Thinking Beyond Stage One (2004)

[...]... sources, but also the way that the media and the voting public see economic issues Both the media and the voters are prone to what might be called one -stage thinking ONE -STAGE THINKING When I was an undergraduate studying economics under Professor Arthur Smithies of Harvard, he asked me in class one day what policy I favored on a particular issue of the times Since I had strong feelings on that issue, I proceeded... about having a major effect on one' s own personal well-being It should not be surprising that the quantity and quality of thinlung going into these very different kinds of decisions differ correspondingly One of the ways in which these decisions differ is in not thinking through political decisions beyond the immediate consequences When most voters do not think beyond stage one, many elected officials... who think no further than stage one often regard the government's power to control prices as a way of reducing the costs of various goods and service, thus making them more widely affordable Such policies as "bringing down the cost of prescription drugs" or making housing "affordable" often seem very attractive when thinking no further than stage one However, even in stage one, there is a fundamental... time horizon seldom extends beyond the next election The general public as well behaves differently when making political decisions rather than economic decisions Virtually no one puts as much time and close attention into deciding whether to vote for one candidate rather than another as is usually put into deciding whether to buy one house rather than another or perhaps even one car rather than another... discussions about policies on a wide range of issues 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 Each of... desirability of the goals they proclaimed Once we start thinking in terms of the chain of events set in motion by particular policies-and following these events beyond stage one- the world begins to look very different Politics and the market are both ways of getting some people to respond to other people's desires Consumers choosing which goods to spend their money on have often been analogized to voters deciding... the presidents they served (Nixon and Clinton) was so successful politically that he was re-elected by a wider margin than the vote that first put him in office Incentives and 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... those responsible for such economic declines will probably escape political consequences, unless either the voters or the media think beyond stage one and follow the sequence of events over a period of years-which seldom happens.' There is another sense in which multiple stages must be taken into account, which may be easier to explain by analogy Imagine that a dam can be emptied into a valley and that... are-and what the economic realities are that they may overlook while pursuing their own political goals Such one -stage thinking is not peculiar to the United States or to tax issues On the other side of the world, an Indian writer observed the same phenomenon as regards education reform: No one bothers about education because results take a long time to come When a politician promises rice for two... are other things that the money could be spent on after having acquired a given amount of a particular good or service For example, although it might be worthwhile spending considerable money to live in a nice home, buying a second home in the country may or may not be worth spending money that could be used for sending a child to college or for recreational travel overseas One consequence of incremental . require thinking beyond the immediate consequences of de- cisions to their long-term effects. Because so few politicians look beyond the next election, it is all the more important that the vot-. politics has its own principles and imperatives. It is not just that politi- cians' top priority is getting elected and re-elected, or that their time horizon seldom extends beyond the. issues. Both the media and the voters are prone to what might be called one -stage thinking. ONE -STAGE THINKING When I was an undergraduate studying economics under Profes- sor Arthur Smithies of