If everyone — voters, politicians, regulators — would honestly answer each of the following questions, we might just see an improvement in government. Here are a few basic questions that you might consider as you think about public policy.
Why is government involved in this activity in the first place?
The overwhelming majority of economists today believe that an economic system should be rooted in free market enterprise, with government intervention added on. That is, our default option is no government, and we add government to the mix in a limited fashion as compelling reasons arise.
In short, there are two main reasons to consider the possibility of government to step into private markets. The first is when the private sector just doesn’t do a good job of deciding how much of something to produce. The second relates to the distribution of income.
Assuming government should intervene, should it do so directly or should it fund private sector activity?
Let’s assume that government should provide trash pickup. But should government actually manage that itself, with its own trucks and workers. Or should government hire a private company? Too easy? How about prisons? How about education?
How does this policy affect economic efficiency?
Nearly all government actions affect the economy in some way. Sometimes government may intervene with the intent of changing inefficient private sector outcomes. For example, if businesses emit too much mercury into the air, government may be justified in limiting mercury emissions. What if one firm were able to acquire enough market power to dominate a market and raise prices? Government may be justified in stepping in to promote competition. What if consumers have bad information? Might government intervention to require pharmaceutical labeling be reasonable?
Does this policy promote a fair income distribution?
Consider programs such as Medicaid, Social Security, welfare, food stamps, minimum wage, and public education. Each of these affects the income distribution. Another question is, “Does this policy affect the income distribution fairly?” This can be a tough one because who is to say what is fair?
To further complicate matters, these questions may lead to conflicting answers. Let’s assume that we want Social Security. But then the question becomes, “Should the system be a bit more or a bit less generous?” To make the system a bit more generous might be seen as “fair” but the additional taxes required to do so might hurt economic efficiency. We must strike an appropriate balance when conflicts arise!
Does this action complicate government policy?
We know that government has become very complicated over time. Our tax code is a perfect example. It has become messy and estimates of the resources spent in complying with the code are shocking. Voters, politicians, and regulators need to be keenly aware of the need to make our system simple and easy.
Note: This article by Dr. John Deskins, "Dr. John Deskins Talks Public Policy," first appeared in the WVU B&E Magazine in Fall 2014.
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