1:The Seen and Unseen: You have to think about more than just the obvious, easy to measure effects of an action, but also the hidden and more difficult to measure. This comes from Frederic Bastiat (1801 – 1850), my personal choice for “Best Frenchman”, famous for the Broken Window Fallacy which drives the idea home. The thought experiment behind the broken window fallacy roughly follows:
A boy in a small town throws a stone through a butcher shop window. The butcher comes out ready to smack the hell out of the brat, but the local smart fellow stops him. Addressing the crowd, he points out that hey, throwing the stone might be good! Now the butcher will have to pay the glazier for a new window, and the glazier, with all this new money in his pocket will be able to buy a new shirt from the tailor. The tailor will use that money to buy more books, and the book seller might use that money to buy more meat, so even the butcher will be better off! Look at all the economic activity that was triggered by the kid throwing the stone! How awesome!
The butcher replies “I could have used the money to buy a new shirt…”
Of course the butcher is correct: the town isn’t wealthier, they are poorer by exactly one window.
In this story, we can see and easily imagine the money changing hands, but it is easy to forget all the things that didn’t and won’t happen as a result. The glazier having more business and spending money is seen, you can watch him put in the window, collect his fee, buy his shirt, etc. You have to imagine what the butcher would have done, which is sometimes hard if you are not close to him. How often do we really think hard about the spending habits of our neighbors? Hell, given how many budget tracking apps there seem to be it doesn’t seem that we are any good about thinking hard about our own spending habits.
Taking it a step further, does the price of glass go up due to the increased demand? Does someone have to wait to have their window fixed because the glazier is now busy today and can’t get to them as soon as they otherwise would? What if it rains and causes damage to that person’s house with their broken window waiting to be fixed?
This all might seem obvious. “No kidding, Hammer, we should think about what might have happened too? Amazing insight!” Look around, though, and you will see the Broken Window Fallacy spouted all over the place, and people ignoring the unseen effects while lauding the seen. Dr. Paul Krugman (Noble Prize winner, no less!) makes this mistake in his June 27, 2013 NYT column, arguing that forcing the closure of extant coal plants would be good for the economy. Break those plants, and people will have to build new ones which will stimulate spending!
(Krugman makes this mistake strangely frequently, commenting that hurricane damage will be good for the local economy, or even alien invasion would be beneficial. One almost wonders if he hasn’t been replaced by a parody of himself whose sole purpose is to give economists something to write blog posts about. Google “Krugman broken window” sometime.)
The wisdom of considering the seen and unseen shows up in all sorts of contexts. We tend to measure human well being in terms of income. That is strange; people retire and go to essentially zero income, but that’s a good thing from their perspective. Are college students with their zero (possibly negative!) income having the worst time of their lives? Probably not.
Thinking of it, really we care about whether or not people are flourishing, living lives of meaning and happiness or some combination thereof. “Money doesn’t buy happiness” seems to be a true statement. Why do we focus so much on money then? Because it is easy to measure, and happiness is really hard to measure, and “meaning” is practically impossible.
Now, maybe income is a pretty decent proxy for happiness and meaning and other things we care about but are tough to measure. Fair enough. The problem arises when we then say “Well, things that improve measured income must then improve happiness and meaning,” which is not true at all. We forget that we are measuring what is convenient, not what we care about, and those things are not the same.
Thus the corollary:
Just because it can’t be measured doesn’t mean it isn’t important, and just because it can be measured doesn’t mean that it is important.
There’s a whole other post on what happens when you measure the wrong thing in industry, because as another adage puts it “you get what you measure”. Better hope that’s what you wanted.