One of the (many) unfortunate tendencies of politicians is that they focus on the short run (i.e., their upcoming reelection battles). Why is this unfortunate? Because there are some policy changes that may be costly in the short run, but they are nonetheless very worthwhile because they generate big long-run benefits.
- Shifting to a system of personal retirement accounts means trillions of dollars of near-term “transition costs” in order to protect current retirees and older workers, but reform will solve the program’s long-term $40 trillion-plus unfunded liability.
- Messy fights over the debt limit create (almost certainly exaggerated) concerns about potential default, but that potential cost would be trivial compared to the long-run benefits of figuring out how to limit the growing burden of federal spending.
- When bad monetary policy causes a financial bubble or housing bubble, shifting to good monetary policy presumably will lead to short-run pain as markets adjust, but that’s far better than producing a 2008-style crisis by letting the bubble(s) expand further.
I offer the above examples because similar short-run and long-run tradeoffs exist when looking at what happens when the International Monetary Fund provides bailouts for profligate governments. The Economist has an article that perfectly illustrates the IMF’s pernicious role......To Read More.....