Wednesday, June 13, 2007

Ce qu'on voit et ce qu'on ne vois pas

One of Frédéric Bastiat's famous essays is "Ce qu'on voit et ce qu'on ne vois pas," in English, "That Which is Seen and That Which is Not Seen." In it, he argued that we often make the mistake of focusing only on the immediate and visible result of our actions without ever thinking about what we do not see. Bastiat wrote:

"Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil."

Even today, over 150 years after Bastiat's death, we still find intelligent people making the mistake of only thinking about the benefits they can see. Teenagers, politicians, broadcasters and real estate agents are notorious for doing this.

For example, in 2006, NPR reported on the improvements in Charleston, SC brought about by the devastation of Hurricane Hugo. Some people call the hurricane -- which caused billions of dollars of damage -- "the best thing that ever happened to Charleston" because it brought an insurance-fueled rebuilding boom.

They could see the boom. But they could not foresee its consequences. Now, homeowners and politicians along the South Carolina coast are up in arms because insurance companies are hiking their rates to cover the risk of another hurricane. Multi-million dollar homes now stand on some of the most geologically unstable and storm-exposed real estate in the world. The next hurricane to hit the coast won't hit throw-away, week-enders. It will pound prime real estate, and will cause damage many times the cost of Hugo. The insurance companies know this, and are adjusting their rates accordingly.

It was their money that rebuilt Charleston last time. It's their money that is at stake today.

No comments: