Politicians’ rhetoric suggests that they are interested in fairness and efficiency in economic policies that are good for the society as a whole. However, they end up implementing economic policies that might please a selective group of voters or sectors. The book “Advice and Dissent” by Professor Alan S. Blinder, Princeton University, affirms my view.
Blinder summarizes the gap between economists’ views on policies and politicians’ actions in what he calls the “Lamppost Theory.” Politicians use economists’ views like a drunk who uses the lamppost “… for support, but not for illumination.” Politicians do consult economists, who most likely advise politicians about the long-term and broader economic consequences of policies. However, politicians in the Congress or state legislatures (for example in Utah), end up enacting narrowly focused policies that may result in adverse economic outcomes in the future for most residents.
Let me first provide a couple of examples from Utah. In the 2018 general election, Utah voters approved expansion of Medicaid for Utahns with income of 138% of the poverty level. That would have included individuals with annual income of $16,800 and three-member families with annual income of $29,700. However, Utah politicians enacted the law that trimmed the benefit to only 100% of the poverty level. That left almost 60,000 Utahns without coverage, according to Vox.com.
This shortsighted policy, that suffered a loss of substantial federal dollars, ignores that those uncovered by Medicaid would show up in hospital emergency clinics, thus increasing the cost of health care for all Utahns. It also ignores that health capital is as significant as human capital in boosting productivity. Unhealthy people cannot hold jobs and be productive taxpayers. Utah had greater percentages of age-adjusted depressed adults than the U.S. from 2011-2017, according to ibis.health.utah.gov. CDC found in January 2015 that annually productivity from missed work cost employers $225.8 billion and $1,685 per employee.
Utah politicians’ shortsightedness is also reflected in their continuous narrow-minded approach to increasing gasoline taxes to finance roads and highways. An economically efficient and beneficent policy for the long term, with the recognition of emerging technologies in all sectors, would be a carbon tax on most sources of carbon dioxide (CO2) emissions, including automobiles (source of almost 50% of CO2emissions). It will raise revenue for projects, as well as curtail air pollution and temperature inversions that endanger the health of Utahns. Blinder recommends infrastructure banks in states. In Utah CO2 revenues could be deposited in such a bank.
At the federal level, Blinder provides many examples in his book. A prominent example is the tariff policy. President Trump has imposed tariffs on the importation of large numbers of products from China, EU and other countries, and many tariffs and their magnitudes are still being negotiated. Tax Foundation reported on Dec. 5 that the tariffs imposed, threatened and including retaliatory actions by other countries, will reduce growth rate by 0.67 %, wages by 0.44%, and worsen income inequality and full-time equivalent employment by 520,500 in the long run.
It is ironic that politicians forget the protectionist tariff’s experience in reducing trade that deepened the depression of 1930s. The Trump administration, persuaded by the short-term, narrow self-interest of some sectors of the economy, disregarded the long-term economic interest of other sectors. This policy is contrary to the U.S. leadership since World War II in reducing trade barriers among nations.
Another myth, a favorite of the GOP, is supply side economics. This pseudo-economic thought argues that a reduction in income taxes increases jobs, economic growth and reduces federal deficits. Credible research and an overwhelming number of economists have discredited this idea. However, the passage of the 2017 tax cut followed the same old recipe. It primarily benefited corporations (who already paid a very small share of the GDP in taxes as compared to other advanced nations) and the rich without any affect on growth, and created huge federal deficit (see Blinder).
The solution for getting out of the “Lamppost Theory” dilemma is a compromise between economists and politicians. Blinder proposes that politicians could authorize trained experts for some economic decisions. They already do that in some cases, for example, in monetary policy and military base closings. We could expand that to tax policy. Politicizing the fiscal policy creates uncertainty in the private sector, thus creating inefficiencies in business and work decisions. Lobbying to get the best deals from politicians creates wasteful expenditures, and in general, outcomes contrary to the desired outcomes.