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Monday, June 30, 2014

Strategic Notes from FEE—Turning the Tables

July 2014

We’ve been writing a lot in The Freeman lately about new business models that use digital technologies in ways that enable individuals to do business with each other directly, without a traditional merchant in the middle.

Familiar examples include the Uber ride-sharing service, the Airbnb lodging service, the phenomenon of underground supper clubs, and the most dramatic of all, crypto-currencies such as bitcoin.

These new business ideas are an amazing trend. They harness the power of voluntary cooperation, making regulatory coercion look foolish and irrelevant. They provide a market mechanism for creating trust among strangers. They disrupt all manner of established commercial relationships, showing the principle of creative destruction in action. They enable us to show the creativity and ingenuity that arise when entrepreneurs operate in a largely unregulated environment like the internet. 

Perhaps most interesting from the perspective of FEE’s educational mission, they provide us with a rare opportunity to show our readers the unseen. I’m speaking here of the “unseen” that is described in Frederic Bastiat’s famous essay, “The Seen and the Unseen,” which became the inspiration behind Henry Hazlitt’s best-selling Economics in One Lesson.

It is a favorite tactic of politicians and their Keynesian apologists to direct the public’s attention to the visible products of government support for established enterprises, such as subsidies, tax breaks, bail-outs or regulations that restrict disruptive competition. They find situations where they can focus the cameras on sympathetic beneficiaries, while the hapless unknowns who pay the costs of this favoritism are left out of the picture.

The technocrats beam with pride as they appear at ribbon-cutting ceremonies to say, “Look at the marvelous works that we have caused your government to produce for the people!”

The defenders of free markets are hard pressed to respond. We know for sure that there’s no free lunch. We know that all resources expended by the government must have been diverted from the productive sector, so there is as much or more beneficial economic activity—somewhere, by someone—that has been suppressed in order to pay for this highly visible project.

At this media circus, however, we are left off to one side, waving our hands in thin air, shouting, “Look at all the marvelous works that did not happen as a result! Imagine all the unidentifiable people who have lost opportunities to make our lives better!”

The camera crews shrug, finding nothing to film. The crowd thinks, “These free-market theoreticians are asking us to believe in hypotheticals, while we can clearly see this impressive government project right in front of us.”

These disruptive technologies turn the tables on the apologists for government planning and control. Here, we can focus our cameras on the amazing new ways for entrepreneurs to improve the lives of ordinary people.

The servants of the status quo are left to wave their hands in the air about all the benefits of the Old Ways that their rules, regulations and restrictions are protecting. The victims of government zeal are not nameless and faceless, and the beneficial activity is not at all hypothetical.

The critical question to ask concerning government interventions is not what are we getting but what are we missing that would otherwise have come our way. We know that government interventions suppress entrepreneurship, creativity and opportunity for people to improve their own lives—this is what regulators do for a living.

However, it’s rare that we’re able to catch them in the act and see exactly what they’re suppressing. The entrepreneurs behind these distributed technologies not only make our lives better, they give FEE and The Freeman the opportunity to reveal the unseen, which is an amazing world of consumer service, innovative products, and a more prosperous life.

  • Wayne Olson is the Chairman of FEE's Board of Trustees and a former executive director of the Foundation for Economic Education.