What’s the difference between politics and economics?

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

One Response to “What’s the difference between politics and economics?”

  1. James Says:

    …or as Don Lucchesi in Godfather III defines it…..[economics] is like a gun, and “politics” is knowing when to pull the trigger.

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