“Suppose you were an idiot, and suppose you were a member of Congress; but I repeat myself.” — Mark Twain
The great French economist Frederic Bastiat observed that “In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
The same is true in the sphere of public policy. The bad economist or the thoughtless politician (but I repeat myself) sees only the direct effect of a law; he doesn’t foresee the indirect effects. In many cases the politician may consider only the short-term effects that might help him win the next election; he may not consider at all the long-term effects.
Bastiat noted that “it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa.” So when a politician urges a great new solution to some problem – or typically, the same old ineffective solution to a problem – the long-term result very often is more harm than good.
One such example was alcohol Prohibition almost 100 years ago. The problem of alcohol may have been bad, but Prohibition made the problem much worse, to the point that Prohibition was later repealed. Another example was a luxury tax on yachts to “soak the rich”. Even a mediocre economist or a slightly thoughtful politician could have foreseen the disaster it turned out to be. The tax collected virtually nothing from the rich but did send many blue collar boat builders to the unemployment line. Two years later Congress repealed the law.
With the greatest intentions of reducing poverty, politicians have enacted policies that, in the short-term, help people survive one month until the next government check, but the unseen long-term effect is to trap people in poverty, sometimes for generations. If we truly care about helping people – and I think most of us do – then wouldn’t it be better to find long-term solutions that help people escape poverty?
As long ago as the 1980s, better economists and more thoughtful politicians saw the indirect effects of the welfare system – it “fostered a permanent underclass dependent on government handouts.” In 1996, a Republican Congress and Democrat President Clinton passed welfare reform with the goal of reducing the dependency trap and helping people escape poverty. Ten years later, The New Republic, a liberal magazine, looked back and editorialized that the reform “worked much as its designers had hoped [foreseen].” Since then, less thoughtful politicians seeing only the easily visible effects of welfare, and not seeing the long-term consequences, have undone most of the successful reform.
Our disability system likewise helps disabled people survive month-to-month but traps them in poverty. Wouldn’t it be better to find long-term solutions, using some amazing modern technology to help them overcome their disabilities, become productive, and no longer trapped in poverty?
Some short-sighted politicians want to extend the length of unemployment benefits beyond 26 months, but the long-term effect can be permanent unemployment. Studies have found that someone unemployed for more than six months has very little chance of ever getting a job.
Other bad economists and thoughtless politicians suggest raising the minimum wage. The immediate effect would be to slightly raise the pay for a small number of people – but cause others to lose their jobs. The long-term consequence would be to destroy many more entry-level jobs, making it harder and harder for teenagers to enter the work force.
When was the last time you saw a full-service gas station? That used to be a good first job for many young kids. Washing dishes was another good first job. Kids learned the self-discipline of showing up on time every time. While on the job they often picked up skills from the auto mechanics or cooks around them. But as the minimum wage rose, machines replaced those jobs. If it continues to rise, we will see machines taking orders for fast food, flipping burgers, and delivering the goods. The long-term effect of raising the minimum wage is disastrous for millions of young people.
Some politicians saw ObamaCare as a good idea; they did not foresee the terrible consequences. Today, some people think we will see good effects if we adopt the ObamaCare expansion of Medicaid. Not only do they fail to see the indirect, long-term terrible effects, they don’t even see the bad effects that have already occurred elsewhere. To put it simply, Medicaid is an inefficient, incredibly expensive program that provides even worse health outcomes than for people who are uninsured. Expanding it would cost even more than now predicted and would lead to much higher taxes.
To achieve better results – better economy, more good jobs, higher pay, less poverty, lower cost health care – we need to see not just the immediate effects of a policy, but to foresee the long-term effects.