The Seen and the Unseen
Bylund starts off chapter five by talking about how the market is always evolving, and it remains in disequilibrium almost always. This is actually a good thing, because it is producing growth.
In fact, why they want something is quite irrelevant since the task of entrepreneurs is to satisfy the wants that exist, or the ones that will emerge, in an economizing way—not explain why people want this or that. (Bylund, 2016, pp.73)
Early on in this chapter, Bylund made the statement above, and I thought it was something really interesting to look into. I think that in entrepreneurship, we are taught to really get to know our target customer. I struggle to see why it would be harmful to understand why a customer wants something. I think that there could be a lot of value in that information, because it might reveal if the want is short term or long term, and it can give other insight as well.
Bylund uses the example of an apple to discuss this ripple effect that he was talking about. He explains the importance of trying to understand the ebbs and flows of a market. However, he explains that we truly cannot predict specific numbers and percentages even if we have past evidence, because the economy is different this second than it was 1 second before.
Bylund then goes into detail over one of Bastiat’s most famous examples that explain this idea of the ripple effect. This is also the idea from which the title of the book is inspired from. To summarize, Bastiate gives the example of a shoekeeper broken window. The shoekeeper’s son broke the window and so the shoekeeper had to hire a glazier to fix it. He goes into an explanation that basically says that in order to measure the ripple effect, we must understand what percentage of the glaziers income from the shoekeepers broken window he turned around and spent. This side of the coin is seen. Bastiat then studies the other side of the coin and explains that even though there were positive economic outcomes from this example, this could not be the best case because if it were, then why wouldn’t people just go around and smash in windows all of the time? He now explained the unseen side of the coin. If the son had never smashed the window, then the shoekeeper could have used that money that he had to pay the glazier to do something else that was valuable to him. It is true that the window being fixed was of greater value to him than the six francs that he paid the glazier, but wouldn’t it have been better for him to keep both the six francs and the window?
If the window would have never been broken, the ripples would have still happened, but just in a different way. However, it is important to note that it is not bad that the glazier wants to have customers. So long as he is not scheming to make sure that a certain window gets broken, then there is nothing bad or unethical about this.
Destruction is consequently not a way toward increased prosperity, as we saw above, and cannot be thought of as an empowerment of those directly affected. (Bylund, 2016, pp.82)
Bastiat also brings in the example of war to tie up this idea. Often, in war times, there would be a large economic boom after a mass devastation in a certain area or town. Individuals and companies would rally together to bring the town back to life, this was an increase in an economic vibration. So, this begs the question, so then is war good? The answer is no. War brings death, devastation, and destruction. This is not a good or positive thing. The quote above sums up Bastiat / Bylund’s conclusion on this idea. (Bylund, 2016)
Taxation and Regulation
We were not assigned chapter 6 as part of our reading, but what Bylund summarizes it as in the start of chapter 7 sounded very interesting to me. He talks about this same idea that was discussed in chapter 5 but on a much larger level. For example, natural disasters will dramatically change peoples' valuation of different things.
the purpose of regulation is to change completely or influence behavior in some specific way to thereby cause a different outcome of the production and activities that take place in the market. (Bylund, 2016, pp.102)
I think that it is important to have this quote as a base of the following section. Bylund talks about effective and ineffective regulations. First, he talks about how ineffective regulations can look different in many different cases. An ineffective regulation is one that does not follow this rule in the quote above. An ineffective regulation does not actually change anyone's behavior. Bylund used the example of Adele and her apple orchard. He explains all of the different cases in which a government regulation could be ineffective if Adele happens to fall right outside of the scope of their stated regulation. This is actually a strategy that businesses often use to avoid regulations. It could also be true that a certain regulation is ineffective because it is nearly impossible to measure. For example, if there was a regulation on the number of apples that Adele’s orchard could produce, this may be ineffective, because Adele might have no way of measuring this or it might be really easy to not be truthful about this.
Another reason that regulations may be ineffective has to do with the policy-makers ability to enforce the regulation. Bylund uses the example of there being one small store in a small town. If this store is breaking regulations in order to stay in business, chances are that policy-makers are not going to enforce these regulations and risk this store closing its doors. A similar issue could arise if the general population does not respect or trust the policy-makers.
In the case of solar power, for instance, rather than offering outright subsidies, policy-makers can support this type of production through either (1) lowering existing taxes on production for the favored kind, or (2) introducing extra taxation on other kinds of production. (Bylund, 2016, pp.105)
So this is where taxation comes into the picture. In some cases, in order for the government to enforce certain regulations, they will alter taxes. Bylund states two different methods of the government in introducing regulations / making sure that they are effective. 1. Take a bad situation and make it better with a new regulation. 2. Take a good situation and introduce new regulations that make access increasingly difficult to everything except what the policy-makers find favorable.
Bylund goes into an example using 5 nail makers. In short, the policy-maker of the town put a regulation in place that forced all of the nail makers to either build a taller chimney or pay a fee per-nail-produced. He goes into detail about how each of the nail makers were affected by this. He explains how two of the nail makers went out of business and how they have to find a new line of work, and the other three therefore received more business. He also talked about how this affected the chimney maker (similar to the glazier earlier), because the three remaining did decide that it would be worth the investment to build a taller chimney as opposed to paying a fee. Bylund goes into deep detail about all of these things (which I cannot recount all of because I have a limited word count), but what he is ultimately trying to show is again the ripple effect that we discussed in chapter 5. The policy-maker did not put that regulation in place with the intention to alter the bread making industry, but ultimately that is exactly what happened.
Bylund then talks about prohibition. Prohibition is in its very own category of regulation because it is complete regulation. In the example that I just talked about, the nail makers were given a choice: build a taller chimney or pay a fee. This is not the case for prohibition. Prohibition completely disallows a certain thing. (Bylund 2016)
In conclusion, there are many different types of restrictions and there are different ways in which they relate to taxes.
Sources
Bylund, P. L. (2016). Chapter 5: Unbeatable, Imperfect Markets. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 73–82). essay, Lexington Books.
Bylund, P. L. (2016). Chapter 7: Unbeatable, Imperfect Markets. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 99–115). essay, Lexington Books.