The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
His example is that of a glassman. Suppose you are walking along the street one day and come across a tailor's store with the storefront's large pane of glass broken. Surely, you would soon see a glassman pull up in his truck, sweep up the broken glass, measure the window space, go to the back of his truck, pull out a new sheet of glass, and spend the rest of the afternoon installing the new storefront. The tailor, who owns the shop, will pull out his wallet and hand the glassman $100 for his troubles. "Wow! That's great," you say. The glassman has $100 new dollars to take home to his wife and family. That wife will take some of the money to the grocery store and purchase food and some of the money to the jeweler to buy a necklace. The grocer and jeweler will then in turn take their newly earned money and cylce it further and further into the economy. This observation inspires you. That night you decide to go around town breaking all the glass storefronts in town; generating a plethora of new business for our glassman, who will then give the money to his wife and in turn to the grocer and jeweler. You are, in essence, stimulating the economy. And the faster the wife passes the money to the grocer and the jeweler, the faster is the velocity of your new stimulus.
Hazlitt (and Bastiat) goes on to point out that you would be mistaken in this analysis. What is 'Not Seen' is the baker. Had the tailor been able to save his money, instead of paying the glassman, he would have bought his daughter a celebratory cake for her graduation. It is easy to 'See' the money pass hands from glassman, to wife, to grocer, to jeweler; but it is much more difficult to 'See' the baker, sitting idly in his shop with no demand for cakes, cookies, and sweets.
So what's the point of this lesson I am passing on? This. "Pipe Made in India Incenses Illionois Town". I just finished reading this article in the New York times, and it is a great learning tool. Besides its forced alliteration, the article goes on to lament about the fact that a union worker recently 'SAW' a train passing by with Indian steel piping aboard. The article continues to focus on the 'Seen' aspects. The town that is no-longer its once bustling economic center; the jobs that would be created if a congressional clause stipulated that piping be made domestically; the unfair 'dumping' being done by Indian and Chinese producers. All of this is easily 'seen'. What is not seen is the small business owner paying less taxes for cheaper steel; the local public school teacher getting a raise because her government saved money on steel and could afford to give her another $1,500/year; the janitor paying less for gas because the oil company used cheaper steel to bring in the Canadian oil. I feel badly for the small town and especially the man with 6 unemployed kids. But requiring the rest of the region to pay more for American, when a less expensive Indian alternative is readily available, is selfish. Using legislation to force a janitor to pay more for gas to support your kids would justifiably frustrated the janitor. Only the janitor would never 'See' this hidden cost.
There's yet another economics lesson to be learned within the article. Near the end, it talks about how the United Steelworkers union is teaming up with the Sierra Club to fight this problem. This lesson is about Bootleggers and Baptists. Here is an explanation of B&B:The 'altruists' in the NY Times article are the Sierra Club. They'll push for pipes that meet a more stringent standard in order to 'protect the environment'. But when the legislation gets written, I'd imagine the United Steelworkers will have their hand on the pen.
Both groups want to ban Sunday liquor sales. One out of concern for others. One out of self-interest. Politicians who support such a ban always invoke the altruistic motive. The altruists give cover to the self-interested advocates for a particular policy.
The altruists often inspire the general public to encourage politicians to "do something." But they lose interest in the details of the legislation. The bootleggers, the self-interested folk, spend a lot of time on those details making sure that the legislation is structured to line their pockets.