4 Types of 4 Types of PoliciesPolicies

Who Benefits Who Benefits From…From…

Why do politicians have Why do politicians have to make a choice? to make a choice?

Scarcity forces us to chooseScarcity forces us to choose

Unlimited wants > limited Unlimited wants > limited resourcesresources

Not making a choice is Not making a choice is itself a choice itself a choice

Based on perceptions of Based on perceptions of expected costs and benefits expected costs and benefits of alternativesof alternatives

Factors driving choices can Factors driving choices can be material, behavioral, be material, behavioral, moral, or some combination moral, or some combination of all three. of all three.

WHY ARE YOU IN THIS WHY ARE YOU IN THIS CLASS RIGHT NOW?CLASS RIGHT NOW?

Application of Opportunity Costs Application of Opportunity Costs Cost / Benefit AnalysisCost / Benefit Analysis It’s the best of your alternativesIt’s the best of your alternatives

Your decision might change if………Your decision might change if………

ScarcityScarcity

How then are these UNLIMITED How then are these UNLIMITED wants satisfied by LIMITED wants satisfied by LIMITED resources?resources?

A Price Must Be Paid…EVERYTHING A Price Must Be Paid…EVERYTHING HAS A PRICE!!!!! HAS A PRICE!!!!!

This is how it is decided who receives This is how it is decided who receives the resources that they want the resources that they want

Which brings us to our next point…Which brings us to our next point…

TANSTAA“F”LTANSTAA“F”L

There Ain’t No Such There Ain’t No Such Thing As A “FREE” Thing As A “FREE”

LunchLunch

NOTHING ON THIS EARTH IS NOTHING ON THIS EARTH IS FREE!!!!!FREE!!!!!EVERYTHING HAS A PRICE…EVERYTHING HAS A PRICE…

Costs and BenefitsCosts and Benefits

Cost: Any burden that a group must bear Cost: Any burden that a group must bear (monetary or non-monetary)(monetary or non-monetary) Widely distributed (income tax, social security)Widely distributed (income tax, social security) Narrowly concentrated (factory emission stand., Narrowly concentrated (factory emission stand.,

taxes on wealthy, gun control)taxes on wealthy, gun control)

Benefit: Any satisfaction that a group will Benefit: Any satisfaction that a group will enjoyenjoy Widely distributed (national security, federal Widely distributed (national security, federal

highways)highways) Narrowly concentrated (farm/dairy subsidies)Narrowly concentrated (farm/dairy subsidies)

3 Economic Reasoning 3 Economic Reasoning PrinciplesPrinciples

People choose, and gov’t choices People choose, and gov’t choices are the source of social outcomes.are the source of social outcomes.(#1)(#1)

ALL CHOICES INVOLVE COSTS (#2)ALL CHOICES INVOLVE COSTS (#2)

(people receive benefits and incur costs when (people receive benefits and incur costs when gov’t make decisions)gov’t make decisions)

PEOPLE RESPOND TO INCENTIVES IN PEOPLE RESPOND TO INCENTIVES IN PREDICTABLE WAYS. (#3)PREDICTABLE WAYS. (#3)(Choices are influenced by incentives, the rewards that encourage (Choices are influenced by incentives, the rewards that encourage and the punishments that discourage actions. When incentives and the punishments that discourage actions. When incentives change, behavior changes in predictable ways.)change, behavior changes in predictable ways.)

Majoritarian PoliciesMajoritarian Policies

Involve Involve widelywidely distributeddistributed costs and costs and widelywidely distributeddistributed benefits (Social benefits (Social Security, National DefenseSecurity, National Defense

AnalysisAnalysis Usually not dominated by interest groups; Usually not dominated by interest groups;

everyone benefits; interest groups benefit everyone benefits; interest groups benefit anywayanyway

When policy is adopted that everyone likes, When policy is adopted that everyone likes, debate ends (becomes “sacred cow” that debate ends (becomes “sacred cow” that can’t be touched)can’t be touched)

Interest Group PoliciesInterest Group Policies

Involve Involve narrowly concentratednarrowly concentrated costs costs and and narrowly concentratednarrowly concentrated benefits benefits (tariffs/taxes, de-regulation of business, (tariffs/taxes, de-regulation of business, abortion restrictions)abortion restrictions)

AnalysisAnalysis These tend to be fought over by int. These tend to be fought over by int.

groups: potential costs and benefits are groups: potential costs and benefits are great enough to devote great enough to devote resources/participationresources/participation

Client PoliciesClient Policies Involve Involve widely distributedwidely distributed costs and costs and

narrowly concentratednarrowly concentrated benefits (farm benefits (farm subsidies, pork barrel bills that use tax subsidies, pork barrel bills that use tax money)money)

Analysis:Analysis: Strong incentive for interest groups to Strong incentive for interest groups to

participate. participate. Costs are widely distributed; small cost; payers Costs are widely distributed; small cost; payers

unaware they are payingunaware they are paying Since interest groups benefit so much, they are Since interest groups benefit so much, they are

a a clientclient of the federal agency (Dept. of of the federal agency (Dept. of agricultue)agricultue)

Examples of PorkExamples of Pork Kentucky kickback?:Kentucky kickback?: $2.2 billion. That's the amount in additional cash $2.2 billion. That's the amount in additional cash

authorized for a project that involved a dam and decades-old locks on a river that authorized for a project that involved a dam and decades-old locks on a river that flows through Senate Minority Leader Mitch McConnell's home state of Kentuckflows through Senate Minority Leader Mitch McConnell's home state of Kentuck

Bridge to somewhere:Bridge to somewhere: This one's a lot less controversial than the river project This one's a lot less controversial than the river project money. Congress OK'd $450 million for rebuilding projects in flood-struck areas money. Congress OK'd $450 million for rebuilding projects in flood-struck areas of Colorado. of Colorado.

For decades of service:For decades of service: Frank Lautenberg served in the Senate for almost 30 Frank Lautenberg served in the Senate for almost 30 years. He died in June of viral pneumonia. This nation owed him a great deal. years. He died in June of viral pneumonia. This nation owed him a great deal. Congress has almost always approved a death benefit gift to the family equal to Congress has almost always approved a death benefit gift to the family equal to one year's salary, which they provided for Lautenberg's widow, Bonnie, in the one year's salary, which they provided for Lautenberg's widow, Bonnie, in the bill. (174,000)bill. (174,000)

Ssssh, we're getting a big check:Ssssh, we're getting a big check: There were more agencies that got big There were more agencies that got big money in the bill. Agencies that fight wildfires could get as much as $636 million, money in the bill. Agencies that fight wildfires could get as much as $636 million, depending on how bad it gets in the next year. The mine safety department is depending on how bad it gets in the next year. The mine safety department is getting a bump in the fees it can keep, a $1 million increase to $2.49 million.getting a bump in the fees it can keep, a $1 million increase to $2.49 million.

Entrepreneurial PoliciesEntrepreneurial Policies Involve Involve narrowly concentratednarrowly concentrated costs and costs and widelywidely

distributeddistributed benefits (consumer product safety, benefits (consumer product safety, deregulation) deregulation)

Analysis:Analysis: Strong incentive for payers to participateStrong incentive for payers to participate Widely distributed benefits doesn’t invite participationWidely distributed benefits doesn’t invite participation Policies often defeated by interest groupsPolicies often defeated by interest groups Despite this, policies are passed by people acting on Despite this, policies are passed by people acting on

behalf of unconcerned (Ralph Nader, Candy Lightner behalf of unconcerned (Ralph Nader, Candy Lightner are entrpreneurs) are entrpreneurs)