I am currently reading a fascinating book called "Economics in one lesson" by Henry Hazlitt. It was first written in 1946 and remains a classic in Economics literature. Looking at the rate at which I publish my posts I can hopefully publish a review of this book sometime in the near future.
The book challenges various policy decisions made by the government in various areas. Among the two fallacies it examines one is about the capability of governments to evaluate the long-term consequences of their policies. The book argues that governments can't think of the effects (negative effects) of the policies they implement to fix short term problems that arise in an economic system. Some of the long-run effects of the myopic policies that the book examines are that of measures of protectionism, fixing unemployment and tax policies.
This got me thinking on a peculiar case not mentioned in the book. It is that of climate change. Climate change was not of concern back in those days. Today the policy makers are aware of the effect that climate change will or can have in the future. Taking action on errant polluters could lead to large job losses in the immediate future. They know that implementing appropriate environmental restrictions on economic (and non-economic) activities will help achieve climate change objectives. Hence, in this case it would be wrong to say that policy makers do not know the long-term effects of policies they are going to implement.
One fallacy in the book is that if so many fallacies existed in the policies implemented by the U.S government that it should have long term impact then why has the U.S prospered over the long-run. Now those who have read the book might argue that it deals with policies only for narrow interest groups, but that is not the case with all the fallacies that the book considers. Also, many of the policies discussed are simultaneously into play which should compound the negative effects of not considering the long-run consequences. This brings me back to the question. Why has the U.S been prosperous over the long-run?
Whatever I could decipher from the reading I have done till now tells me that there were parallel policies that were implemented which negated the effects of short term-ism. This conclusion is from the way U.S managed critical junctures in its history (ref: Why nations fail? by Darren Acemoglu and James Robinson) Also, managing the short term problems is necessary to keep a balance to lead to prosperity. Who is to say that leaving things to the market forces might not lead to some social disaster in the long-run?
