Public Policy and Private Behavior

Many people say that uncertainty in public policy -- taxes, regulation, and so on -- is holding back the private sector. Other people say, that's dumb: if something makes sense for a business, the business should do it, regardless of the public policy.

Now, on its face, the latter argument seems silly. If I can get some equipment for $10 million, but it will only provide me $10 million in revenue over its lifetime, then that obviously makes no sense. But if government will give me a $5 million tax credit for it, well, now it might make sense for me, depending on what other costs are associated with it.

But it also makes no sense based on the other behaviors of government, in particular the tax code: most of the tax code is designed to manipulate private behavior, whether it's through encouraging home ownership, or charitable contributions, or changing the windows in your home. So on the one hand the politicians use public policy every day to manipulate behavior, and then when it gets to the point that those policies become uncertain, they tell us that their policies don't affect behavior.

Actions speak louder than words: if they ever get rid of all of these manipulative features of the tax code, I'll believe them when they say that they don't believe policy affects behavior.