Incentives matter

Here’s a nice paragraph from Arthur Laffer’s opinion piece in the Wall Street Journal today:

Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won’t speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don’t work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.


Arnold Kling asks obvious questions

Thanks to Russ Roberts of Cafe Hayek for the link.

In his post, Matching Narrative to Policy, Arnold Kling, an economist, asks:

— if the problem was that we deregulated too much over the past 20 years, then why doesn’t the bill simply reset regulations to what they were 20 years ago? or 30 years ago?

— if the problem was that house price increases and mortgage leverage got out of hand, then why does government policy continue to try to push mortgage loans with low down payments?

— if the problem is that lenders were exploiting borrowers (which would justify a focus on consumer protection), then why is it that we ended up bailing out the lenders?

Hats off to Kling for asking obvious questions.  I wish I would have thought of those.  These are some of the first questions that journalists should ask.