Mr. Summers is a former member of the staff of the Foundation for Economic Education.
More than one hundred years ago the great French economist, Frederic Bastiat, wrote his classic essay, "What Is Seen and What Is Not Seen in Political Economy!”1 Can such an essay, written in a different time and a different land, have something to say to today’s Americans? It certainly can!
Bastiat pointed out, in brilliant fashion, the universal truth that you can’t get something for nothing. To most people this seems perfectly obvious. Yet many of these same people forget all about this "obvious fact" when the conversation turns to economics!
They say: "Look at all the good that government spending does. Look at these fine public works. Consider, if you will, the many jobs these public works create. Surely you wouldn’t suggest that government spending be reduced when so many jobs depend on it."
The concrete results of government spending are what is seen. What is not seen is what would have happened to the taxpayers’ money if it hadn’t gone for taxes. "What would have happened?"
The money would have been spent or saved. If it had been spent then it would have created jobs in the private sector just as jobs were created in the public sector, except that people would have been spending their money on what they wanted.
If it had been saved then, directly or indirectly, it would have been invested and turned into factories, machines, and tools. That is, the money would have been converted into capital goods that create jobs for millions of workers.
"Then government spending really doesn’t increase employment?" That’s right. Jobs created by government spending are what is seen. However, they are only one side of the coin. The other side is the jobs that would have been created by private spending and investment if taxes weren’t so high. These jobs that government spending destroyed are what is not seen.
"But what about the public works that government spending creates?"
We are all aware of public works. They are what is seen. What is not seen are the vacations never taken, homes never built, appliances never bought, and who knows what else that never came into being because the taxpayers couldn’t afford them. They couldn’t afford these things because the money that would have paid for them was taxed away and spent on public works.
In evaluating public works, we must always remember that they came into being at the expense of whatever the taxpayers’ money would have created if the money hadn’t gone for taxes. Whatever the money would have created is, of course, not seen. It is, however, the price we pay for the public works that are seen.
The entire question of government spending is perhaps best perceived when one realizes that the government is not a source of wealth. The people themselves are the only true source of wealth. Hence the government can only give to the people what it has already taken from the people. You can’t get something for nothing!
Once one realizes that there are not, in fact, any economic benefits inherent in government spending, how does one decide upon its ideal level? It seems to me that the only way to decide is to consult that woefully neglected entity we call conscience.
How is this? What is the connection that takes one all the way from the affairs of state to one’s own innermost feelings?
The connection is simply this: We live in a republic. Thus, our elected representatives act in our names. The government is our agent!
Hence I should ask the government to do only that which I want to feel personally responsible for. To me this means that governmental expenditures should be restricted to those needed to protect people from humanly initiated force and fraud. Any government spending that goes beyond this must benefit someone at someone else’s expense. No matter how I look at it, my conscience tells me this is wrong.
I will not presume to tell you how you should feel about these matters. I am only beginning to know my own conscience! However, I do suggest that, stripped of economic nonsense by the works of such great men as Frederic Bastiat, questions of political economy are best resolved by consulting one’s own inner sense of right and wrong.
What better way could there be?
1 Frederick Bastiat, Selected Essays on Political Economy (Irvington-onHudson, N.Y.: The Foundation for Economic Education, Inc.), pp. 1-50.