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Donald Boudreaux

Get the full 'picture'

| Tuesday, July 26, 2016, 9:00 p.m.

A popular formula for television police dramas is to make it appear initially as if the murderer is Smith and then, only at the end of the show, have intrepid detectives discover that the murderer is actually Jones.

Such dramas also teach an important economic lesson — namely, don't leap to conclusions. The first act is not the full story. This lesson is not as trite as it sounds, for it's typically ignored by pundits and politicians who pontificate on economic matters.

Consider discussions of trade. “Imports destroys jobs! When I'm in office I'll get tough on foreign producers!” shouts a typical politician seeking votes. Yet such bloviating sounds sensible only to people who fail to look at the complete picture.

It's true that more imports of steel destroy some jobs in the domestic steel industry. But keep watching to see what happens next. The lower-priced steel enables domestic manufacturers of automobiles, farm equipment and machine tools to produce at lower costs. These domestic producers are thus able to sell more output. To meet these higher sales, these producers expand production. More jobs are created in those industries.

The dollars earned by foreign steel producers eventually are spent or invested in America. Some of those dollars return to America as demand for American exports, such as lumber and petroleum. In response, American exporters expand their production and hire more workers. The dollars that don't return to America as demand for American exports return instead to America as investments.

Even the dollars that return to America as foreign loans to profligate Uncle Sam are helpful. Increased foreign lending to Uncle Sam means that Americans lend less to Uncle Sam than otherwise — which frees up more American capital to be productively invested in the private sector.

The same reality holds for other government policies. Consider, for example, the occupational licensing of electricians. In the first scene we see consumers protected from electricians deemed by bureaucrats to be unqualified. Consumer safety appears to be enhanced. But keep on watching. The licensing requirement reduces the supply of electricians, which raises the fees charged by licensed electricians. These higher fees prompt many homeowners to perform do-it-yourself electrical wiring and socket replacements. The result of the licensing requirement might well be an increase in the chances that homeowners will be killed both as a result of doing their own electrical work and from the faultiness of their own projects.

Or consider the Food and Drug Administration. In the first scene we see citizens protected by the FDA from dangerous drugs. As we continue watching, however, we see the FDA's bureaucratic inertia and webs of red tape slow the approval of lifesaving drugs. These delays, in turn, inflict upon many people unnecessary suffering and death — tragedies for which no FDA bureaucrat is held accountable.

To understand economic reality requires us to keep watching past the first few scenes.

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.

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