Tuesday, February 12, 2013

Bastiat wasn't right about everything

                        Reading Bastiat reminds me of reading good science fiction. The stories are fabricated but the science is real. Similarly Bastiat used sound economic theories coupled with humorous anecdotes to make his point. His humor and wit do not detract from his arguments. On the contrary his use of humor allows his ideas to be more readily accepted. His arguments for opportunity cost via the Broken Window Fallacy portray the townsfolk as dolts who can use big words. The character Mr. Protectionist in Restraints of Trade had a negative connotation that extended itself to successful lobbyist of protectionism in France circa 1840’s. His wit was the fabrication, but his ideas were economically sound.
            Bastiat’s greatest contribution to economics was the idea of opportunity cost. This term was coined by Friedrich von Wieser in 1914 but all the credit goes to Bastiat for popularizing the idea itself. Bastiat invokes opportunity costs in most of his work however he referred to it as the hidden costs. The hidden cost of taxes, the hidden cost of protectionism. His arguments generally involved acknowledging that his opponents were not wrong about the supposed benefits of their ideas. But that they neglected either intentionally or unintentionally the hidden costs. This has become an idea in economics as accepted as gravity in physics. However I do (perhaps foolishly) have one small qualm with this concept.

            Like most other economists, Bastiat is a proponent of the middleman. They serve people by providing services instead of products, they make profits because they are in a good position to, or they have some knowledge that people wish to acquire. Either way they provide a service that people are willing to pay for because they cannot do what the middleman does as efficiently. It is a given that middlemen are good for the economy. Bastiat is in favor of middleman over the government. Here is where I step in to say that the government is just a giant middleman. We pay taxes and the government seeks out how to use that money to its best effect. Idealistically the government would save people more money than the middleman who is also looking to gain a profit. This is countered by the fact that this is not an idealistic world, and that the government also has officials to pay. Besides this private middleman are focused on efficiency and are generally able to create a more streamlined process in response to the competition of other middlemen. I agree with all this and concede that private industry can do many things much better than the government. But there are some things that private middleman cannot provide that a government can provide. The most prominent example would be health care. Health care in the United States is not based on need. If you have cancer, or a heart attack you die, are indebted for life, pay ludicrous insurance premiums, or are wealthy enough to sustain such an economic blow. People live with debilitating diseases and handicaps because they cannot afford to treat them. However in Canada one only needs to head to the nearest hospital to receive treatment for their ailments. In this particular scenario socialist systems have been much more successful in providing health care then capitalist systems. This is where I open the floodgates for dissent, I assume mostly from the anarchists.

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