People have an amazing ability to draw definitive conclusions while only considering one half of the equation.

Political philosopher Frederic Bastiat wrote an entire collection of essays illustrating this reality – That Which is Seen, and That Which is Not Seen

In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.

Every story exists within a frame. The frame consists of information that the writer considers “self-evident.” We all assume certain things are true and that truisms need no explanation. For example, a journalist wouldn’t write a story about a man falling from a roof and include a dissertation on the effects of gravity. The story exists nicely within a frame including the reality that objects fall. When it comes to something like gravity, frames present little problem, but when the author assumes something is self-evidently true when it isn’t – then we have problems. Frames can also get us into a lot of trouble when they only assume half the relevant information and ignore the rest – fixating on the seen and assuming the unseen simply does not exist.

I was pondering this yesterday because I saw an AP story breathlessly announcing rising home prices. This has media pundits all excited. They view it as a sign of an improving economy.

But consider the frame: rising housing prices = good.

Conversely, during the height of the recession, armchair economists bemoaned “falling home values.”

Question: why do we automatically assume rising home prices are good?

Of course, rising prices do represent a good omen for those considering selling property. But for buyers – not so much! They will have to pay more for housing!

Put it in another context. Can you imagine a newspaper reporter excitedly and enthusiastically writing about “rising milk prices?” Of course, not. They would place that story within a doom and gloom frame.  “Consumers will have to spend more for milk and dairy products at checkout in the coming months, squeezing wallets already hard hit by rising fuel prices. ”

They would completely ignore the great benefit enjoyed by dairy farmers as milk prices soar!

Of course, in the case of housing, we focus on values because many consider property an “investment.” Even so, rising home prices do not represent an across the board benefit. We should consider not only the obvious – what is seen – but also the unseen.

This wouldn’t matter nearly so much if it weren’t for the fact that policymakers use these frames to convince us that their intervention will provide great and wonderful benefits for all humanity.

Generally, not so much

It almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil.