Bylund discusses the far-reaching impacts of regulations, prohibitions, and even the prioritization of an individual’s desires in chapters five and seven of his 2016 book, Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives. By using analogies of familiar interactions and occupations, Bylund makes very abstract and difficult to understand concepts much simpler for the average reader.
In chapter six, The Seen and the Unseen, Bylund breaks down the idea that any economic choice has a far reaching impact in two ways: either the seen benefits and repercussions that come about from making an active choice, or the unseen ramifications that could have happened had the choice not been made. This can be a very confusing thought to wrap your head around, and sounds like a science fiction movie that revolves around parallel dimensions, but Bylund explores an example originally created by Frédéric Bastiat, a famous economist that I have discussed in previous essays.
In Bastiat’s example, the son of a shopkeeper breaks a window in his father’s shop. The shopkeeper is understandably frustrated, because he must now pay to have the window replaced. If a glazier charges the shopkeeper six francs, the glazier is then able to spend that money on whatever he wants (Bylund, 75). In the example given, the glazier buys ice cream, and the ice cream maker then buys higher quality milk from the farmer, who then buys better breeds of cattle from the breeder, and so on. Although the six francs that were originally paid to the glazier will not completely revolutionize the local or national economy, they do benefit a producer at every step along the way (the glazier, then the ice cream maker, then the farmer, then the breeder, etc.). These would be the seen effects of the broken window. The glazier immediately makes a profit, which allows them to spend money, giving a profit to other proprietors, who then can spend that money, and the chain continues (Bylund, 76).
The unseen outcomes from this scenario could only be true if the shopkeeper's window was never broken, or if the shopkeeper did not prioritize the repairs of a broken window. In this instance, the glazier would not have earned the six francs from above, and it would have stayed in the shopkeeper’s possession. Bylund imagined that the shopkeeper could then buy a new pair of shoes from a cobbler, who could then have bought better leather from a trapper, who could then have bought better traps, and so on. In this scenario, the six francs, and the profit they would bring, are still spent and distributed, but in a much different path (Bylund, 78).
Although both scenarios end with the six francs being used in a series of exchanges, the benefit of the unseen can be considered greater than that of the unseen. In the seen, the shopkeeper immediately loses six francs, only to return to the state he was in before the window was broken. That is to say, he is no better off, and has lost income that could be used in other ways. In the unseen, the shopkeeper not only keeps his window intact, he is able to decide how to use the six francs to better his life in whichever way he chooses (Bylund, 78).
The immediate transaction of the six francs after the window is broken could make one assume that broken windows are beneficial to the economy as a whole. Indeed, this idea is discussed by Bylund in the following passage:
”Is war beneficial? No, of course not. Wars destroy, and destruction is a loss. If we for a moment disregard the suffering and death experienced by people affected by war, the economic effect of war may be a post-war boom through increased economic activity and therefore increasing GDP statistics (what is commonly thought of as economic growth). But if we apply Bastiat’s lesson on wars, we immediately realize that there was value in the form of houses, roads, infrastructure, and supply chains that were destroyed in the war. The reason we see increased economic activity is that people have lost their homes and need to rebuild them quickly to have shelter, so they might work day and night for a while just to restore what they used to have (Bylund, 78).”
As you can see from Bylund’s analysis, just because currency is being exchanged and transactions are made does not mean that the economy is growing. The example of the window is very small, but shows the fact that the shopkeeper merely wanted to return to his familiar quality of life immediately, not that he had money to spare and simply wanted a new window (Bylund, 78).
Now that we share a basic understanding of how one incident can change the local economy for a short while, and (perhaps more importantly) how the effects of each action change not only what is, but what could have been, we can discuss the extent to which regulations and taxes can sway the economy on a much larger scale.
Bylund often explains these complex ideas through much more familiar analogies, and I think that makes them way easier to follow. To discuss the ideas of taxes and regulations, I think it is best if we use his analogy of a small town that has five nail smiths, three bakers, one construction worker, one apple-grower, and one policy-maker (Bylund, 107). In this analogy, the policy-maker dislikes the amount of soot that is produced by the nail smiths, as it pollutes the surrounding buildings. The policy-maker then creates a regulation that any nail smith that does not have a chimney that is at least twenty feet tall must pay a fee of five percent of their profits (Bylund, 108).
While this seems like a very simple solution, and would seem fair at a first glance, it actually favors the larger nail smiths. Those that produce more have more capital at their discretion, and can easily pay for their chimneys to be built taller. Smaller producers cannot afford that outright fee, so they must either raise their prices or continue as is, while paying the fee. If they raise their prices, they risk losing business to their competitors, who can afford to continue at the same price point. If they continue business as usual, they lose five-percent of their (already tight) profit margin, which could put them out of business (Bylund, 108).
This scenario directly changes the way nail smiths operate, but could spill over into other industries as well. For example, if two of the nail smiths go out of business, they may begin working for the construction worker, because the other three nail smiths are hiring them to build their chimneys taller. They could also work for one of the bakers, who could then produce more bread at a lower cost, improving their position against the other bakers in town (Bylund, 109). Very quickly, one regulation can begin impacting many industries in the same town, as summarized in the following quote:
“This reinforces the view of the market as an interconnected economic organism involved in decentralized production for individual consumption[.] It also shows how this organism responds to change by adjusting all affected production in stages just like the waves on a pond upset by a stone (Bylund, 110).”
Regulations allow business owners and entrepreneurs to choose whether or not they want to continue business in the regulated industry, but prohibitions make the choice on their behalf. Bylund explores this difference by imagining that policy-maker forbids nail makers from using forges at all, essentially crippling their industry in the town. Now, all five nail makers must close their shops, and can only liquidate some of their capital (raw materials, tools, etc. may be sold, but forges would have to be scrapped in order to have any value) (Bylund, 111). In this scenario, anyone who needs to use nails would have to spend more money to have them imported, and could not buy them locally.
Regulations allow successful businesses to continue their growth and production, only at a cost. Smaller businesses are often unfairly hurt by these regulations. Prohibitions, on the other hand, impact all businesses in an industry equally. Both ordinances will have a massive effect on the economy however, and will extend further than the industry directly affected.
Bylund’s analysis and investigation of the economy, and the ways in which he communicates them, are very interesting and intuitive. I found the reaching effects from even single trades and transactions can have very interesting, as I had not considered how much of a “ripple” they could have on the economy.
Bylund, P. L. (2016). Chapter 5: The Seen and the Unseen. 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: Taxation and Regulation. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 99–115). essay, Lexington Books.
