The Levers and Cables View of Policy

On my bike ride home yesterday, a comment by Catallaxy‘s Andrew Norton got me thinking more about the way in which people approach policy solutions. Responding to my casting doubt on the methodology of a recent study that claimed to find that having friends helped you live longer, Andrew responded:

Whether correlation = causation, in Australian social science whatever the question the answer is government spending. This, from The Age:

"Ms Giles said the results, published yesterday in the Journal of Epidemiology and Community Health, should encourage governments to provide infrastructure to allow elderly people to socialise."

The poor old dears. They can’t even make friends without the government helping them.

The trouble is, I can see where the researchers were coming from. They really would’ve preferred to pull the lever marked "The PM should tell all the elderly people to make more friends", but they were pretty sure it wasn’t connected to anything, so instead they pulled the "Spend lots of government money helping people make friends", which they thought probably wasn’t attached to anything either, but might just work if you yanked it hard enough.

This is something you see in the policy arena quite a lot. I’d love to pull the lever marked "The PM should tell CEOs to pay themselves salaries that don’t make the rest of us ashamed to be Australians", but I know it isn’t connected to anything. But the problem is that the lever marked "Impose high tax rates on salaries over $1 million" is connected to two cables, one which lowers CEO salaries, and another which ensures that we miss out on getting the best international management expertise coming to Australia.

Likewise, the ACTU would love to pull the lever marked "Tell bosses to hire everyone and pay them a good wage", but they know it’ll just waggle in the breeze. So instead they pull the lever marked "Ban bosses from hiring anyone earning below $X", which they know is connected to one cable marked "higher wages", but in their more introspective moments probably admit that it’s also connected to a cable marked "fewer jobs".

[Economists: feel free to interpret connected cables as big elasticities, and unconnected cables as small elasticities.]

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