There must be a reason why I protection or the Welfare State is so popular and has made such headway in our country and throughout the world.
Undoubtedly it is because many people believe it is the best way to relieve poverty and promote more general prosperity.
If that is true, then why do they so believe? Could it not be because the material results of protection, in whatever form it takes, are both concentrated and obvious, while the costs, the consequences, are diffused, concealed, spread out in small amounts? Force is usually quicker and more noticeable than persuading — getting a person to think and reason.
When the State gives a man material assistance or protection from competition, it relieves him immediately and temporarily of part of his problems. It is so concentrated and concrete, it is easy to see, while the taxes for this particular protection are diffused and indirect in most cases. Or when labor unions protect a worker from competition of other workers and he gets an increased money wage, it is easy to see. It is also immediate. In short, the benefits are concentrated and present and thus easy to see, while the costs, the disadvantages, are diffused and paid for in small amounts by many other persons and are thus harder to see. Superficially, the costs may seem to be postponed, as though the redistribution were yielding a societal advantage for a time; but this is strictly an illusion stemming from inadequate cost accounting methods. The actual costs, if they could be seen, are as real and as immediate as are the presumed benefits.
The union member sees he gets more dollars in his envelope and thus believes he is benefited. What he does not see is that if he can get temporary material benefits by striking, many other workers will do the same thing. Nor does he see that the employer has to get all the money he pays in wages from his customers — other workers. If he is not able to collect all costs, including wage payments, and if there are no profits or no hopes for profits, there are no jobs. This unemployment reduces production and increases prices. On the other hand, the more profits, the more competition between employers to hire help, the higher real wages will be. Also, the more competition in selling the product, the lower prices the employees have to pay. This is continuous and diffused and thus harder to see.
So all these extra labor costs are passed back to other workers, past or present, along with any extra costs that stem from lower production, unemployment, featherbedding, seniority, strikes, nonproductive business agents, lack of individual responsibility, and so on.
But these costs are diffused —a penny here and there on the hundreds of different items everyone uses — and they are thus harder to see. Besides, they are lumped with all other costs so that it is difficult, if not impossible, to know how much they total.
The same diffusion that takes place in labor unions’ added costs takes place in every protection or subsidy by the government — federal, state, county, city, or board of education. The added costs in the form of taxes are diffused and scattered over thousands of articles and are not as noticeable as the subsidies or the gain resulting from government or labor union protection.
Most people look at immediate wages or prices they get for what they sell under protection as all benefit, and fail to see the little additional prices added to hundreds of items they buy. Nor do they see that these added costs continue as long as the cause continues.
It is also difficult to see how a free and unhampered market benefits the worker because the benefits are on everything he buys though small on each item. The benefits are not in one lump sum. Nor are they temporary, as are arbitrary wages, but continuous and cumulative.
The benefit of personal charity also is concentrated and easy to see because it is a lump sum.
Many people believe the donor is benefiting mankind more than the person who puts the same wealth into tools that increase production, thus raising real wages and lowering prices in a continuous process. The benefits from more tools are so diffused that many people think continuous charity is more beneficial to mankind than furnishing tools that benefit everyone.
The duty of every person is to try to understand what means must be used if we are to have peace and more and more prosperity for all.
Those with practical experience in producing the comforts of life are convinced that the best way is for each and every person and the government to have respect and reverence for the creative energy of all mankind.
Free, private enterprise is not as spectacular nor as easy to see as the socialist way of temporarily diffusing poverty by eating up the seed corn — the tools — which will increase poverty in the long run. Free enterprise is the surer and so far the only known way of constantly improving the well-being of mankind.
What we need is not to be blinded by the transitory benefits of protection but to see the blessings that continuously follow the free, private enterprise system, even if it is harder to see — that the gain of one in creating wealth is the gain of all.
Saving the X Industry
If we had tried to keep the horse-and-buggy trade artificially alive, we should have slowed down the growth of the automobile industry and all the trades dependent on it. We should have lowered the production of wealth and retarded economic and scientific progress.
We do the same thing, however, when we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it. Paradoxical as it may seem to some, it is just as necessary to the health of a dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow. The first process is essential to the second. It is as foolish to try to preserve obsolescent industries as to try to preserve obsolescent methods of production: this is often, in fact, merely two ways of describing the same thing. Improved methods of production must constantly supplant obsolete methods, if both old needs and new wants are to be filled by better commodities and better means.
Henry Hazlitt, Economics in One Lesson