How Modern Economics Has Lost Its Way: It’s All About the “Unseen”
Economics has lost its way and the study has become both impotent and lacking in relevance. It’s easy to see how and why once we recognize that proper economic thinking takes place two steps beyond the apparent. Noneconomists typically take none of these steps, while modern economics has lost the ability to go beyond the first.
This can, I think, be explained by economics’s increasing adoption of and reliance on mathematical and equilibrium models, which typically disallow the second step.
What are the steps?
They involve going beyond what is directly observed to uncover first the immediate or atemporal tradeoff and then the temporal dimension of the tradeoff in an overall process.
Frederic Bastiat famously distinguished good and bad economists by their ability (and inability, respectively) to see the “unseen.”
What he meant by this is that there is always a tradeoff: something else could have taken place had it not been for the immediate cause of the observed situation. In other words, it focuses on proper economizing through imagining the counterfactual. Proper social theorizing can go nowhere without this fundamental insight.
For Bastiat, it is illustrated by a shopkeeper’s broken window. Since the window was broken, the shopkeeper will give the glazier more business. Isn’t that a good thing? Yes, considering only what we can see, this obviously means more business for the glazier, who in turn can, perhaps, invest in his business, buy more inputs, etc. But to be able to assess this situation from an economic point of view, notes Bastiat, we must also take into account what would otherwise have happened. If we only consider the broken window’s outcome, then it would appear as though destroying things would overall be a good investment. Or, to put it differently, a war would make us much more prosperous than peace.
Similarly, by this analogy you should set your own house on fire.
This is a preposterous thought, and it is so because it does not consider the counterfactual.
Bastiat notes that had the shopkeeper’s window not been broken, he would have done something else with that money, perhaps bought shoes. So by breaking the window, the glazier g
Article from Mises Wire