Time is on Government’s Side

Not long ago, on my commute home, the Rolling Stones’ song, “Time is on my Side,” came over my radio. And when I heard that refrain repeatedly during the song, it occurred to me that the lyrics being sung by one of the London School of Economics’ most famous students would generally be more accurate if they were changed to “Time is on government’s side,” because of the ways time is treated to create more government “command and control.”

Probably because I had been thinking about the oil market at the time, the example that flashed into my mind first was how changing circumstances over time have been utilized to create an ongoing campaign against domestic oil exploration and development. 

When oil prices are relatively low, some argue that finding or developing more oil isn’t worth the cost. Of course, that ignores the long lead times for such development, which means capacity might come online in very different circumstances. Some even claim to want to restrict such investment based on that argument, when, if they were right, people would find such efforts unprofitable, and no government restriction would be necessary.

When oil prices are relatively high, many argue that it still does not justify more development of reserves or production capacity, because it would take so long that it would have no effect on current oil industry problems. And earlier development and pumping might leave less oil in the ground for the future when it might be even more expensive. Some then want to go further and restrict search and development based on that argument, but they ignore oil firms’ incentives to take into account the projected future price of oil compared to the present, which would make government restrictions unnecessary.

The conclusion? “We don’t want you to seek or develop oil reserves because we don’t need it” (the price is low) alternates with “we don’t want you to seek or develop oil reserves when we need it (the price is high) because it will take too long to make a difference.” Opposition based on entirely different reasons can be portrayed as principled instead.  

You could apply those same arguments to oil pipelines as well. “We don’t need it now” and “its effects will be too slow” can indefinitely tag-team such efforts to construct the lowest cost way to move those resources. 

The strategic petroleum reserve illustrates another time-consistency problem. A President can use it to burnish his reputation as a problem-solving benefactor. But since someone paid the price to add to it beforehand, and someone else might get stuck having to pay to replenish it later, such halo-polishing is artificially cheap at the time. 

Those are far from the only way time has been used on government’s side against those they supposedly serve.

Deficits and the debt they create are another time game. They are the means by which government can promise benefits now without having to pay all the costs now. And by moving costs into the future, they also enable beliefs that someone named “not me” will be forced to pay then. As James Buchanan and Richard Wagner argued in Democracy and Deficits, this provides a political bias toward deficits.

Social Security offers a related example. From its inception through every expansion, including Medicare, the program offered early retirees benefits in excess of their contributions (while constantly emphasizing that they had “paid for” their benefits, which was only true in part). That made it politically popular with those in the past, but it pushed trillions of dollars in added burdens to later generations. Yet even many of those who have been losers from the program still have an interest in extending it when they are older, because keeping it going longer might mean higher taxes for a few more years, but provide higher pension benefits for the rest of their lives. However, it would also mean increasing the burdens to be left for following generations.

Other government programs that are phased in over years have a similar time bias. Politicians get the credit for creating the program, but bear only a small part of the cost of paying for it, leaving the vast majority of the costs to future generations. For instance, John F. Kennedy’s first executive order in 1961 was to create a pilot food stamp program, which led to the Food Stamp Act of 1964, and $30 million of costs in 1965. That political credit was bought on the cheap, given that those costs have since ballooned by a factor of about 4,000, to almost $120 billion in fiscal 2022. 

Another time game involves the fact that the government always gets to go last. You might face low taxes now, which promises you a good rate of return after taxes for an investment project. But once you have made it, the government can increase its burdens afterward, worsening or even eliminating the returns. Inflation can work in similar ways. When government accelerates money growth after a lender has agreed to accept a given interest rate on a loan, it can dramatically reduce the net of inflation real returns. As I sometimes tell my students, the result is that there is no investment project so good government can’t screw it up

Our understanding of redistribution is distorted by lifecycle effects over time. People at the beginning of their lives as producers are relatively low-income. But their incomes then grow to be much higher in their peak earning years. Then their incomes fall again in retirement. Consequently, over the course of people’s lives, they pass through many different income classes. But that means much of what is presented as redistribution from groups that are rich to groups that are poor is really a very different thing — largely redistribution from you when you are in your peak earning years to you when you are young and when you are old. 

Even attacks on supply side economics involve confusion based on time horizons. Cutting tax rates is always pilloried for being “tax giveaways to the rich” by focusing solely on the short run. But since high-income people face the highest marginal tax rates, they have the most adverse incentives to use their resources and skills in markets to benefit others. Consequently, lowering their tax rates is a way of dramatically benefiting everyone over time, not the rich at the expense of everyone else. 

These many uses of time to advantage politicians and special interests to citizens’ detriment remind me of Henry Hazlitt’s Economics in One Lesson: 

Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.

Some of the abusive issues involving time I have mentioned are of the short-run-long run variety that Hazlitt emphasizes. But there are other examples as well, from manipulating varying circumstances over time to distorting lifecycle effects. Being aware of such issues is a useful defense against them. I just wish thinking along this line hadn’t undermined my enjoyment of “Time is on my Side.” 

Courtesy of AIER.org and originally published here.

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