WASHINGTON, April 3, 2014 —Most of the time, it is difficult for economic policy makers to set the best policy. Today, though, there seems to be even more difficulty. That’s primarily because of the unfair or unjust perception by at least some of the people.
The overall goal of economic policy is to take actions that benefit the majority of the people without infringing on the basic rights of anyone. While there are admittedly some gray areas, most of the time a reasonable compromise can be reached. Today that may not be the case.
Today, it seems, no matter what policy is selected, some group cries foul. If we want to spend money on a program, some group not receiving funding complains. If we decide to cut taxes, those receiving smaller tax cuts are quick to say that their group is over taxed and should get a larger reduction. If taxes must be raised, then virtually every group wants to raise taxes on someone else, but not on them.
The problem is what I refer to as the “chocolate milk syndrome.”
When my three children, who are close in age, were very young, they would often come into the house on a warm summer day thirsty. “We want chocolate milk” they would scream. So I sat them down at the table and put three identical size glasses in front of them. I then filled each glass with about the same amount of chocolate milk. Surprisingly, their primary concern was not the absolute amount of chocolate milk in their glass, but rather they each looked at the amount of chocolate milk in their sibling’s glass. As long as neither sibling had more, they were happy. If one sibling did get slightly more, they complained wildly until the glasses were even. It didn’t seem to matter to them how much they got. The amount mattered only relative to the others’ amount.
“What’s the difference how much she got as long as you are content with how much chocolate milk is in your glass?’ I would often question. But they just wanted to make sure someone didn’t get more chocolate milk than they had. As long as no one got more, each was happy.
It seems that the “chocolate milk syndrome” is affecting economic policy.
In 2012, for instance, Congress and the President debated the merits of extending the Bush tax cuts. Almost everyone agreed that extending the tax cuts was the proper thing to do. But some groups complained that the wealthy had “more chocolate milk in their glass” so that the cuts should not be given to them. The cuts were not passed until the eleventh hour because of this and those with the highest income saw their marginal federal income tax rate raised to almost 40%.
With the total of all annual deficits, known as the Public Debt, is approaching $17.5 trillion and with no limit on the debt ceiling until next year, everyone seems to agree that the federal government cannot continue to incur huge annual budget deficits. As a result, our leaders are debating which actions to take to reduce the deficit. The majority view seems to be that spending will have to be cut. The debate concerns where to cut spending. When suggestions are made, the group losing funding cries about all of the “chocolate milk in the other’s glass,” so they argue that the cuts should be taken elsewhere. Paul Ryan just introduced his proposal for cutting spending. Even before it was formally introduced, many special interests cried foul, because they would end up with less chocolate milk than some other groups.
Even when most of us negotiate with our employer for wages and benefit increases, our first defense for the position we take is that the employees down the street got a lot more chocolate milk in their glass. And since we are as good or better than they are, we deserve at least that much milk in our glass. This logic is particularly useful for public service employees, who frequently cite the increases received by neighboring municipalities.
If we are to eventually solve the economic problems by instituting policy that benefits the majority, then we must stop looking at the other guy’s glass and instead (at least initially) concentrate on our own glass. If we can do that, we will likely find the problems may be easier to solve.