SOME KEYS TO PUBLIC

POLICY ANALYSIS

 

 

#1.  The unique (sole?) strength (advantage?) of government is the power to coerce—legally.

 

By way of contrast-- with markets, while one may be dealing from a position of weakness (or strength), and while one may or may not like a market outcome, markets involve voluntary,  NOT coercive, transactions.  A person engages in a voluntary transaction if and only if he thinks that it makes him better off.

 

 

Read:  Walter Williams

            “The Legitimate Role of the Government in a …

            “Civilized People vs. Barbarians”

            Friedman  on Freedom

 

#2. Democracy defined:  three wolves and a sheep voting on what to have

for dinner.

 

     or

 

Might doesn’t necessarily make right.   (Why do we need a Bill of Rights in the Constitution?)

#3. Always pay attention to

      INCENTIVES

 

        or

 

“Show me the money”

 

  Point:  Be careful what you pay for,

              for you’ll probably get it

 

 

#4. Intentions v. Outcomes

     (They ain’t necessarily the same)

 

Good intentions don’t count for much.  With birthday presents, it may be the thought that counts… but with public policy, it ain’t that way.

 

“But I was only trying to…..

 

Observation:  whenever public policy

measures, grounded in the best of intentions, go awry, most often it is because the policy-makers failed to pay attention to (or perhaps understand) what kind of incentives

they were creating with the measure.

Create perverse incentives and you

invariably get perverse outcomes.

#5.  Be careful of partial equilibrium

       analysis

 

      or

 

“And now, for the rest of the story”

  Read  “The Broken Window”

 

 

#6  Transfers and Pareto Optimality

 

Given A:  A distribution is optimum whenever no event can increase the well-being of one person without decreasing the well-being of someone else.

 

Given B:  One cannot make interpersonal comparisons as to utility.  or, stated differently  “I only know what I like.”

 

Point:  Government takes a dollar from A and gives it to B.  B says he is better off.  A says he is worse off.  Has there been a net increase in well- being, or a decrease?  How can government (or any third party) know since it cannot see the utility function of either party?  If the transfer is from a higher income individual to a lower income individual, does this automatically increase the net well-being of the two parties?  If we can’t answer that question, how can we justify the transfer?  Thought:  maybe the utility function that is being played to

(maximized) is that of the transferring agent (even with good intentions and a pure heart) as opposed to the parties subject to the transfer.  Point:  It’s fun to “do good” with other peoples’ money.

 

 

#7.  TANSTAAFL

 

      or

 

Everything has a cost

 

Challenge:  listen to political speeches—how often do you hear references to “free lunches”, “free” this and “free” that?

 

Point:  the school’s “free lunch program” ain’t a free lunch program.  And the “free textbooks” or “free tuition” are not free.  Neither is the “low interest” loan a low interest loan if government has to subsidize the borrower.

 

Phil Gramm saying – anytime someone in the economy gets something for nothing, some taxpayer gets nothing from something.

 

Review (if needed):  any Principles text on definition and application of opportunity, or alternative, cost.  Many economists

argue that the concept of opportunity cost is THE MOST

IMPORTANT principle of the whole discipline of economics.

 

But, not all costs are the same.

Some matter a great deal and we cannot make good economic decisions without considering them, and others mean nothing—and should be ignored.

 

Never overlook “opportunity cost”

 

 

#8.   versus sunk cost

 

      or

 

     “Don’t cry over spilt milk”

 

 

 

 

A sunk cost is a cost that has been incurred and cannot be recovered.

 

Sunk costs have no significance in public policy (or even private) decision making.

 

“Once you get your bananas to market, it doesn’t matter what it cost you to produce them.”

 

 

#9.  Positive  Economics versus

        Normative Economics

 

        “What’s fair’s fair”

 

 Point: Don’t allow your personal value judgments to interfere with your ability to analyze objectively.

 

 

_______________________________

 

#10.   Good decisions are always

          made at the margin.

 

          Is it good public policy (or even

          private policy) to spend an

          additional $10 in order to save

          or produce $5?  Sound silly?

          Public officials do it constantly.

 

          Idiot Alert quotes:

 

          “We want to make sure that

           we have all the information

            before we make a decision..

 

          “If this program/bill/whatever

          saves only one life, then it will

          be worth it…

 

          Common failures to think at

          the margin:

 

           notion that we want/need to,

           or should eliminate ALL

           crime, all pollution, all

           poverty; that we want to make

           sure that everyone in the U.S.

           (or wherever) is able to read

           and write, that we should

           totally eradicate SARS, AIDS,

           or other disease of the week. 

 

           The question must always be

           in terms of “What is the added

           benefit attached to the NEXT

           dollar that we propose to

           spend on the endeavor?”