[...]... major effect on one' s own personal well-being It should not be surprising that the quantity and quality of thinking going into these very different kinds of decisions differ correspondingly One of the ways in which these decisions differ is in not thinking through political decisions beyond the immediate consequences When most voters do not I 2 APPLIED ECONOMICS think beyond stage one, many elected... understand the effect of politics on economics, we need to consider not only officials' responses to the various pressures they receive from different sources, but also the way that the media and the voting public see economic issues Both the media and the voters are prone to what might be called one -stage thinking ONE -STAGE THINKING When I was an undergraduate studying economics under Professor Arthur... who think no further than stage one often regard the government's power to control prices as a way of reducing the costs of various goods and service, thus making them more widely affordable Such policies as "bringing down the cost of prescription drugs" or making housing "affordable" often seem very attractive when thinking no further than stage one However, even in stage one, there is a fundamental... Incentives and Consequences Thinking beyond stage one is especially important when considering policies whose consequences unfold over a period of years If the initial consequences are good, and the bad consequences come later—especially if later is after the next election—then it is always tempting for politicians to adopt such policies 1 Herbert Stein and Joseph Stiglitz 5 6 APPLIED ECONOMICS For example,... the size of London or New York, it is remarkable that we take it for granted that such a task is performed without anyone's being in charge of seeing that it all gets done It 23 24 APPLIED ECONOMICS would be remarkable even if Londoners or New Yorkers were supplied with only some very basic things to eat like bread and milk In reality, they are supplied with an incredible range of fresh, frozen, canned,... discussions about policies on a wide range of issues Most thinking stops at stage one In recent years, former economic advisers to presidents of the United States—from both political parties—have commented publicly on how little thinking ahead about economic consequences went into decisions made at the highest level.1 This is not to say that there was no thinking ahead about political consequences Each of... The Hoover Institution Stanford University Chapter 1 Politics versus Economics When we are talking about applied economic policies, we are V V no longer talking about pure economic principles, but about the interactions of politics and economics The principles of economics remain the same, but the likelihood of those principles being applied unchanged is considerably reduced, because politics has its... pursuing their own political goals Such one -stage thinking is not peculiar to the United States or to tax issues On the other side of the world, an Indian writer observed the same phenomenon as regards education reform: No one bothers about education because results take a long time to come When a politician promises rice for two rupees (12 cents a Politics versus Economics pound) when it costs five rupees... programs would have Politics versus Economics been foreseeable from the outset if these processes had been analyzed in terms of the incentives and constraints they created, instead of in terms of the desirability of the goals they proclaimed Once we start thinking in terms of the chain of events set in motion by particular policies—and following these events beyond stage one the world begins to look very... result That was stage two Stage three saw California politicians scrambling to find some way to stop the blackouts, which not only disrupted homes and businesses currently, but threatened to drive some businesses out 11 12 APPLIED ECONOMICS of the state, which would deprive California of both jobs and taxes Worse yet, from the politicians' perspective, it threatened their reelection prospects Stage four . Economics Say's Law APPLIED ECONOMICS Thinking Beyond Stage One THOMAS SOWELL A Member of the Perseus Books Group New York Copyright © 2004 by Thomas Sowell Published by Basic Books, A Member . Both the media and the voters are prone to what might be called one -stage thinking. ONE -STAGE THINKING When I was an undergraduate studying economics under Profes- sor Arthur Smithies . Adobe Caslon by the Perseus Books Group Library of Congress Cataloging-in-Publication Data Sowell, Thomas, 1930- Applied economics : thinking beyond stage one / Thomas Sowell p. cm. Includes