The Virtue of Farsightedness in Policy Formulation

When it comes to policy formulation, a recent article by New York Times has taught me an important virtue: farsightedness. In summary, the article talked about the existing state of Florida that is not very rosy. The State has always depended a lot on migration flows (a 1924 constitutional amendment banned a state income tax, relies heavily on sales and property taxes, which are more closely linked with population growth). With foreclosures and employment, things are now going the other way and have put the Sunshine State in a difficult position as it means that the State Government now has trouble collecting sufficient taxes to sustain State spending. Changing the policies now to start collecting income taxes will help to replenish State coffers but it will at the same time, induces even more people to migrate out of the State.

Here’s the morale of the story. Although it is true and imperative that policies reflect the current needs of the society of interest, policy makers should also place special attention on the possibility of the need to rectify/ remove existing policies and craft new policies in response to changing needs of the society over mid to long-term.

Policies that are out of sync will have negative impacts on various stakeholders of the society. For changes that are popular among the masses, effecting the changes when it is relatively late may not be so bad afterall because the fact that it is popular means it can blunt the negative impacts generated prior to the changes. An example of such policy change is a cut in income taxes. However, for changes that are likely to be unpopular among the masses, effecting the changes late may serve to augment the negative impacts that are already in motion. An obvious example is a rise in income taxes.

When changes are unpopular, it is better to enact it when negative impacts of existing policies have not set in because then, it will be like pricking one with a needle as compared to piercing one with an arrow/ a spear. And to do that, tools such as rigorous scenario analysis may be extremely useful. It involves modeling different potential scenarios based on various parameters and testing how policies can respond to the respective scenarios. I am not very sure if this has been taken into consideration but the timing policies are effected is an integral part that should not be put aside, less we have a repeat of Florida.