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September 6, 2002

Right Policies for the Wrong Reasons

In the policy arena, opportunity is everything. Rarely do the turbulent waters of partisan politics part and allow meaningful changes to the cumbersome institutions and habits of our governments. So when the fire is hot, advocates of change have to be ready. And that can be true even when the problem that needs solving remains unaffected by the change.

Let's face it, many of us walk around with our favorite solutions in our back pockets, like the proverbial hammer, looking for anything that looks like a nail. To many a fan of, say, tax vouchers, smaller student-teacher ratios, or higher teacher salaries, there's hardly a problem besetting education today that can't use more of what we advocate.

But two examples of this process reveal the dangers of forcing the round peg of a policy change into the square hole of opportunity that circumstances may present.

One of these is the largely successful effort of the Bush administration to roll back federal taxes. Within Republican party circles, the notion that cutting back the size of government and reducing tax burdens is good for the economy has always been an easy sell. But the general population, and Congress in particular, have proved to be a less receptive audience.

But the soft economy in the immediate aftermath of the 2000 election proved to be an unexpected opportunity. Turning away tax cuts at a time when households were hurting, and the Federal government seemed to be awash in surplus, was a risk that few politicians seemed willing to take. Thus in an alleged effort to jump-start the economy, we passed in 2001 a tax cutting bill whose impacts will take years to arrive.

The irony is that the Bush tax cut is now under fire for doing exactly what it was intended to do, namely, restrain the growth of government. The inside-out reversal of the latest Congressional Budget Office's 10-year surplus projections, turning record surpluses into deficits in the blink of an eye, probably says more about that agency's rigid forecasting procedures than budget realities. But if the threat of deficits brings spending growth down a notch, then the cuts will have done their job.

A more difficult mountain to move has been Social Security reform. Economists and actuaries have known for at least a decade that the retirement of baby boomers will put a huge strain on our pay-as-you-go system, where taxes on those currently working foot the bill. Because the costs of solving that  problem are lower today, while most baby-boomers are still working, the slight progress that has been made in at least getting the issue of reform on the table is most gratifying.

But now even this glacial rate of progress on Social Security has been stopped dead. Why? Perhaps it has something to do with the brutal lessons being taught to us all by the slumping stock market.

With back-to-back years of returns in excess of 30 percent at the close of the last decade, the idea of diverting some portion of payroll taxes into private capital markets looked pretty appealing. Can those who are pushing reform be blamed for allowing that specious logic to stand uncorrected in the effort to keep the process going?

Now that the market has tanked, and foolish notions of an easy solution to Social Security's woes have been dashed, we suddenly find ourselves two years closer to a financial showdown with the momentum for privatization lost. Such are the risks when we push the right policies for the wrong reasons.

Link to this commentary: https://commentaries.cberdata.org/406/right-policies-for-the-wrong-reasons

Tags: economics, finance


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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