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See the Unseen: How to View the World like an Economist

February 27, 2018 in Economics

By Ryan Bourne

Ryan Bourne

Have you ever wondered why economists hold seemingly
counter-intuitive opinions on issue after issue?

It certainly perturbs friends (and my girlfriend in particular).
To the non-economist, those of us trained in the dismal science
have a frustrating, sometimes inhuman, ability to detach ourselves
from emotive arguments, all the while trying to poke holes in
popular ideas.

Where does this desensitisation come from?

The best answer was articulated by Russ Roberts on Twitter last
week, and originates from an under-appreciated nineteenth century
French economist called Frederic Bastiat.

Using the example of a broken window, Bastiat pointed out that
with most actions, there is a first order consequence —
something directly observable or “seen”. When a window
is smashed, a glazier comes to repair it. We may observe this, and
in isolation identify this activity as “good” for the
economy.

Have you ever wondered
why economists hold seemingly counter-intuitive opinions on issue
after issue?

Yet too often human beings ignore the “unseen”
— the opportunities foregone, and the likely long-term
consequences of a choice. “If he had not had a window to
replace,” Bastiat explained, “he would, perhaps, have
replaced his old shoes, or added another book to his
library.” To finance the repair of a broken window, the
window’s owner cannot use his money in other ways, which
he’d no doubt prefer.

This distinction between the “seen” and
“unseen” may seem obvious. But example after example,
particularly in political discourse, shows how it strains our human
instinct to weigh up alternatives or consider unintended
effects.

Remember when the coalition government’s policy of
“free” school meals for five to seven year-olds was
announced in 2013?

Campaign groups rallied to praise the £600m commitment, claiming
it would enhance educational attainment, based upon results from
narrow pilot schemes. It was only economists who seemed to question
whether this spending really obtained the best bang for the buck to
increase attainment, or whether the money could be better used in
other departments — or even, heaven forfend, be left with
taxpayers.

Similar narrow thinking dominates the debate around the customs
union.

Commentators talk about the potential costs for existing
businesses of complying with rules of origin tests and other
administrative requirements if we leave.

Yet few ever quantify exactly how significant a problem this is.
It seems to be taken as given that any new costs are reason enough
to either resist leaving or reach some extensive new customs
arrangement. Few weight these costs against the potential upsides
stemming from an independent tariff and commercial trade
policy.

The great thing about economics is that, once you get it drummed
into you that (as the great Thomas Sowell once said) “there
are no solutions, only trade-offs”, you …read more

Source: OP-EDS

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