Here's a large (and largely unavoidable, IMO) policy-making problem that afflicts democracies: The self-negating prophecy. It's the opposite of the self-fulfilling prophecy.
I will use the Iraq war as a stark practical example of the effect, not to equate Iraq with any other class of policy... Bush says the Iraq War will be easy and inexpensive. That is politically necessary since nobody would support it if it was going to be hard and expensive. Iraq is invaded with a small force and no contingency planning, consistent with a cheap, easy, short-term mission. The lack of budgeting up-front makes the war even harder and more expensive than it would have been.
The optimum (from the executive perspective) would be a closed society approach: tell the people it will be easy while secretly committing resources consistent with a long and difficult engagement. (The efficacy of that in no way justifies closed societies.)
But in an open society
policy has to be deformed to match politics. Otherwise you get sensible but inconvenient questions like: "If this is going to be a cake-walk then why are we sending 500,000 troops and budgeting a trillion dollars?"
A White House promoting X with side-effect Y is likely to produce projections that under-state or cleverly de-emphasize Y. Normal politics. Reagan wants a tax cut. The WH releases projections that show a modest deficit effect. The modest effect is achieved by overstating (actually, over-predicting) economic growth. Then those projections shape policy. Growth projections made only to offer political support for a tax cut end up as official government forecasts of growth used in all sorts of contexts. And everyone who voted for the tax-cut was, in effect, also voting for a set of assumptions about economic growth. And that affects everything... what do you budget for program Z if you've already bought into an economic future where program Z isn't needed? And so on.
Projections have consequences.
The current iteration of this effect involves deficit projections. We want a set of programs. To sell them we have to make overly optimistic projections of future government revenue so they show a smaller deficit effect. So far so good... ugly but fairly standard politics. But selling the broader agenda for tomorrow requires that the entire executive branch pretend that things will be better than they will be, and precludes optimally realistic short and medium term economic policy.
That is not necessarily wrong. It depends on the importance of the legislative agenda and the down-side of forestalling current action.
But it is problematic. It seems likely that we are making sub-optimal economic moves today as a necessary down-side of the broad politics of advancing a set of far-reaching and revolutionary budgetary priorities.
And that's fine if the upside is high enough and/or the downside isn't too bad.
We can argue that following a set of assumptions is necessary to gain funding for green-tech or education that is necessary to longer-term economic prospects and that in the BIG PICTURE the
politics of sub-optimal economic move X leads to a better economy twenty years from now. That's fine. It's valid.
But... forced receivership (or forced ANYTHING really) of any really big bank seems to have been off the table since before the inauguration because it would politically preclude some other thing. That does not mean that nationalization is correct. It does, however, mean that it is irrelevant whether nationalization is correct or not because it's off the table.
All of which would be okay (I generally accept the validity of the big picture) except that we have had whole debates about nationalization or stimulus policy where arguments are generated from mere political necessity. And those arguments are now
positions. And those positions, taken for political reasons, will shape future debate
even though they arose in a context largely indifferent to the benefits of a specific action. And that's unfortunate. It boxes the WH into an anti-nationalization stance that will persist beyond its specific political utility. (Not to say the box can never be escaped but it's an impediment.)
The inspiration/springboard for this typing exercise was Simon Johnson noting that we are in the difficult position of chastising Europe (quite properly) for making policy that is consistent with our own WH projections:
...In its late January 2009 update, the I.M.F. marked down its “year over year” world growth estimate to 0.5 percent for this year and to 3.0 percent for 2010. This was a huge downward revision (the estimate for 2009 fell by nearly 2 percentage points over two months), reflecting how officials were shocked by the speed of contraction in the global economy. It also put the world far below the range of 4 to 5 percent per annum that is usually considered acceptable performance. By mid-March, the I.M.F. had reduced its headline growth forecast even further, to no better than a decline of 0.5 percent for 2009, and growth of 1.5 to 2.5 percent for 2010.
You might think that these numbers make the case for a global “full steam ahead” set of expansionary policies, but leading European officials insist you are wrong – and here they’ll get a little technical. The I.M.F.’s headline numbers compare average output in one year with its level in the previous year, a potentially misleading measure when the economy is contracting sharply. To understand official thinking more clearly, it’s much better to look at the estimates for fourth quarter on fourth quarter (“Q4 on Q4”), i.e., what will happen within a year, which usually constitute the last two columns in the all-important Table 1.1 of the fund’s releases.
Hints and leaks make it clear where officials are going next week. Growth during 2009 will be worse than anemic; the new Q4-on-Q4 estimate for this year (i.e., comparing the fourth quarter of 2009 with the fourth quarter of 2008) will probably be around -1 percent. But growth in 2010 will be forecast to bounce back sharply, rising by at least 2 percent and – quietly – leading officials are suggesting even better performance toward the end of 2010. In other words, the people running the world’s largest economies have agreed, for now, that this will be a V-shaped recession. Output is still falling sharply, but they believe it will quickly turn around and we’ll move back toward rapid growth.
This is consistent with the continental European view that the dark dangers of inflation are looming and there is no need, for example, for more fiscal stimulus (i.e., higher government spending or lower taxes).
Acquiescence from the American side may seem surprising given the clear signals from the White House that more stimulus may be needed, but it would be awkward to voice those reservations too publicly – remember that the Obama administration’s budget also assumes that a sharp recovery will take hold during 2010.http://economix.blogs.nytimes.com/2009/04/16/where-is-the-global-economy-heading/
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