The Homa Files

According to conservative economist Thomas Sowell is short-term thinking that ignores second-order consequences:

• A fundamental difference between political decisions and economic decisions: political decisions tend to be categorical, while economic decisions tend to be incremental.
• That is, when the public votes in a candidate, that decision lingers and is broadly applicable. Whereas, economic decisions are more transactional.
• As a result, the public can end up paying as taxpayers for increments of spending that they would not have chosen to make as individual consumers.

 * * * * *

• Politicians have a clear bias towards policies that will produce good results before the next election — even if they can be expected to produce bad results afterwards. That is, second stage — or second order — consequences are routinely ignored.
• For example, price controls may provide apparent short-term benefits, but have repeatedly shown that they ultimately constrained supply and create shortages.
• Another example: a second order effect of the Americans with Disabilities Act — which mandated reasonable accommodations to those with disabilities — was a decline in the employment of people with disabilities.
• Infrastructure spending — repairing bridges, roadways, dams, or government buildings — doesn’t provide an immediate, visible payoff. So, politicians defer spending on infrastructure unless there is some obvious defect that is both immediately visible and important to a large segment of the voting public.
• Political thinking tends to conceive of policies, institutions, or programs in terms of their hoped for results, not the realistically likely results.

Source: Chapter 1, Applied Economics, Thomas Sowell, Basic Books, 2010

This entry was posted on January 20, 2011 at 6:42 am and is filed under Economics, Thomas Sowell. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.