Boettke on Public Policy

quotes economics public policy knowledge problem incentive problem reality is not optional

28 May 2014

Peter Boettke on public policy:

It seems to be important to stress in the contemporary policy discussions that intentions do not always equal results. Seems strange to have to point out this basic point, but our current intellectual climate seems to encourage a counterproductive two-step – to assume one side is good and the other evil, and that it is the evil side that is preventing the good side from achieving all that they promise for a better world if only you followed their policy prescriptions. This…mentality is a block to genuine discourse in a democratic society, not really a part of it.

Policy makers may very well intend to do good, but the policies they choose may be inconsistent with that goal due to incentive incompatibilities and insurmountable knowledge problems. The best intentioned policy makers and the most motivated policy makers may still not be able to know what the best course of action is in any given circumstance let alone how to learn through experience about to accurately adjust given an initial frustration in plans.

So the #1 rule of economic policy should be “wishing it so doesn’t make it so”. Political philosophy might be aspirational, but economic analysis cannot be. We live in a world of scarcity, scarcity implies trade-offs, those trade-offs must be negotiated, in order to negotate the trade-offs individually and collectively there must be an alignment of incentives, a flow of information, and feedback mechanisms that aid in the correction of the inevitable errors that result from the fact that we are dealing with fallible but capable human actors. In other words, as analysts we have to (a) recognize that reality is not optional, and (b) that we must examining the coping mechanisms that imperfect beings utilize in an imperfect world to stumble their way through in a way to improvement in the human condition rather than worsen the situation.

The intellectual strategy of the analyst must be to critically examine the effectiveness of chosen policy means to achieve stated ends sought and do so through an examination of the systemic incentives, informational requirements, and feedback processes that would guide adjustment. The strategy of the reformer must be to first and foremost identify incentive compatible policy shifts, and then device incentive compatible strategies for implementation. In both cases, it is the recognition of the refractory reality that grounds the analyst and the reformer from engaging in free floating abstractions.

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