Every intervention has a visible effect and an invisible one. Bad economics counts the first. Good economics counts both.
The idea is Frédéric Bastiat’s, from his 1850 essay What Is Seen and What Is Not Seen, and his example is still the best one.
The Broken Window
A boy breaks a shopkeeper’s window. A crowd gathers and someone offers a consolation: at least it’s good for the glazier. The shopkeeper pays six francs, the glazier earns six francs, and trade has been “stimulated”.
That’s what is seen. What isn’t seen is what the shopkeeper would have done with the six francs if his window were intact — new shoes, say. The shoemaker loses the sale the glazier gained. And the shopkeeper, instead of having a window and shoes, has only a window. Society is down one pair of shoes. Destruction doesn’t create wealth; it redirects spending from something new to replacing something lost.
The General Rule
Every resource used one way is a resource not used another way. That’s Scarcity, and its cost is the best alternative given up — the opportunity cost. Interventions are almost always argued for by pointing at what they produce and staying silent about what they prevent:
| What’s seen | What isn’t |
|---|---|
| Jobs “saved” at a protected factory | Higher prices paid by every buyer, and the jobs those savings would have funded |
| A subsidised stadium full of fans | Everything the taxpayers would have bought instead |
| Workers employed building a government project | The private projects that the tax money and labour would have built |
| A business saved by a bailout | The better-run competitor that would have bought its assets |
| Wages “protected” by a minimum wage | The workers never hired at all |
The seen side has faces, ribbon-cuttings and press releases. The unseen side has no constituency, because nobody knows which shoes they didn’t buy or which job was never offered. That asymmetry is why interventions are easy to sell and hard to undo.
How to Use It
Whenever someone points to a benefit, ask two questions:
- Where did the resources come from? Somebody produced them, and somebody else no longer has them. There is no free lunch.
- What would they have done otherwise? Those uses were chosen voluntarily, by the people whose resources they were, according to their own valuations. The intervention replaced their choices with someone else’s.
The answer to the second question is usually invisible — and that’s precisely the point. The price system would have directed those resources to wherever people valued them most. The intervention overrides that, and the loss never shows up on anyone’s ledger.
See also: Scarcity, Production, Lump of Labour, Central planning, Taxation