What is time preference? It is the rate of exchange between present and future desiderata.
If you offer a 6-year-old child a choice between an ice cream today and five ice creams tomorrow, he will likely choose the one ice cream right away. He is exhibiting very high time preference (much as does Israel, unfortunately, upon some occasions; on this, see below). He will much more likely be a borrower, not a lender; a society composed of people with such preferences will have a very high interest rate.
An adult will demonstrate lower time preference, more patience, and will wait for the morrow to receive his award candy or ice cream; at any given interest rate, he will more likely than the child be willing to lend, not borrow; hence, a lower interest rate will prevail in an economy comprising such people.
What is this “seen and unseen” business of the headline? The economists most prominent in promulgating this concept are Frédérick Bastiat and Henry Hazlitt. In their analyses of public policy, they insisted that we all be aware not only of what is seen, what is obvious, but also of what is below the surface, what is unseen.
For example, we can all perceive that when a minimum wage law is instituted, or its level raised, some people, at least temporarily, will earn higher remuneration. What we do not see—and what is even more important—is the unseen: Workers whose productivity lies below the level stipulated by this enactment become not only unemployed but unemployable.
Similarly, with rent control. Yes, some tenants, at least initially, pay lower fees; that much is obvious. What is far less so is that this law retards investment in residential rental units, and with fewer of them around than otherwise would have been the case, rent levels increase, not decrease, and homelessness is created and exacerbated.
The present hostages now held by Hamas are the “seen.” We all know who they are. There are pictures of them everywhere decent people congregate. Evil-doers tear them down, but all civilized folk hope and pray for the eventual release of these captives. Our greatest fear is that all too many of them will be returned deceased.
Who are the unseen hostages? These are the Israelis and perhaps Jews elsewhere who will be seized in the future and used, as the present hostages have been for 11 long months now, as pawns in Hamas’s machinations. Who will these new hostage takers be? Some of them will be members of Hamas, Hezbollah, the Houthis, members of the Iranian military, and others of their proxies. We all know and are fully cognizant of the dangers likely to emanate from these sources. The Israel Defense Forces can indeed do something about all of them, and Godspeed to them in this task, but none of them are under the direct control of the Israeli military.
There is one exception to this general rule: the prisoners now in Israeli jails. How can these murderers and rapists be of any danger in the future to citizens of the only full democracy in the Middle East? Is it not true that these convicts are now safely under lock and key? Yes, it is. Is it not the case that the Israeli prison authority runs a tight ship and that escapes, let alone on a massive scale, are unheard of? This, too, cannot be denied. How, then, are they a threat?
They are a threat due to the economics of the seen and the unseen and to a wildly enhanced rate of time preference. The present hostages are seen alright, unhappily. But the future ones are all but invisible. We simply do not know, as of yet, which specific people will be captured after a period of time. They do not have any friends, yet, nor family members, who are demanding that the Israeli government drop all other considerations and release them at any cost. No, they are presently invisible. They are not yet hostages. They are unseen in this role.
That is precisely why they are in danger, not now, but in the future. Israel has, in the past, pursued a devastatingly counter-productive practice of releasing massive numbers of its jail inhabitants for very little value in response. Hamas leader Yahya Sinwar was one of more than 1,000 prisoners freed in trade for but one Israeli soldier. With that decision, Israel has unleashed the whirlwind upon itself. At that time, the returnee, Gilad Shalit, was seen. His family and friends were ecstatic with his return. All of Israel rejoiced. Those who were captured on Oct. 7, 2023, were unseen at that time.
Israel has, as a result, taken on an exceedingly high time preference rate. Yes, do indeed worry about, defend, and try to free present hostages held by Hamas, estimated at about 100 poor souls. But give a care—no, more of a care than at present—that every prisoner in Israeli jails released in the near term strongly implies a whole host of new Israeli hostages in the future.
The message, if we can extrapolate from these basic economic considerations, is do not, “never again,” engage in such foolish trades with bitter enemies.
