Princeton economist Alan Blinder has earned some well-deserved criticism in this forum. In the latest Barron’s, though, Blinder offers a great illustration of the difference between an economic and political approach to a problem.
Imagine a policy, such as a special tax break, that showers a $10 million benefit on each of 10 people but costs 100 million Americans $2 each. Economists will net the $100 million in gains against the $200 million in losses, and conclude that the policy is bad for the nation. But politicians will keep score differently. They know that few of the 100 million losers will notice their tiny $2 costs, and none will deem it big enough to move them to political action. Quite the opposite will be true of the 10 big winners, who will find ways to express their gratitude. This example may seem contrived, but it underlies many details of our tax laws and trade provisions.
Next, take those supershort political time horizons. The old cliché is that politicians can’t see past the next election, but the truth is far worse. Often, they can’t see past that evening’s cable news shows, or maybe the next tweet. In contrast, economists view policies through excruciatingly long lenses—time horizons measured in years. Which is far too long for politics, and also too long for ordinary citizens.
Suppose Joe loses his job in a steel mill. Standard economic reasoning says: Don’t worry. That job was going to disappear anyway, and Joe will find another one—although probably not in a steel mill. But what if Joe is 55 years old, has been a steelworker for 30 years, and doesn’t know any other trade? Changing jobs will be difficult for him; he may be out of work for a long time; and when he finally lands a new job, his wages will probably be lower than at the mill. Economists call such problems “transition costs,” a term that belittles them. Joes all over the country call them catastrophes. So do their politicians.
