Time Horizons

A recurring theme of my blog will involve the tension between policies that are Band-Aid approaches vs. ones that directly address the root cause of an issue. Particularly at this juncture, a sick patient is a good metaphor for the United States economy. Simply put, what is the best way to nurse the patient back to health?

The first approach is short-term in nature, prioritizing how the patient will feel in the next day or two. In this scenario, you might provide steroids and other energy boosters to help maximize the patient's quality of life during that time frame.

The second approach is long-term in nature, prioritizing how the patient will feel next week and afterwards. Here, you might recommend administering antibiotics, and confining the patient to a bed and urging plenty of rest to recuperate.

In the short run, the bed-ridden patient suffers from a reduced quality of life and undergoes a more painful experience. But over time, that extra rest and recuperation translates to better and more stable health than the patient who never had the underlying ailment treated.

This scenario can be likened to politicians enacting policies that affect the economy, and therefore the financial well-being of us all. Unfortunately, elected officials are motivated by re-election prospects, as frequently as every two years in the case of the House of Representatives. As a result, numerous bad policies (e.g. $8,000 homebuyer credit, Cash for Clunkers) get enacted because it is politically expedient to "help" the economy in the short term, which is often sufficient to win votes for the next election.

These programs may only worsen the situation in the long term and create a whole host of unintended consequences. Affordable housing mandates are a perfect example, as policies designed to aggressively provide mortgages to people who weren't creditworthy helped ruin the economic prospects of the very people they were designed to benefit. Moreover, these misguided policies also helped trigger a near-collapse of the entire financial system.

Many issues of paramount importance need to be addressed to ensure the nation's fiscal stability. It is up to you and me to elect representatives who will put the best interests of our country ahead of their re-election prospects, which means making difficult decisions now to avoid catastrophe later.