2012-12-20

Why Status Quo Is A Net Loss

“The question most often asked is whether TARP was successful,” said Kevin Petrasic, a partner with law firm Paul Hastings LLP in Washington and former special counsel at the Office of Thrift Supervision. “The more important question is did TARP fail, and we do know the answer. It didn’t fail. Where we are now, compared to where we were three years ago, demonstrates that it didn’t fail.”
That is from this Bloomberg news item, appearing in my Google News feed this morning.

It's fascinating, isn't it? We are now in a situation within society in which governmental policies are evaluated based not on their success, but on their failure. That which is not an abject failure is deemed good policy; that which fails miserably is deemed bad policy.

To the very juvenile, perhaps, this kind of slinking, cheap rhetorical ploy may hold water. After all, a prerequisite for the success of any action is the absence of failure. But consider the application of this sort of "logic" to virtually any other sphere of life. (And here, the attentive reader will notice I am channeling Sonic Charmer.)
  • The question is often asked, was my hamburger diet successful? The more important question is did my diet fail, and we do know the answer. It didn't fail. I didn't gain additional weight.
  • The question is often asked, was my strategy for winning the race successful? The more important question is did my strategy fail, and we do know the answer. It didn't fail. I didn't place last.
  • The question is often asked, was my party a success? The more important question is did my party fail, and we do know the answer. It didn't fail. People showed up.
  • The question is often asked, was my cancer medication successful? The more important question is did my cancer medication fail, and we do know the answer. It didn't fail. It didn't increase the growth rate of my tumors.
...and so on, and so forth.

The point here is that if we are setting the bar so low that we are only evaluating policies based on whether they make conditions worse - not whether they improve conditions - we have already failed, and failed miserably.

Why? Because we can achieve the status quo without engaging in any policy response whatsoever. In fact, the status quo is defined to be the state of things in absence of a policy response. See, policies cost money and political capital. They require people to be hired, actions to be undertaken, pencils to be sharpened, electricity to be spent on firing up laptops to develop and implement all the requirements of the policy in question, etc., etc. Policy means that people act, and action always costs money and other resources.

So any policy that achieves the status quo is a net cost to society. Society must pay for the fact that the policy in question was implemented. It is not really "status quo," but rather "status quo for a small subset of factors, and status crap for all those people whose costs were increased in order to make it happen."

Remember this the next time someone tells you that "we have to do something." Remember this the next time someone tells you that the status quo is unacceptable and that anything would be better than nothing. "Anything" always costs something. "There is no such thing as a free lunch," as the economists like to say.

What this means is that policies cannot be evaluated by the lowest available standard, i.e. did they make "things" worse. Every policy ever conceived has a set of costs associated with it, and the only relevant question is whether the policy's benefits more than compensate for its costs. Then, and only then, can the policy be deemed a success.

If a policy just barely compensates for its associated costs, then - and only then - can the policy be said to have "not failed."

The US government provided a bail-out to General Motors to the tune of $418 billion. That money came from somewhere. Somebody paid it. Four years later, those costs - plus interest - have accrued to the US taxpayers. It was our money (our children's future money, actually), and the government annexed it and spent it on a bailout that benefited, not taxpayers in general, but solely those taxpayers connected to the General Motors company. This is corporate cronyism, this is Uncle Sam's good-old-boys' club. And, yes, it cost us all money.

Perhaps one could make that argument - supposing GM's rebound was so significant that it heralded in a new age of revolutionary US automotive innovation, sparking a nation-wide spree of new auto factories and auto industry spin-offs. If $418 billion were enough to buy $1 trillion of permanent automotive growth that affected all taxpayers more or less equally, then perhaps it would have been worth it.

But what we are now being told is that we spent $418 billion of money we didn't really have, which we must now pay back, and, hey, at least it wasn't an abject failure!

Only to bureaucrats does this make any sense.