At a personal level, we spend our lives encountering challenges and figuring out how to deal with them. While ethics or ideology might enter some of these decisions, many of them are determined by the objective pluses and minuses. Should I buy a SUV or a two-door sedan? Should I go to Indiana University or Purdue? Should I turn left here or turn right? Is it time to replace my furnace? A logical process for finding the best solutions to these and many other questions aids us every day.
Why don’t we do the same thing in the public arena? Should we have a national policy to reduce income inequality? If so, then what is the best policy to achieve significant and lasting improvements? How can we effectively reduce poverty? What do we do to have a strong national defense? How can we have an efficient national infrastructure or successful immigration policy, or how can we make sure enough JD is produced each year?
I realize that when it comes to the public arena, the elements of an objective analysis might get more complicated, but does that mean we have to abandon all logic and start screaming ideology at each other?
We might not agree fully on which problems government should try to solve, but we generally agree it is appropriate for government to try to resolve some of them. Despite this agreement, there are some well-known hazards to consider. Not sure our friends in Washington are capable of the process. But clearly you should agree that this sort of simple logic should not be impossible to muster.
Below I list 6 common-sense steps to approach any national problem.
Where is the pain center? Can we be specific about the nature and extent of the problem? Seems obvious to me that one should begin by clarifying the nature and extent of the problem. What is it? Who gets affected? How big is the problem?
Where did it come from? While a problem might be highly visible and impactful, do we know what the source or cause of the problem is? That is, do we have a clue as to what to treat? If the sources are multiple, can we list the causes of the pain and perhaps rank them by size of impact?
How should we treat the problem? Monetary policy is often used because the Fed believes that government either doesn’t know how or is incapable of handling the real sources of a problem. So the Fed often changes monetary policy simply because it observes a potential threat to the economy even if the actual problems have absolutely nothing to do with interest rates or money. Wouldn’t it be nice to aim our policies at the actually sources of our problems, and then use a remedy appropriate to the problem?
Balloon management. Push in the bubble on a balloon and another bubble forms. I learned balloon management when I was a student at Georgia Tech. The bubble on the balloon is like a problem we are encountering. The solution is to get rid of the bubble. Pushing on the bubble will reduce that problem but inevitably when you push one bubble in, you create another one. The trick to good management or problem-solving is to make the second bubble smaller than the first one. Good managers realize they will always create a second bubble, and the trick is to make it smaller than the original one.
Long term consequences. Sometimes the second bubble does not show up for a while. We have plenty of experience and theory that explains why a policy that overheats the economy will eventually cause interest rates to rise and a crowding out of private investment spending. Balloon management suggests taking this long-term result into account when we use fiscal policy to stimulate the economy.
Unintended consequences. When you try to solve a problem, the action creates other outcomes you might not have anticipated. Balloon management is about expected consequences. But sometimes we get surprised by the eventual impacts of a policy introduced today. Tariffs on Chinese goods might sound practical but how will the Chinese respond?
These last three points underscore how important it is to acknowledge these spillovers as we make our decisions. Ignoring them is to bring peril.
Where does ethics and/or ideology come in? Try as we might we all have either explicit or hidden ideologies and biases. They are there. We can’t escape them. But we can try to bring them to the surface and try to make sure they play a proper role in any decision. We can try to make sure they don’t dominate every decision.
So that's it. Whether at the personal level or the national level, it makes no sense to use name-calling and shouting to solve our problems. We will never be perfect when it comes to a complete, objective, and totally effective approach but we probably could do a lot better for ourselves if we followed some simple decision-making rules.
What is it about government these days that makes such an approach seems so impossible?