Thomas Sowell, We cannot judge processes by their goals

The very way that issues are conceived tends to be different in politics and in economics. Political thinking tends to conceive of policies, institutions, or programs in terms of their hoped-for results—”drug prevention” programs, “profit-making” enterprises, “public-interest” law firms, “gun control” laws, and so forth. But for purposes of economic analysis, what matters is not what goals are being sought but what incentives and constraints are being created in pursuit of those goals.

We know, for example, that many— if not most—”profit-making” enterprises do not in fact make profits, as shown by the high percentage of new businesses that go out of business within a few years after being created.

Similarly, it is an open question whether drug prevention programs actually prevent or reduce drug usage, whether public interest law firms actually benefit the public, or whether gun control laws actually control guns.

No economist is likely to be surprised when rent control laws, for example, lead to housing shortages and fail to control rent, so that cities with such laws often end up with higher rents than cities without them. But such outcomes may be very surprising to people who think in terms of political rhetoric focussed on desirable goals.

The point is not simply that various policies may fail to achieve their purposes. The more fundamental point is that we need to know the actual characteristics of the processes set in motion—and the incentives and constraints inherent in such characteristics— rather than judging these processes by their goals…

From a political standpoint, this means that there are always numerous desirable things that government officials can offer to provide to voters who want them—either free of charge or at reduced, government-subsidized prices—even when these voters do not want these increments enough to sacrifice their own money to pay for them.

Ultimately, of course, the public ends up paying as taxpayers for things that they would not have chosen to pay for as consumers. The real winners in this process are the politicians whose apparent generosity and compassion gain them political support…

Most thinking stops at stage one. In recent years, former economic advisers to presidents of the United States—from both political parties—have commented publicly on how little thinking ahead about economic consequences went into decisions made at the highest level. This is not to say that there was no thinking ahead about political consequences…

Thinking beyond stage one is especially important when considering policies whose consequences unfold over a period of years. If the initial consequences are good, and the bad consequences come later—especially if later is after the next election—then it is always tempting for politicians to adopt such policies.


Facebook Comments