With all the excitement of the 2016 presidential election ramping up, it’s even more important to think critically about proposed government policy. Not only are voters biased, they’re often swayed by policies which sound good, but which don’t always have good results.
Randal O’Toole, a policy analyst at the Cato Institute, illustrates the careful balancing act politicians take part in when proposing policies which sound great, but have hidden costs.
Using Oregon as an example, O’Toole looks at two policies: the minimum wage, and an affordable housing law. On Oregon’s increase in the minimum wage, he writes,
“Proponents claim the minimum-wage law will improve Oregon’s economy by putting more money in the hands of its residents that they will spend in Oregon businesses. The new minimum wage “is going to be good for Oregon families and is going to add to consumer purchasing power that will benefit our small businesses,” Oregon’s labor commissioner told a reporter. That’s like warming the bed by cutting off one end of a blanket and sewing it on to the other end. If increasing the minimum wage does so much good, why not increase it to $15 right away? Or $50? Or $500?
The reality is that a minimum wage law is a balancing act for politicians. They have to have the wage be just high enough to create a constituency for the wage that will support them but not so high that people who actually vote will lose their jobs. As a Congressional Budget Office study concluded, for every two people who benefit from a minimum wage law, one is put out of work. That’s okay if the people who are out of work don’t vote.”“]
Because politicians are self-interested, and work for votes, they’re incentivized to make policies which will benefit their voters, even if those policies have negative effects on other citizens. This effect is also visible in a newly passed Oregon law which legalizes “inclusionary zoning,” a policy which forces homebuilders to sell some homes below cost. O’Toole notes that by doing this, builders will have incentives to build fewer houses and to sell the houses they do build at higher prices to make up their losses on the “affordable” homes:
“In other words, this law relies on the counterintuitive notion that making housing more expensive will make it more affordable.”“]
These types of policies have been around for ages—French thinker Frédéric Bastiat wrote his essay “What Is Seen and What Is Unseen” on the subject in 1850—but even today the incentives in the political process lead to good-sounding policies with hidden costs.
Read the full post over at the Cato Institute’s blog here.