Back in the 1980s one of the political phrases that came into vogue was “supply-side economics.” It was demagogued by the left on two fronts. First, critics insinuated that only the rich got tax cuts; in reality, Kemp-Roth tax reduction was across-the-board. Second, they misrepresented the supply-side concept as “trickle-down economics” – wealth transfer to the rich intended to spur business activity that will “trickle down” to lower income brackets.
One problem with the slur is that it regards tax cuts as a subsidy, basically the same as funding stadiums with tax dollars. In reality, tax cuts are the opposite of wealth transfer. Quoting Rush Limbaugh from memory, “It ain’t yer [the government’s] money.” Another is that it equates supply with the rich. Many businesses are not run by the rich. There are rich people (e.g. Randi Weingarten) who may invest in producers but do not produce anything directly; their direct economic activity is limited to consumption and/or rent-seeking.
The greater problem is that the “trickle-down” canard treats tax policy as the only factor relevant to spurring or hindering supply. Even as a political novice who had yet to hear the name Thomas Sowell I was able to figure out that supply-side economics concerned all such factors, and that demand-side economics revolved around all obstacles to consumption. Taxation is an impediment to both. The other great factor that government must address is its own laws. Regulations prohibit some or all parties from entering certain industries, or (more relevant to this discussion) they impose compliance costs on producers.
Likewise, demand-side economics should also address all barriers to consumption and not just tax rates (or resort to subsidy). If some regulations can depress supply, what other regulations depress demand?
Incentives Matter
Coyote Blog describes in the interconnection between incentives and results:
“Here is Coyote’s first law of incentives: There are always incentives. If they are not embodied in written performance metrics, then there are unwritten ones that rule behaviors. And these unwritten incentives are generally a) very powerful and b) almost never aligned with the greater organization’s goals.”
Coyote goes on:
“But in general, government employees operate in a vacuum without any positive metrics — they can’t prove themselves by meeting or exceeding this or that goal because the goals have not been assigned and are not measured. So the default metric becomes this: to avoid screwing up.
Government employees operate in a web of hundreds, even thousands of procedural rules.”
This has been a theme of his for years, incentives drive behavior which is Psychology 101. I have long argued, back to my academic days, that the utility rational actor theory was not a predictive tool regarding individual behavior but rather an analytical tool to discern the underlying incentive structure in an organization.
The incentive structure for public employees is built around risk aversion, not just because of the lack of performance metrics, but also because if you’re a public employee the last thing you want is an elected official or a lawyered-up member of the public coming after you. You also never want to be “above the fold” of a media story.
Worth Pondering
A man’s admiration of absolute government is proportionate to the contempt he feels for those around him
–Alexis de Tocqueville, from the preface to his The Old Regime and the (French) Revolution.
Translations of this passage differ: the one quoted above is from this version. A different translation renders the phrase as “contempt for one’s country.” The actual French phrase used in the original is son pays. Either way, the point is pretty similar.
Previous Worth Pondering post.
History Friday – The Other Alamo
(A repost from 2012, from my author blog – for the anniversary of Texas independence.)
The Texas Revolution and War for Independence from Mexico initially rather resembled the American Revolution, some sixty years before— a resemblance not lost on the American settlers in Texas. At the very beginning, both the Colonies and the Anglo-Texans were far-distant communities with a self-sufficient tradition, who had been accustomed to manage their own affairs with a bare minimum of interference from the central governing authority. Colonists and Anglo-Texans started off by standing on their rights as citizens, but a heavy-handed response by the central government provoked a response that spiraled into open revolt. ‘Since they’re trying to squash us like bugs for being rebellious, we might as give them a real rebellion and put up a fight,’ summed up the attitude.
A Serious Case of the “Mehs”
It seems that the Oscar Awards happened last weekend. Was there any reason to watch four solid hours of entertainment industry self-congratulation, aside from seeing if any aspiring starlet would parade in a completely transparent dress without any undergarments to speak of. On the day following, just about all the stories about the Oscars on my guilty pleasure of a mainstream newspaper, the English Daily Mail, concerned the fashions – or the bad taste displayed thereof – on the red carpet. There was only a single story or two about the movies and the awards garnered. Although the National Establishment Media organs try to sound chipper and upbeat about the broadcast and streaming audience for the Oscars … general interest in the event seemed pretty restrained.