Module 8 Essay: An Op-Ed on Chapters 5: The Seen and the Unseen and Chapter 7: Taxation and Regulation in The Seen, The Unseen, and The Unrealized: How Regulations Affect Our Everyday Lives by P.L. Bylund
Alexis Del Angel
School of Business, Oklahoma State University – Stillwater
EEE 2083: Entrepreneurship & Society
Professor Steve Trost
3.18.2023
Module 4 Essay: An Op-Ed on Chapter 5: The Seen and the Unseen and Chapter 7: Taxation and Regulation in The Seen, The Unseen, and The Unrealized: How Regulations Affect Our Everyday Lives by P.L. Bylund
The following is an opinion piece of the readings over Chapters 5 and 7 of P.L. Bylund’s The Seen, The Unseen, and The Unrealized: How Regulations Affect Our Everyday Lives. I will start with summaries of the two chapters with my opinion in the conclusion. Bylund addresses The Seen and The Unseen influences on the market and economy, as well as, how taxation and regulation can create a ripple effect across the economy.
On: Chapter 5: The Seen and the Unseen.
Chapter 5 of Bylund’s book delves into the implications of optionality and choice in the context of exchange and production. The Seen and the Unseen intangible factors are shown and expanded to us throughout the reading with a nice use of Bastiat’s parable.
Bylund begins by establishing that exchange for consumer goods creates value but also causes ripple effects through the economy's production apparatus, influencing entrepreneurs' expectations and production plans. This puts the market in constant disequilibrium, searching for and adapting to bring about a better good with a better creation of value. This makes it imperative to properly analyze the effects of regulation on the market while keeping in mind that it is impossible to predict the outcome. Estimates of changes are not reliable as predictions, as the future is unlikely to be an exact copy of the past.
“More specifically, we can imagine the outcome of certain actions by tracing the likely ripple effects and therefore estimate the changes in terms of shifts in emphases: if the price of apples surges, we should expect more investments in apple-growing (as higher prices should mean higher profits) and increased demand in substitute goods (pears, oranges). [...] It is important to be careful, however, not to fall victim to fallacious reasoning by arbitrarily omitting important variables or focusing on only one side of the issue at hand. Such a common such fallacy was masterfully explicated by the nineteenth century French economist Frédéric Bastiat in his parable of the broken window, and is therefore often referred to as the “broken window fallacy.” (Bylund, 2016, p.75)
The quote highlights 2 major things; “change brings about changes that in turn bring about changes (Bylund, 2016, p.75)” and the importance of ignoring or focusing on only one variable.
“Bastiat tells the story of a shopkeeper whose son has happened to break a glass pane. Furious, the shopkeeper notes that the window needs to be replaced. His no-good son has, through his careless actions, caused a loss that needs to be covered. The shopkeeper has lost value equal to what it will cost him to replace the window pane, an amount that he likely had intended to not pay the glazier.” (Bylund, 2016, p.76)
By studying Bastiat's analysis of a parable about a shopkeeper's son who breaks a glass pane, the resulting net gain is revealed. In other words, the unseen that Bylund posits of. That net gain is considered a “multiplier effect” and is used to estimate the effects of policy based on the concepts of economic activity and value creation. Bastiat's parable illustrates the importance of focusing on what is not seen in order to properly analyze public policy.
Following the seen side of regulations, Bylund begins to illustrate the unseen with help from Bastiat. Bastiat argues that a proper economic analysis of the broken window needs to take into account the alternative outcomes, such as the opportunity cost of replacing the broken window. In other words, is it even worth dealing with the expenses of double-dipping and replacing? This is why it makes no sense to smash windows to create income for glaziers, but instead harm the glazier’s potential income. War is not beneficial, but it can lead to increased economic activity due to the value that has been lost. An important distinction in the benefit of economic activity following war is that it is one of value restoration, as people would have more options had war not happened at all.
The broken window in Bastiat’s parable represents a loss that the shopkeeper must cover by accepting lower profits, raising prices, or cutting costs in his business. Economic actors' preferences change, even as a result of a broken window, and entrepreneurs need to imagine the future and estimate if there will be enough broken windows to profit. Essentially, the value of a broken glass must be accounted for in proper estimates. Voluntary trade facilitates the flow of additional goods (choices) by those involved, thus increasing their well-being, but also creates a chain of empowering events that "ripple" through the economy. Understanding the flow of goods and values is essential for understanding the market.
On: Chapters 7: Taxation and Regulation.
Government regulations and policies have a large effect on production and productivity, and in this chapter, Bylund discusses said effects of taxation, prohibition, and regulation.
“There are several reasons why regulations may be ineffective, but the outcome of ineffective regulation is the same: no or at least insufficient change. Consider for instance regulation intended to force certain production techniques to be adopted in apple growing. The regulation is effective if it actually changes Adele’s behavior away from the technique she is currently using (if we assume it is an unwanted technique) and instead toward techniques that are considered better from the point of view of policy-makers. We would consider the regulation ineffective if it does not change Adele’s behavior at all or if it changes it too little to accomplish the intended outcome. The regulation would be a failure if it changes behavior in the wrong way.” (Bylund, 2016, p. 102)
Regulations can be effective or ineffective, depending on the type and scope of the law, and the difficulty or cost of upholding the mandates. Ineffective regulations are those that are difficult to measure or costly to uphold. This consequently creates a lack of threat for actions violating a regulation due to a lack of resources, power, or political pressures. The effectiveness of government and its attempts at regulation is dependent on the silent majority sanctioning or at least accepting its claim to influence (legitimacy). Regulation is an attempt to steer the market indirectly by offering differential incentives, creating an uneven regulatory burden across the market and distorting the playing field where the entrepreneurial "game" takes place.
Regulation in the form of outright prohibition of certain types of production changes the cost structure and affects the overall choice set. It shifts the boundary of what is legitimate or lawful action, making it a "black or white" issue. Prohibition has a greater effect on the market's ability to satisfy consumer wants than regulation, as it restricts the optionality of consumers and producers, making their preferred production impossible. Regulation can be seen as a restriction on market action, while destruction causes the reallocation of resources to make up for the loss. It is important to treat destruction and regulation differently, as they have different effects on the market.
Conclusion
In conclusion, Bylund gives a clear and insightful analysis of how taxation and regulation can affect our everyday lives. In particular with respect to our optionality. He shows how regulations interfere with this process by creating artificial scarcities and inefficiencies. Whether the use of subsidies, prohibition, or ineffectual regulations. I found it interesting that Bylund recognizes that the economic revival we see after an area has been through war is one of economic restoration and not of growth. This is compelling because as it has long been criticized The U.S. has arguably engaged in a war economy going on 20 plus years all in the name of the economic activity it provides. Even within the 21st century Ukraine right now is slowly becoming a proxy war (if not already) not to dissimilar to the Afghan war, a proxy war over resources so that capitalists can gain more capital. So, it is nice to see Bylund recognize that when something is robbed of its resources connections an ability to create infrastructure then they economic activity afterwards to not rightfully be called growth. For if they had already had it to begin with they wouldn't need a whole new foundation to build on. Bylund seems to be aware of the pitfalls in capitalism and that's nice to see.
This was a great read and I feel like these chapters were really informative. Bylund stressing the importance of entrepreneurs to understand taxation regulation and prohibition and how all those things affect us is admirable, As it is something that may seem obvious but requires constant upkeep.
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References
Bylund, P. L. (2016). Chapter 5: The Seen and the Unseen. In The 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 The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives (pp. 99–115). essay, Lexington Books.