by Gene Callahan
I am periodically re-astonished at the brilliance of Frédéric Bastiat. His satire “The Candlemaker’s Petition” is perhaps the most brilliant send-up of protectionism ever penned. And, listening to the news on the radio today, I again was made aware of how important but, apparently, difficult to grasp, is Bastiat’s point about “what is seen and what is unseen.”
What brought that point of Bastiat’s to my mind is the recent media focus on the proposed bailout of the US automakers. It is certainly the case that, if the government provides the US automakers with oodles of greenbacks they would not otherwise have had, then the automakers are more likely to make it through this recession. That, in Bastiat’s formulation, is “what is seen.” However, “what is not seen” is all of the other businesses that will fail as a result of that bailout.
To understand that point, we must recognize that what matters is not the quantity of pieces of paper with politicians’ pictures on them that the auto companies possess, but the quantity of resources that those pieces of paper will allow them to acquire. The government, if it gives the automakers boatloads of those pieces of paper, has not created so much as a single new side-view mirror or brake pedal. To make those items will take real resources, such as workers, glass, rubber, and so on. If the government chooses to re-direct such factors of production to automakers, it is inevitable that some other, potential users of those resources will not be able to acquire them. Thus, there are marginal businesses that would have made it through these hard times in the absence of a “Big Three” bailout that will, instead, fail due to such a bailout. Some construction company, outbid for steel by the newly empowered auto firms, will not be able to acquire the steel it needs to complete its projects, and thus will go under. Some window manufacturer, now outbid for glass by Ford or GM, will as a result shut its doors. Some sneaker producer, unable to compete with the politically favored Chrysler Corporation for rubber, will go out of business. In Bastiat’s lingo, “what is seen” is the auto workers who will not be laid off if this bailout goes through. “What is not seen” is the consequential failure of other businesses that lack the lobbying power of the auto industry.
It is remarkable that I have not encountered a single story or commentary about the proposed bailout that mentions the inevitable demise of businesses not favored with government largesse. Bailouts, tax breaks, price restrictions, and so forth, never create new, real resources, but only re-distribute existing resources from some economic actors to others.