4 Types of Policies

Who Benefits From…

Why do politicians have to make a choice? Scarcity forces us to choose Scarcity forces us to choose Unlimited wants > limited resources Unlimited wants > limited resources Not making a choice is itself a choice Not making a choice is itself a choice Based on perceptions of expected costs and benefits of alternatives Based on perceptions of expected costs and benefits of alternatives Factors driving choices can be material, behavioral, moral, or some combination of all three. Factors driving choices can be material, behavioral, moral, or some combination of all three.

WHY ARE YOU IN THIS CLASS RIGHT NOW? Application of Opportunity Costs Application of Opportunity Costs Cost / Benefit Analysis Cost / Benefit Analysis It’s the best of your alternatives It’s the best of your alternatives Your decision might change if………

Scarcity How then are these UNLIMITED wants satisfied by LIMITED resources? How then are these UNLIMITED wants satisfied by LIMITED resources? A Price Must Be Paid…EVERYTHING HAS A PRICE!!!!! A Price Must Be Paid…EVERYTHING HAS A PRICE!!!!! This is how it is decided who receives the resources that they want This is how it is decided who receives the resources that they want Which brings us to our next point… Which brings us to our next point…

TANSTAA“F”L There Ain’t No Such Thing As A “FREE” Lunch NOTHING ON THIS EARTH IS FREE!!!!! EVERYTHING HAS A PRICE… NOTHING ON THIS EARTH IS FREE!!!!! EVERYTHING HAS A PRICE…

Costs and Benefits Cost: Any burden that a group must bear (monetary or non-monetary) Cost: Any burden that a group must bear (monetary or non-monetary) Widely distributed (income tax, social security) Widely distributed (income tax, social security) Narrowly concentrated (factory emission stand., taxes on wealthy, gun control) Narrowly concentrated (factory emission stand., taxes on wealthy, gun control) Benefit: Any satisfaction that a group will enjoy Benefit: Any satisfaction that a group will enjoy Widely distributed (national security, federal highways) Widely distributed (national security, federal highways) Narrowly concentrated (farm/dairy subsidies) Narrowly concentrated (farm/dairy subsidies)

3 Economic Reasoning Principles People choose, and gov’t choices are the source of social outcomes.(#1) People choose, and gov’t choices are the source of social outcomes.(#1) ALL CHOICES INVOLVE COSTS (#2) ALL CHOICES INVOLVE COSTS (#2) (people receive benefits and incur costs when gov’t make decisions) PEOPLE RESPOND TO INCENTIVES IN PREDICTABLE WAYS. (#3) PEOPLE RESPOND TO INCENTIVES IN PREDICTABLE WAYS. (#3) (Choices are influenced by incentives, the rewards that encourage and the punishments that discourage actions. When incentives change, behavior changes in predictable ways.)

Majoritarian Policies Involve widely distributed costs and widely distributed benefits (Social Security, National Defense Involve widely distributed costs and widely distributed benefits (Social Security, National Defense Analysis Analysis Usually not dominated by interest groups; everyone benefits; interest groups benefit anyway Usually not dominated by interest groups; everyone benefits; interest groups benefit anyway When policy is adopted that everyone likes, debate ends (becomes “sacred cow” that can’t be touched) When policy is adopted that everyone likes, debate ends (becomes “sacred cow” that can’t be touched)

Interest Group Policies Involve narrowly concentrated costs and narrowly concentrated benefits (tariffs/taxes, de-regulation of business, abortion restrictions) Involve narrowly concentrated costs and narrowly concentrated benefits (tariffs/taxes, de-regulation of business, abortion restrictions) Analysis Analysis These tend to be fought over by int. groups: potential costs and benefits are great enough to devote resources/participation These tend to be fought over by int. groups: potential costs and benefits are great enough to devote resources/participation

Client Policies Involve widely distributed costs and narrowly concentrated benefits (farm subsidies, pork barrel bills that use tax money) Involve widely distributed costs and narrowly concentrated benefits (farm subsidies, pork barrel bills that use tax money) Analysis: Analysis: Strong incentive for interest groups to participate. Strong incentive for interest groups to participate. Costs are widely distributed; small cost; payers unaware they are paying Costs are widely distributed; small cost; payers unaware they are paying Since interest groups benefit so much, they are a client of the federal agency (Dept. of agricultue) Since interest groups benefit so much, they are a client of the federal agency (Dept. of agricultue)

Examples of Pork Kentucky kickback?: $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 flows through Senate Minority Leader Mitch McConnell's home state of Kentuck Kentucky kickback?: $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 flows through Senate Minority Leader Mitch McConnell's home state of Kentuck Bridge to somewhere: This one's a lot less controversial than the river project money. Congress OK'd $450 million for rebuilding projects in flood-struck areas of Colorado. Bridge to somewhere: This one's a lot less controversial than the river project money. Congress OK'd $450 million for rebuilding projects in flood-struck areas of Colorado. For decades of service: Frank Lautenberg served in the Senate for almost 30 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 one year's salary, which they provided for Lautenberg's widow, Bonnie, in the bill. (174,000) For decades of service: Frank Lautenberg served in the Senate for almost 30 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 one year's salary, which they provided for Lautenberg's widow, Bonnie, in the bill. (174,000) Ssssh, we're getting a big check: There were more agencies that got big 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 getting a bump in the fees it can keep, a $1 million increase to $2.49 million. Ssssh, we're getting a big check: There were more agencies that got big 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 getting a bump in the fees it can keep, a $1 million increase to $2.49 million.

Entrepreneurial Policies Involve narrowly concentrated costs and widely distributed benefits (consumer product safety, deregulation) Involve narrowly concentrated costs and widely distributed benefits (consumer product safety, deregulation) Analysis: Analysis: Strong incentive for payers to participate Strong incentive for payers to participate Widely distributed benefits doesn’t invite participation Widely distributed benefits doesn’t invite participation Policies often defeated by interest groups Policies often defeated by interest groups Despite this, policies are passed by people acting on behalf of unconcerned (Ralph Nader, Candy Lightner are entrpreneurs) Despite this, policies are passed by people acting on behalf of unconcerned (Ralph Nader, Candy Lightner are entrpreneurs)