That Which is Unseen

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I just started writing this after the news broke that President Donald Trump will “pause” most of the tariff insanity with most non-Chinese countries for 90 days. Or some such. 

Frankly, I didn’t get into the details because he had me at “pause.” I’ve written and read a lot about Trump and his fakakta views on trade. But there is one point about economics that I’d like to get out of my head while it’s fresh and relevant. 

Last week, I cited a talk by Robert McTeer, the former head of the Dallas Fed. This idea stuck with me:

My solution is to stop keeping foreign trade statistics. We don’t keep records on interstate trade between Texas and California, so we don’t know which state has the deficit and which has the surplus. And we don’t care. But if we kept the statistics, we would know and the deficit state would do something foolish to correct the “problem.”

I liked this idea. So, on The Remnant, I asked our very own Scott Lincicome whether the world would be better off if we didn’t keep international trade statistics, basically putting him out of business. Scott gave a very good answer that changed my mind. No, he said, because the data we get from international trade is useful for making the case for free trade. Without that data, politicians would be freer to do stupid stuff. 

For instance, absent the evidence that it’s a bad idea, why not protect American washing machine manufacturers from foreign competition? I mean, those workers are Americans—and voters. It just seems right. And, heck, if you don’t have the numbers showing that it’s ineffective, inefficient, and counterproductive, then making the case against such protectionism is harder. 

Think of it this way: Ignaz Semmelweis was the doctor who figured out that obstetricians should wash their hands before delivering babies. The data showed that babies delivered by midwives had far lower maternal mortality rates than wards where professionally trained doctors delivered babies. The main reason was that the doctors would often go from conducting autopsies to delivering babies without washing their hands. (I’ve always thought it was gross that you wouldn’t wash your hands after mucking around in the innards of dead people, regardless of what was next on your itinerary. “Sure, I just yanked out some dead dude’s bowel with my bare hands. No need to wash up though, I’m only going to have some peel-and-eat shrimp now.”)

In 1847, he proposed that doctors at a Vienna hospital sanitize their hands, and maternal deaths dropped dramatically. But the broader medical profession rejected—even took offense at—his findings. It wasn’t until years later, after Louis Pasteur confirmed the germ theory, that surgeons started washing their hands as a matter of standard practice. Still, the point is, the data led us toward a better practice even if the explanation for why hand-washing was advisable didn’t come until later. 

In retrospect, I think it’s really weird that McTeer argued for a policy of blindness in a speech titled “Why Bastiat is my Hero.” Frédéric Bastiat was the author of the canonical essay “That Which Is Seen, and That Which Is Not Seen,” which lays out the parable of the broken window. 

For those unfamiliar, the gist is that people tend to only think about what is “seen,” without thinking about the unseen costs of an action. In the parable, Bastiat tells a tale about a kid breaking a store window. One of the onlookers says, “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”  

“Now,” Bastiat responds, “this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.”

From there he goes on to explain that the money it cost to fix the window could have been spent on something more productive. “It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.”

This is a wonderful introduction to the idea of opportunity costs, unintended consequences, and, most importantly, human intuitions about economics. Politicians constantly violate or ignore opportunity costs and unintended consequences, but I’ll skip that stuff and go straight to the point about intuitions. 

Free market economics are not nearly so intuitive as people who grow up in free market cultures often think. Not all intuitions are innate, some are learned. Soldiers are trained to have different intuitions in the face of enemy fire than normal people have. Bear trainers learn to have different intuitions than the rest of us when confronting a grizzly. It is a pretty natural human intuition to steal if you think you can get away with it. But parents and society try to teach people not to give into it. I honestly would have thought that washing your hands after doing gross stuff was a natural human intuition given how instinctively it comes to me. But, apparently not.  

This is basically the whole point of my book Suicide of the West. Teaching people to rise above instincts and baser desires is what civilizing means. Civilized societies—i.e. civilizations large and small—expect members to behave on more than raw instinctual desires.

To the extent our modern “economical intuitions” are different from our innate ones, it’s because we grew up in a very market-oriented culture. 

Here’s a true story. When I briefly lived in Prague in 1991, we called our favorite restaurant “the pork knee place,” because they served these giant haunches of roast pork. The knife and fork it came with were like a short, serrated sword and small trident. Anyway, the pork knee place was a popular joint during the communist days. Communist officials and other well-connected types had long eaten there. Not surprisingly, it required reservations. One time, we got there 10 or 15 minutes late. The restaurant refused to honor the reservation. Okay, fair enough. But instead of giving the table to someone else, they just picked the chairs up, put them upside down on the table, and didn’t serve anyone. For the proprietors, our failure to show up on time was an opportunity not to work. Forgoing what we would have paid—and tipped!—for our meal was worth it. For us, it was utterly bewildering. 

The Soviets never managed to create the New Soviet Man, but they got closer than some folks realize. 

Anyway, doing favors for friends and allies is natural. Protecting the seen while ignoring the unseen is natural. It’s especially natural for people involved in politics, modern or ancient. Politics is naturally transactional. Absent facts, data, and the application of reason to marshal arguments against special treatment for allies, favor-trading, protectionism, and the rest, politicians will resort to precisely these methods. We know this because that is often what politicians do despite the evidence. Because political interests for a given politician are only rarely perfectly aligned with the interests of the whole society.  There are virtually no good arguments for, say, rent control. But rent control endures in countless cities because the beneficiaries are politically organized and concentrated and the victims aren’t. We can see the beneficiaries, and politicians hear from them. 

Lincicome, a former well-compensated trade lawyer, made a really useful point about how to think about free trade policy. The whole point of free trade agreements is to get countries—i.e., the political leaders doing the negotiating—to “tie their own hands” as much as possible. Every country has some political sacred cows when it comes to trade. The French aren’t going to abandon their protection of stinky cheese and pretentious wine. Americans have an (irrational) opposition to foreigners owning farmland. The Swiss, despite not being Hindus, have their own Calvinist version of actual sacred cows. The trick is to constantly haggle over reducing the items on everyone’s list of political untouchables. I don’t think that will ever really change. But we can get closer. 

But let’s say we could have a global free trade regime. We have one in America. We have nearly complete free trade within the 50 states. I say “nearly” only because I think you could say that state or local regulations serve as de facto “non-tariff” barriers to more efficient commerce. California, for example, has all sorts of regulations that make gas and housing more expensive. Those regulations are mostly bad for Californians, but Californians get to make those decisions. Regardless, that’s an argument for another time.

My point is that internal trade statistics don’t matter very much because we have constitutionally locked-in free trade in this country. Tennessee can’t put a tariff on Wisconsin cheese and Wisconsin can’t tariff Maine’s cranberries. And we’re the richer for it. If we could do the same on a global scale, there would undoubtedly be unseen, or unforeseen, costs. But I think the benefits would outweigh them. And, as a result, tracking international trade statistics wouldn’t be all that useful or necessary. In a world of unbreakable windows, we wouldn’t need glaziers. 

This is a kind of micro version of a larger point. Rules, laws, customs, institutions, and things like science are necessary for civilization because we are flawed. And, to borrow a phrase from Francis Bacon, the “relief of man’s estate” is a perpetual project because humanity is always a work in progress.

“If men were angels,” James Madison said, “no government would be necessary.” It follows that if men were angels, we wouldn’t need all of that stuff we use to make humanity better. Schools? Why bother? Courts? Who needs them? Not only would we not need criminal laws, we also certainly wouldn’t need to track crime statistics. Angels don’t murder, so why track the homicide rate when it’s always zero? But men are not angels, so we have laws against crime and we keep statistics about crime to help us figure out how to have less of it. Trade statistics are really only necessary because they illuminate deviations from the ideal. Just as in a world of unbreakable windows, we wouldn’t need glaziers, in a world with angels for politicians, or in a world of actual free trade, we wouldn’t need trade statistics—or modern day Bastiats like Scott Lincicome.