The Seen And The Unseen
More that 150 years ago, Fredrich Bastiat wrote a seminal treatise on economics discussing the seen and unseen costs of market regulation. Despite the passage of time, it’s clear that we have not learned Bastiat’s lesson. Government regulates the economy without any regard to what impact it is truly having on the market. Nonetheless, there are those who understand, most notable among them being George Mason University Economics Professor Walter Williams, who, as usual, puts Bastiat’s message in common sense language:
One of the great contributions of Nobel Laureate economist Friedrich Hayek was to admonish us to recognize the insurmountable limits to human knowledge. Why? Not even the brightest minds, and surely not the U.S. Congress, can ever have the knowledge to shape an economic system entirely to our liking. To think we can represents the height of arrogance and a pretense of knowledge. The billions upon billions of interrelationships between an economic system’s human and nonhuman elements defy human capacity to know.
Let’s examine just a few pretenses of knowledge. Under Social Security law, Congress forces workers to set aside a portion of their earnings for retirement. Take a 25-year-old — let’s call her “Mary” — who earns $40,000 a year. Her Social Security tax is about $2,500. Here’s my question to you: Was having $2,500 forcibly taken out of Mary’s pay for retirement her best possible use of that money? Mary might have saved and invested several years to open a small business. She might have put it toward private schooling or music lessons for her child, or any number of things that might have made her, and possibly the U.S., wealthier in the future.
How about Congress’ mandate for more fuel-efficient cars? According to a National Research Council of the National Academies of Sciences 2002 report, delivered by Leonard Evans to the Washington-based Competitive Enterprise Institute, Corporate Average Fuel Economy (CAFE) standards have contributed to between 1,300 and 2,600 traffic deaths a year.
Congress’ mandate for higher gasoline mileage leads to the production of lighter, smaller and less crashworthy cars, resulting in unnecessary deaths. Through technological innovation and natural market forces, cars were already becoming more fuel efficient before CAFE standards were mandated. More important, how does Congress know this loss of life is worth the amount of fuel saved? Do they even know or care about the tradeoff?
As usual, Williams speaks common sense to power. Well worth reading.