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Preface Because this isa book for the general public the usual footnotes or endnotes are omitted. However, for those readers who want 9 ‘verify whet is sid here, or to read further on some ofthe subjects ‘covered, the sources of the many fies discussed ee are fisted in theback ofthe book. THOMAS SOWELL "The Hoover Inston Stanford University Chapter 1 Politics versus Economics en we are talking about applied economic polices, we are no longer talking about pure economic principles, but about the interactions of politics and economics, The principles of ‘economics remain the same, but the Ukelibood of thote principles being applied unchanged is considerably reduced, because politics thas its own principles and imperatives, It isnot just that polii- cians’ top prorty is getting elected and re-elected, or that their time horizon seldom extends beyond the next election. The gea- ‘eral public aswell behaves differently when making political deci- sions rather than economic decisions. Virtually no one puts as uch time and close attention into deciding whether to vote for one candidate rather than another as is usually pu into deciding Whether to buy one house rather than enother—or perhaps even one car rather than anothet. The voter’ politial decisions involve having a minute influence on policies which affect many other people, while economic decision-making is about having a major effet on one’ own per Sona well-being. It should not be surprising thatthe quantity and ‘quality of thinking going into these very different kinds of deci- sions differ correspondingly. One of the ways in which these decisions differ isin not thinking through political decisions beyond the immediate consequences. When most voters do not think beyond stage one, many elected officials have no incentive to weigh what the consequences will be in later stages—and considerable incentives to avoid getting beyond what their con- stituents think and understand, for fear that rival politicians can dive a wedge between them and their constituents by catering t0 public misconceptions. “The very way that isues are coaceived tends to be diferent in sand in economics, Pliccal thinking tends to conceive of, polices, institutions, or programs in terms of their hoped-for result—"deug prevention” programs, “profi making” enterprises, *publicinterest" law firms, ‘gua contro” laws, and so forth. But for purposes of economic analysis, what matters isnot what goals are being sought but what incentives and constraints are being cre- ated in pursuit of those goals. We know, for example that many— if not most—'profit-making” enterprises do not in fact make profits, as shown by the high percentage of new businesses that go ‘out of business within a few year after being created. Similarly, it is an open question whether drug prevention programs actually prevent or reduce dug usage, whether public interest law firms ac- ‘ually benefit the public, or whether gun contol laws actually con- trol guns, No economists likely to be surprised when rent contol laws, for example lead to housing shortages and fail to control rent, so that cities with such laws often end up with higher rents than cities without them, But such outcomes may be very supris- jing to people who think i terms of political rhetoric focussed on desirable goals "The point is not simply that various polices may fil to achieve their purposes. The more fundamental point is thet we need to lenow he actual cboractrite of the processes st in motion—and the incentives and constrains inherent in such characterstics— rather than judging these processes by their goals. Many of the “unintended consequences" of polices and programs would have ‘ ' | Politics vera Beonomics been foreseable from the outset if these processes had been sna~ lyzed in terms of the incentives and constetnts they created, in- stead of in terms ofthe desirability ofthe goals they proclaimed. ‘Once we start thinking in terms of the chain of event set in mo~ tion by particular poicies—and following these events beyond stage one—the world begins to look very different. Politics and the market are both ways of geting some people to respond to other people’ desires. Consumers choosing which ‘goods to spend their money on have often been analogized to voters deciding which candidates to elect to public office. How- eves, the two processes are profoundly different. Not only do individuals invest very different amounts of time and thought in making economic versus political decisions, those decisions are inherently different in themselves, Voters deside wheter ta vote for one candidate or another but they decide Bowe much of what kinds of food, clothing, shelter, et. to purchase In short, politi- ‘al decisions tend to be categorical, while economic decisions tend tobe incremental. Incremental decisions can be more fine-tuned than deciding wiich candidate whole package of principles and practices comes closest to meeting your own desires. Incremental decision-making also means that not every increment of even very desirable things is ikewise necessarily desirable, given that there are other thing that the money coud be spent on afer having anquiced a given amount ‘of a particular good of service. For eximple, although i might be ‘worthwhile spending considerable money to live in a nice home, buying a second home in the country may or may not be wrth spending money that could be used for sending a child to college or for recreational travel overseas. One consequence of incremental de-