The Labor Department released another abysmal jobs report for June. While unemployment dropped to 9.5%, the U.S. economy lost 125,000 jobs. The drop in the unemployment rate was largely due to discouraged workers leaving the job market. With all the stimulus the federal government has been pumping into the economy, why isn’t the job situation improving? For the answer we must turn to the 19th century French economic journalist, Frederic Bastiat.
Bastiat is notable for establishing a common sense approach to economic issues. Specifically, he wrote of the seen and unseen actions of economic policies. For example, if money is spent on one item it cannot be spent on another. This analysis has major implications to the role of the federal government in creating jobs and reducing unemployment rates. If the federal government spends money on creating jobs, that is less money that can be spent by the private sector.
AFL-CIO chief economist Ron Blackwell is not a student of Bastiat. Recently on a Fox News appearance, Mr. Blackwell touted the great impact that stimulus measures are having on the economy while also managing to create a YouTube sensation by using vulgar language directed at host Neil Cavuto.
Blackwell’s contention was that it was necessary to increase spending in order to create jobs and temper the overall effect of the recession. This is logic that is typical of economists that Bastiat would label “bad.” Notable members of the bad economist club include Paul Krugman, Larry Summers, Christina Romer, and Austan Goolsbee.
The credentials of these “experts” are impressive and undeniable. They have matriculated from some of the most elite institutions the world has to offer. So the problem is not that they are under-educated but rather that they lack foresight. In discussing public works projects, Bastiat stated, “in noting what the state is going to do with the millions of francs voted, do not neglect to note also what the taxpayers would have done – and can no longer do – with these same millions.”
Here we arrive at the most salient point in categorizing good and bad economists. A bad economist will evaluate only what is created by stimulus measures and the jobs that are provided. These are the factors that are seen. A good economist however, will note both what was created with the money and the amount of money that could not be spent on other endeavors due to its allocation by the government for specific projects. This is what is both seen and unseen. Economists who ignore the unseen factors of economic policies are guilty of creating false perceptions and ultimately contribute much chaos through their misleading analyses.