Saturday, July 14, 2012

Those four T's

It is remarkable that so much economic analysis ignores the public choice dimension.  "Stimulus", for example, is presumed to be "well designed".  Instead, it is simply a collection of political favors and bail-outs.  Supporters then gasp at poor multiplier outcomes.  That's the position of Joe Stiglitz in this conversation. "Timely, Targeted, Temporary and Transformative: Crafting an Innovation Based Economic Stimulus Package" adds alliterative punch and much more.

But similar criticism must be directed at public policy analysis.  The overwhelming number of studies also ignore the political context.  An uncountable number of benefit-cost studies seek to identify economically sensible public projects -- as though that can ever be the whole story, or that it even matters.

In today's WSJ, Allysia Finley writes about the politics of California's high-speed train project.  "How Insider Politics Saved California's Train to Nowhere ... The high-speed rail line may never be built, but it will save a few Democratic seats."  It's an old story, but Finley also places it in the context of Governor Brown's current campaign to raise taxes on "the rich."
... Next year taxpayers will have to start paying interest on the rail bonds—about $380 million annually for the next 30 years—assuming investors bite. That's nearly as much as the governor is proposing to cut from higher education if voters don't approve his millionaires' tax initiative in the fall.
 This plundering of higher education should serve as a warning to voters who think that approving the millionaires' tax will somehow save them from one day becoming sacrificial lambs on the government's altar. Nothing is sacred.