Bastiat and Stimulus
Matt Yglesias has a smart post up on Frederic Bastiat’s “What is Seen and What is Not Seen” essay, noting that ” the correct way to understand it is as precisely laying down the theoretical conditions in which stimulative policies do work.”
He goes on:
The bulk of his early cases proceed by referring to a number of situations in which apparently wealth-creating activities are not in fact creating wealth because the money to finance them has to be taken away from somebody else. This, of course, is precisely why fiscal stimulus doesn’t consist of simultaneously increasing taxes and spending. Instead the idea of stimulative policies is to either borrow money or else actually increase the stock of money. This basically covers the points about broken windows, demobilized soldiers, and public works. And note that on public works, even Bastiat explicitly says that increasing public works spending during hard times is smart policy even if it merely shifts prosperity from the future to the present.
I agree with all of this. The entire point of stimulus spending and expanded monetary policy, as opposed to simply paying people to break and fix windows, is to use borrowed money and an increase in the supply of money to boost consumer spending, financial lending, and eventually hiring. I think Bastiat makes some important points about demobilization and I think here and in other works he makes a strong case against protectionism, but I see nothing in this essay or elsewhere that really lays the groundwork for a broad, anti-Keynesian approach to managing a recession.
You don’t need to protect the candle-makers from the light of the sun in order to increase the money supply or spend money on new rail lines or patching up crumbling infrastructure. In fact, you don’t even need to break windows when enough of them are already broken.