Bastiat and “Full Employment”

Matthew Yglesias makes the same mistake as Brad DeLong, thinking that Bastiat’s argument against breaking windows applies only in conditions of “full employment.” Bastiat “doesn’t counter any Keynesian or monetarist points about the viability of stimulus during a recession induced by nominal shocks, it involves assuming that no such recessions can occur even though they plainly do . . . . [T]hat’s no excuse for people sitting around in 2012 to be pounding the table with an old book that’s non-responsive to modern issues professing to be baffled why people don’t find it more persuasive.”

Of course, Bastiat’s brilliant demonstration of hidden costs and the fallacy of spending one’s way into prosperity assumes nothing of the sort. But Yglesias, inadvertently, makes an important point, namely that Bastiat’s defenders should spend more time on “full employment,” a concept that isn’t even coherent, given that efficiency in resource employment makes sense only with regard to the subjective production plan of the entrepreneur (cf. Penrose, 1959Kirzner, 1966).

W. H. Hutt’s powerful and underappreciated critique of Keynes, The Theory of Idle Resources (1939) attacks this core Keynesian concept. As Hutt explains, all resources have alternative uses, and even “idleness” is a use, in the sense that the resource owner prefers to hold the resource for a future, as-yet-unavailable or unimagined use — a real option, if you like. Dragooning such resources into some random use, outside the price mechanism, serves no productive purpose. Even outside the mythical world of “full employment,” there are no free lunches. The modern Keynesian and monetarist approaches that impress Yglesias have yet to confront this basic problem.

See also Sheldon Richman.

Comments

  1. This is the problem I have with Bastiat’s exposition. His argument is “If he didn’t spend the money to replace the window, he’d have spent it on shoes or books.” But, this leaves him open to the Keynesian “What if he doesn’t?” So, we need Hutt’s point – which is really unobjectionable. Who claims that we should all work 24-7? No one. We all know that “idle labor” is leisure – and that sometimes leisure is the best use of our time. People only want jobs because they provide income that allow us to buy things we want. If I could have everything I wanted without having to work, I’d do that – and I suspect everyone else would, too. Who claims we should use up all our oil, natural gas, lumber, and such right now, saving none for the future? No one. We all know that saving some resources to be used in the future is a good idea, since the odds of the world ending tomorrow are slim.

    • Quite so. But isn’t everything always open to Keynesians?

      “What if he doesn’t?”

      Well, then nothing. He may want to lend the money to someone. Defer spending for bigger items later. Set up a retirement savings pool. Or he just decided to “go green” and not let Gaia suffer for additional goods he doesn’t need.

      This being unacceptable to our economist luminaries, they will ask politicians to force him to spend. Got money stashed in the bank? Negative interest rates will make you buy something, anything. Of course, burning money on non-deprecating assets that lay idle afterwards (well, maybe they can be taxed away) or consuming stuff nolens volens helps nobody. But than again, Keynesians suppose that savings can be faked up by the turn of the printing press.

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