Deficit Denialism: Frederic Bastiat Actually Favored Expansionary Fiscal Policy in Recessions Edition
Matthew Yglesias:
Demand Denialism: I got to thinking about Frédéric Bastiat again yesterday since I saw an edition of some of his books in a bookshop window. So I went back and read his “What Is Seen And What Is Not Seen,” which I’ve seen a lot of people cite as the foundation for their opposition to stimulus policies. It’s an extremely insightful essay, but I think the correct way to understand it is as precisely laying down the theoretical conditions in which stimulative policies do work….
The bulk of the essay doesn’t acknowledge the genuinely stimulative possibilities of debt-financed or money-financed expenditures instead of tax-financed ones, because it doesn’t consider the possibility of debt-finance or money-finance. He does, however, eventually get around to discussing credit. Here he states that it would be impossible for the government to make society wealthier because “when a farmer borrows fifty francs to buy a plow, it is not actually the fifty francs that is lent to him; it is the plow.” And since society has a fixed stock of plows, if a loan guarantee leads a merchant to extend a loan to James that he otherwise wouldn’t have “It is not seen that the plow goes to James because it did not go to John.”... “In a given country and at a given time, there is only a certain sum of available capital, and it is all placed somewhere.”
This may well be approximately true most of the time. But it also shows us precisely the conditions under which stimulative policies are needed, to wit those times when much of the “available capital” is not in fact “placed somewhere.” There might be, for example, widespread vacancies of usable retail and office space. It could be that factory owners have machines that could run 24/7 but aren’t. Airports could have runway capacity that isn’t being used. Airlines could have planes that aren’t flying as much as they might. Trucks and freight trains may run despite not being filled to the brim…. [T]he more idling you have, the stronger the case that policies to expand the money supply, expand the supply of credit, or increase government borrowing will not simply crowd out existing activity…
It has always seemed to me that very, very, very few of the people who cite Frederic Bastiat have actually read him. Most have not even read all of "What Is Seen and Unseen". For example:
There is an article in the Constitution which states: "Society assists and encourages the development of labor.... through the establishment by the state, the departments, and the municipalities, of appropriate public works to employ idle hands." As a temporary measure in a time of crisis… this intervention… could have good effects... as insurance. It… takes labor and wages from ordinary times and doles them out, at a loss it is true, in difficult times...
And Frederic Bastiat looks to be four-square in favor of a well-run public option for the ACA:
Why Can't More People Read Frederic Bastiat?: O]ften, nearly always if you will, the government official renders an equivalent service to Jim Goodfellow. In this case there is... only an exchange.... I say this: If you wish to create a government office, prove its usefulness.... When Jim Goodfellow gives a hundred sous to a government official for a really useful service, this is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes. It's a case of give-and-take, and the score is even...
As a general rule, when you actually read the classical economists in depth you find that their modern epigones are considerably crazier than they were.
