvantages that may occur due to the reallocation of wealth.  In our world economy today it is necessary to look at the ‘unseen’ in immigration laws as well as the cause for our current dissatisfaction of the economy in order to address why our government should be concerned about what is not obvious. 

     In the movie “A day without a Mexican” the economics of California changed drastically when suddenly the unfortold dissappearance of the hispanic people changed their lives.  The people who used to get derrogatory taco bell comments were no longer working on the orange farms, in the restaraunts, and in their typical jobs.  The Californian economy ‘went to pot’ so to speak and everybody was out of a job.  People were stealing food like they would try to steal illegal drugs.  The ‘seen’ economics according to Bastiat was that the Californian’s believed that the immigrants were stealing their jobs and taking social security funds for themselves, costing the government 10 billion dollars a year.  However, what the Californian’s did not see was that the Hispanic people were actually contributing an overall 97 billion dollars and they boosted the economy just by the natural flow of supply and demand on the market.  Overall, the movie emphasized the unseen economics that the disatisfied Californian population was not aware of.  Our economy is becoming a world economy now and the ‘unseen’ must be clearly presented along with the ‘seen’.

     A similar example to how the ‘seen’ can eclipse the ‘unseen’ in economics is the current situation that we are now in.  The government wanted to create the opportunity for home owners to own their very own home, regardless of their credit.  As a result, the Freddie Mac and Fannie Mae Federal Mortgage Corporation was created to give incentives for home owners.  The government decided to extend laws to ease the losses seen by the public, thereby increasing the effects of what went unseen.  What was seen was that our government was allowing people to buy homes who normally would not be able to, but what was not seen was that the corporations were eating red ink and covering their losses.  Along with the housing market, banks were allowed to give loans to people who in turn used them to future trade barrels of oil, driving up the oil market and making gasoline so expensive.  Suddenly they are asked to set their books straight and they can’t, and bam the housing market crashes, banks are in debt and the government bails them out, and gasoline prices drop as the future trading decreases.  What was seen in this economy was that we were trying to help people buy houses, but what was not seen is that we created a recession through a bubble. 

      What we need now are people helping our President to see the ‘unseen’ as well as the ‘seen’ for the future of not only our economy, but the economy of the world.

Political Ineffectuality

Tuesday, September 29th, 2009

Although Bastiat seems to suggest that Governmental Policies are, as a whole, ineffective and counteractive to their intended purpose, the key lies in the closing line from “What Is Seen and What Is Not Seen.” Here Bastiat suggests that any accomplished fact “has always produced the opposite of what was expected when it has not been founded from the first on morality and justice.” This is a ray of hope in what otherwise appears to be an inevitable scenario of political ineffectuality. In the development of laws and governmental policy, it is crucial – of course – that we evaluate the “unseen” consequences. With perfect foresight, this would be sufficient. However, Bastiat brings us back to reality by stating “we are fortunate if we foresee [the unintended effects that emerge subsequent to the intended effect].” The future is full of uncertainty, and although we can speculate the secondary effects of some policy according to theory, we cannot be sure that individuals will always act as expected. Therefore, the question at the heart of the inquiry into the “unseen” ramifications of some action should be: Is this action founded upon morality and justice?

With this context established, the question of immigration policy becomes more than a battle over the ideals of protectionism. “A day without a Mexican” emphasized many of the potential problems associated with prohibitionary immigration policy. These are the expected results, but there is always a level of uncertainty (especially when dealing with human beings). Putting aside the potential (and obvious) effects to the U.S. economy, it would be wise for us to evaluate immigration policy (as with any public policy) upon the grounds of its morality and justice. Bastiat establishes a standard of justice through his condemnation of plundering (especially “legal plundering”). Using this as a standard, it is obvious that strict immigration policy, which benefits domestic producers at the expense of domestic consumers (legal plundering), is not just and therefore not moral.

Monkey paw laws.

Tuesday, September 29th, 2009

Lila may have aligned herself with many economists when she put forth the question, “How do you make the invisible visible?” in the film A Day Without a Mexican. While she was referring to another situation, her question is applicable to Bastiat’s definition of what makes a good economist: one who is able to foresee the series of effects an action.

“Each citizen is vigilant with a jealous care to remain his own master. It is by virture of such freedom that the poor hope to emerge from poverty, and that the rich hope to preserve their wealth.” (p 317)

What a powerful commentary on the American dream.  Laws created have been intended to preserve and protect this dream, but many spin into disorder when passed with messy political agendas woven within.  I echo Brent’s observations of the cyclical political game caused by two, four, or six year terms which tempt the politician to seek “quick-fixes,” hiding much larger problems to be exposed and dealt with in somebody else’s office on somebody else’s time.

According to legend a cursed monkey paw could grant its bearer three wishes. However, with each wish new problems and consequences arose from the wish large enough to  make the bearer regret making the wish at all. And so it is (more often than not, it seems) with legislation.

Oh and by the way, here are a few choice quotes I enjoyed from the film:

“You belong to the people who taught you the world.”

“Every Hispanic on the west coast is presumed to be Mexican.”

“California needs them–“, “I wish they would have heard that before.

“Hating them got you Senator, loving them will get you Governor.”

“Why is it that every rich white man who is against minorities is labeled a racist?!”

…and last but not least:

“I had to WASH a dish!”

People Are Strange When You’re A Stranger

Tuesday, September 29th, 2009

Political Economy is a systematic attack on protectionist policy. It is the last logical plea of a dying man urging people to look past what we believe to be the effect to what the actual effect is.

“A day without a Mexican” perfectly illustrates our economic and social dependence on the Hispanic population. It provides many of the protectionist arguments against immigration including, but not limited to, political forces, racial prejudice, and ignorant economic beliefs.

Many people falsely believe that illegal immigrants are damaging to our economy because they take away jobs from other Americans. This is the apparent effect of immigration. Because of this ignorant belief, politicians rally behind workers who are in danger of losing their jobs to immigrants and feed off of their votes by increasing regulation on immigration.

The unseen effect of immigration is that the influx in additional labor in a certain industry causes wages to decrease in that industry. Yes the owner reaps a temporary benefit from this decrease in wages, but his abnormal profit is driven down by new firms entering the market. New firms entering the market then results in the price of the commodity being driven down and that translates into savings for everyone. Additionally, more people entering our economy translates into more consumption, which leads to further stimulation. To justify restrictions on immigration on economic grounds is just as foolish as saying that we shouldn’t allow any new inventions that make labor easier or faster which means no more computers, pens, or shovels because these things take away “American” jobs.

If Bastiat lived in this day and was faced with the issue of illegal immigration, I’m sure he would have responded the same way as he did with protectionists against machines by condemning their cries as “ignorant prejudice” (30)because of the unseen benefits that immigrants provide for our economy.

Public policy fails when it attempts to satisfy what is seen without considering what is not seen. Its failure is further perpetuated by its inability to help others see.