Speech by Bob McTeer, former head of the Dallas Federal Reserve
Why Bastiat Is My Hero
Remarks before "2001, Bastiat’s Odyssey," organized by Le Cercle Frédéric Bastiat
July 2, 2001
I’m honored to be invited to speak to this distinguished audience on this important occasion in this wonderful setting. Let me hasten to confess that I’m not a Bastiat scholar—nor a scholar of any kind. I’m an admirer of Bastiat—a fan. I want to be like him when I grow up.
Since confession is supposed to be good for the soul, let me confess that I’m here today as a free rider. My invitation resulted from an article on Bastiat published by the Federal Reserve Bank of Dallas. While the article was my idea, I didn’t write it. My colleague Bob Formaini did. Bob and my French colleague, Erwan Quintin, are here to rescue me and keep me from drowning if I get out of the shallows and go beyond my depth—to use a phrase that may be familiar to you. [That’s what Joseph Schumpeter said happened to Bastiat when he ventured into economic theory.]
My introduction to Bastiat as a student was snippets from the Petition of the Candlemakers in economics textbooks. The brilliance of the Petition still thrills and inspires me.
I later read Joseph Schumpeter’s famous put-down of Bastiat as a brilliant economic journalist, but no economic theorist. This mean-spirited assessment offended me, but I accepted it at first as gospel. After all, Schumpeter’s History of Economic Analysis is a very thick book. It has gravitas. I don’t give that much weight to fat books any more. I prefer skinny books. But I was once young and impressionable.
Let me say parenthetically that while Schumpeter had his faults—especially his less-than-optimistic view of the future of capitalism and his down-his-nose view of Bastiat—he was good in most respects, notably in his focus on creative destruction and the crucial role of the entrepreneur.
Regarding Schumpeter’s negative view of Bastiat as a theorist, however, Henry Hazlitt said it best. He likened it to criticizing an apple tree for not bearing bananas. Hazlitt described Bastiat as
an economic pamphleteer, the greatest exposer of economic fallacies, the most powerful champion of free trade on the European Continent . . . . Anyone who has ever read and understood Bastiat must be immune to the protectionist disease, or the illusions of the Welfare State, except in a very attenuated form. Bastiat killed protectionism and socialism with ridicule.
Bastiat may have killed protectionism and socialism with ridicule, but I’m afraid he forgot to drive a stake through their hearts. Of Bastiat as an economic pamphleteer, Hazlitt said that his contributions were
no mean achievement, nothing to be treated patronizingly. Economics is pre-eminently a practical science. It does no good for its fundamental principles to be discovered unless they are applied, and they will not be applied unless they are widely understood.
[Introduction to Economic Sophisms, p. xiii]
I translate "pamphleteer" in today’s language as an editorial writer, a talking head on TV, a teacher, an economic educator. We at the Dallas Fed have an active economic education program, with publications, speeches, conferences and workshops designed to help teachers teach economics. I tell those teachers that if Bastiat is not already their patron saint, he ought to be. Our article on Bastiat was prepared for their benefit. In the same series, we also have articles on Hayek, Tocqueville, Hazlitt and, soon, Schumpeter.
While I no longer agree with the negative part of Schumpeter’s assessment, I do base my admiration for Bastiat on his brilliance as an economic journalist or pamphleteer. As for any perceived shortcomings as an economic theorist, I wonder how many theorists have done the world as much good toiling on the frontiers of pure theory? Adam Smith taught us the advantages of trade. David Ricardo refined Smith’s absolute advantage into a more universally applicable comparative advantage. But I’ll bet you can count such seminal contributions on your fingers and toes.
At least as valuable, as a practical matter, is the ability to teach the lessons of good economics to real people and their political representatives, making sound economics interesting, readable and understandable, and using it to shoot down dangerous myths and nonsense with wit, wisdom and good humor. Someone must teach good economics in the language of the common man and make the world safer for sound economic policies, whether the common man be Jacques Bonhomme, a.k.a. James Goodfellow, John Bull or Joe Six-Pack. (In Texas, his name is Dicky Flatt to the sophisticated and Bubba to the rest of us. Where I come from, Bubba is not the nickname of the German Bundesbank.)
The ability to move the frontier of economics closer to the people and the people closer to the frontier should not be underestimated or undervalued. I try to make it my business to narrow that vast gap—at least to half vast. Schumpeter was half wrong about Bastiat, but even if he had been totally right, Bastiat would still be my hero.
To be brutally honest about it, the intellectual bar for pure theorists is set pretty high. Most of us—by definition— don’t have IQs three standard deviations to the right of the mean and thus don’t qualify. What should we do? Do we tuck tail and watch daytime TV, or do we try to bring the message from the mountaintop down to the folks in the valley? After all, even Moses was only a messenger.
I may admire Bastiat, in part, because I share his perceived limitations. As Clint Eastwood’s Dirty Harry says, "A man’s got to know his limitations." I find myself under the tall part of the IQ bell curve—hopefully right of center but certainly with plenty of headroom. And frankly—for all our sakes—I’d rather have those in the right tail of the curve go into medical research rather than economic research. I want to live longer as well as better.
Besides the headroom problem, I didn’t have enough math before studying economics, so I didn’t become a "quantitative" economist. I’m not sure I became a "qualitative" economist either. But whatever I became, I got over it eventually. I identify with Glen Campbell, singer and expert guitar picker. When asked—condescendingly, I assume—if he could read music, he said, "Yes, I can read music, but not enough to hurt my picking." That’s my answer, too. I can read economics, but not enough to hurt my picking. Not enough to crowd out personal observation and common sense—horse sense, in Texas and Georgia.
One might say that I studied economics in English rather than math—the slow-talking version of English spoken in the American South. Our conference organizer asked me to speak slowly today because English is not the first language of many of you. Since I learned to talk in Georgia and refined my talking skills in Texas, some people would say English isn’t my first language either. The advice to talk slow was good advice but probably unnecessary. The downside of my Southern roots is that they add stretch to my goal of being like Bastiat when I grow up. I’ll have to be a Southern-fried version of a French satirist.
When I moved from the East Coast to Texas 10 years ago, I learned a Texas saying: "No matter who says what, if it don’t make sense, don’t believe it." I’ve taken that advice to heart. Since then I’ve tried to translate economic sense—which is often uncommon sense—into common sense. As a result, my colleagues think I have a good command of the obvious. But sometimes we must be reminded of the obvious. Obvious things like:
Abundance is better than scarcity.
More is better than less—if it’s a good thing.
We work to live rather than live to work.
We produce to consume, not consume to produce.
We export to import, not import to export.
We should overcome obstacles and inefficiencies to create wealth and prosperity, not create obstacles and inefficiencies to make work.
We should not break windows—that’s a bad thing, not a good thing.
Speaking of the broken window fallacy, Bastiat taught us that perhaps the most obvious need of all is the need to consider the unseen as well as the seen—to consider not only what happens but also what does not happen as a result of what happens.I know you got that because you’ve heard it before.
Closely related to the seen and the unseen, of course, are the half truth and the whole truth, the short run and the long run, the effects on special interests and interested parties versus the overall effects on everyone. I think we owe a debt of gratitude to Henry Hazlitt, who fleshed out these Bastiat concepts in Economics in One Lesson. Hazlitt does justice to Bastiat—which is saying a lot.
I try to emulate Bastiat’s willingness to state the obvious. For that reason, two of my favorite economists are former baseball player and manager Yogi Berra and comedian Richard Pryor. Yogi Berra is alleged to have said, "You can observe a lot just by watching." And Richard Pryor once famously asked, "Who are you going to believe? Me, or your own lying eyes?" They taught me to believe my own eyes.
Bastiat certainly observed a lot by watching. Empty docks and dried up commerce showed him directly the "benefits" of protection. As for abundance being preferable to scarcity, another of my favorite economists, the late actress and wit Mae West, put it almost as well as Bastiat when she said that "Too much of a good thing is just about right."
A recent example of denying or ignoring scarcity is the electricity mess in California. Californians for years have demonstrated a love of power and a disdain for power plants. Preferring clean air, they have built little new power-generating capacity in recent years. Then they "deregulated" a portion of their electricity market but kept price controls at the consumer level. As the cost of generating electricity and buying it from non-California sources rose, consumer price caps provided no market incentive for new supplies or reduced demand. They now want to "fix" the problem caused by consumer price controls, not by removing them but by imposing similar controls on wholesale prices. Meanwhile, they want the federal government to force non-California sources to sell them electricity at below-market prices—at prices that are "just and fair." Where is Bastiat when you really need him?
Among the many reasons to admire Bastiat and want to emulate him is his sense of humor. Everybody likes a good sense of humor if the joke is not directed at them. But Bastiat’s satire transcended jokes. It was directed at bad ideas, not bad people. It wasn’t mean-spirited—a lesson our fellow travelers should note. As we say in Texas, he could step on your toes without messing up your shine.
It amazes me how fresh and contemporary Bastiat’s writing sounds after 150 years and in a different language. The probability of the writing being that good must be multiplied by the probability of a good translation. With each probability presumably less than one, the fantastic outcome seems a miracle. I almost got quantitative there, didn’t I?
Not only does Bastiat’s writing sound modern, so do his topics. In the USA, we still hope for scarcity in the name of jobs. What I call the fallacy of job counting permeates and pollutes public policy. When I moved to Texas 10 years ago, two hot topics were the NAFTA debate and a big science project called a "Superconducting Supercollider," which was supposed to be built underground near Dallas. I could never get straight what such a thing was or what it was supposed to do. Smart people assured me it was a good thing. The problem for me was that press discussion was not about its merits but about job creation. I guess it would have become even more valuable if they’d struck rock while digging—with shovels or spoons, of course, and with left hands only.
The good guys finally won the NAFTA debate. In saying that, let me remind you that NAFTA is not a customs union. It reduces trade barriers among its members without increasing barriers against non-members. NAFTA has been hugely successful in increasing the volume of trade, especially between the U.S. and Mexico, taking advantage of comparative advantage. However, its old opponents are still opponents—trusting regulations and trade barriers more than liberty, self-interest and competition.
Of course, the confusion is compounded by the large and growing U.S. trade deficit. Deficits have minus signs, reflecting an excess of negative imports over positive exports. Even though double-entry bookkeeping guarantees overall balance, someone always insists on drawing a horizontal line across the middle and focusing on the half of the offsetting imbalances with the minus sign. After drawing a line through the balance of payments, they then want to draw a line in the sand.
My solution is to stop keeping foreign trade statistics. We don’t keep records on interstate trade between Texas and California, so we don’t know which state has the deficit and which has the surplus. And we don’t care. But if we kept the statistics, we would know and the deficit state would do something foolish to correct the "problem."
The folly of trade accounting can be illustrated by a song by genius Texas singer–songwriter and sculptor Terry Allen that reminded me of Bastiat’s ship example. In his song, Allen tells of a truckload of art to be delivered from New York City to California. The truck was filled with "the most significant piles and influential heaps of artwork ever to be assembled in modern times." But the truck turned over and rolled off the road and burned near the highway. It would have been a terrible sight if anyone had seen it. But in trade accounting terms, the outcome was ideal. New York exported the art, California didn’t have to import it, and the wreck created work for the highway patrol [Terry Allen, "Truckload of Art," from Lubbock (on Everything)]
Speaking of trucks and trade, trucks are the main mode of transportation across the Texas–Mexico border, and truck traffic has boomed under NAFTA. But there is a natural barrier between Texas and Mexico—the Rio Grande River. So the trucks have to use the bridges over the Rio Grande—bridges built, presumably, to facilitate the crossing.
But while the bridges were made for crossing, the hundreds of warehouses nearby were not. They were made for storing—that is, for not crossing. Or at least not for crossing without stopping first! The warehouses have come about as laws were made to keep "their trucks away from us" and "our trucks away from them." The way this works is long-haul carriers headed south must unload their cargo into border warehouses. The cargo is later reloaded onto short-haul carriers to cross the bridge, then unloaded so it can be reloaded onto yet another long-haul carrier that takes the cargo into Mexico.
The short-haul carriers, of course, do not back haul. They return empty from both directions, which doubles the number of crossings. Of course, all this activity creates jobs and local prosperity. You’ve heard somewhere of "negative railroads." Well, on the Tex–Mex border, we’ve got ourselves some "negative bridges."
I’m told it’s worse on their side of the border than on our side. I’m glad to hear it. On the other hand, our side failed to live up to our agreement to permit Mexican trucks north of the border. Mexican trucks just aren’t safe, don’t you know. Just as Mexican avocados—so fine south of the border—just aren’t much good north of the border. Luckily, our government is helping us make these judgments. Mexican sugar is another delicacy that the government has decided we don’t need at current prices. Those prices are just too low.
Making fun of international trade foibles is harvesting low-hanging fruit. Even though Bastiat delivered what should have been the coup de grace to protectionism, it’s necessary to retake old ground over and over. I’m always looking for the right rhetoric to win the trade argument, once and for all.
My favorite post-Bastiat line comes from Henry George, who pointed out that protectionists want to do to their own country during peacetime what the country’s enemies want to do to it during wartime—close its borders to imports.
During the NAFTA debates, I decided to try to emulate Bastiat’s use of satire in the cause of free trade. At the time, country music icon Merle Haggard had a song on the radio titled "Rainbow Stew," which describes his version of utopia:
When they find out how to burn water
and the gasoline car is gone,
When an airplane flies without any fuel
and the sunlight heats our home,
One of these days when the air clears up
and the sun comes shining through,
We’ll all be drinkin’ that free bubble up
and eatin’ that rainbow stew.
I wrote an op-ed piece (a pamphlet) titled "Free Trade and Rainbow Stew" that questioned, tongue in cheek, the loss of jobs if Merle’s fantasy came true. If we didn’t want cheaper goods from Mexico, then surely we wouldn’t want water and sunlight powering our cars and heating our homes. Think of all the lost jobs in West Texas oil fields.
Three national newspapers turned down my little masterpiece, two without comment and the third on the grounds that its readers might not realize it was intended as satire. I liked the title, "Free Trade and Rainbow Stew," so much that I really wanted to see it in print. So I shortened the piece and made the satire less subtle, and a newspaper in Austin, Texas, printed it. But they changed my title. So much for my brief fling as the Bastiat of Texas.
While we have country music on our minds, I should point out that I get much of my wisdom from country music. Much country music is done with three guitar chords. A while back I heard a song titled "Three Chords and the Truth." In it, Sara Evans sings, "He changed my mind with three chords and the truth." I immediately thought of the difficulty free traders have had changing doubting minds on free trade. We’ve had the truth since Adam Smith. What we’ve needed are the right three chords.
That reminds me of a story about Mark Twain and his wife, who wanted him to stop swearing. To show him how bad his swearing sounded, she imitated him, using every expletive she could think of. When she finished, Twain told her she had the words, but not the music.
More than most anyone else on the planet, when it comes to individual freedom and liberty, Claude Frédéric Bastiat had the words and he had the music.
Thank you very much.
About the Author
McTeer is chancellor of the Texas A&M University System and former president and CEO of the Federal Reserve Bank of Dallas.