building nothing out of something

I was encouraged to read a book by Henry Hazlitt called “Economics in One Lesson”. In it, he stresses the necessity for economists to look beyond the short term and beyond what is easily seen. This is the distinction between good and bad economists; their ability to look at the “longer and indirect consequences” of an action. “Today is already the tomorrow which the bad economist yesterday urged us to ignore”, Hazlitt quips.

I am particularly interested in one proposition: anything created is also an unrealized opportunity for something else, something unknown. They say that economists are masters at pointing out the obvious, but this one actually surprised me. It is often difficult to imagine the things that never come to be, but I am now convinced it is a crucial mental exercise; finding the opportunity in "opportunity costs". If, as Hazlitt explains, a bridge is built and paid for by the government through taxation of its people, we should look beyond the jobs created and the awe-worthy structure that government has built. If we try hard enough we can “see the unbuilt homes, the unmade cars and washing machines” and even the uncreated jobs that would have come about had the bridge not come into existence. All this would have happened with the additional money that each individual would have to spend on the things they wanted had it not been taxed away from them. At best this represents redistribution from the many taxpayers to the few who benefit directly from its creation—at worst a potential squandering of prosperity. If, in fact, it was a necessary bridge, then such analysis would lend validity to its construction. If it was built for the purpose of creating jobs, a recurrent trend, then perhaps we should consider the alternatives.

This argument can easily be taken too far if you are fanatical about offsetting every action with its counter. But it is certainly worth a moment of thought when we are asked to accept at face value the good that government can bestow on its people.

Addendum: Just yesterday a friend was joking about the unreasonable craze that has come from the recent "swine flu". He said, "actually, more people die from the flu vaccination than do from the flu itself." We all laughed at the apparent ridiculousness of this fact. But what is the truth of this statement? In fact, my friend suffers from the same misconception that I recommend is all too prevalent in economics. We cannot compare the number of people that die from the cure directly with the number that die from the disease, given that the cure is administered. We must also consider how many would have died had the vaccination not been given; the outcome of the unseen possibility. I am sure this number would be higher than both the number that died from the flu and vaccination combined. Clearly I have ruined the joke, but at the expense of a more accurate understanding of reality.  (Gary Becker, a renowned behavioral economist, notes this fact in a recent blog about the economics of the pandemic here)