The summer before grad school, we were assigned nearly a dozen books for optional summer reading. Of course, me being the bright-eyed and bushy-tailed future grad student I was, I read book after book, trying my best to immerse myself in the world of policy analysis before moving to California to study it full-time.
Some of the books were memorable, some I breezed through. I recall reading Bury the Chains, a journalist’s take on the worldwide movement in the 19th century to end slavery. I also recall the book Exit, Voice, Loyalty, a book about the different ways that consumers can “let themselves be heard” in the marketplace.
The book that had the biggest impact on me that summer, though, was Arthur Okun’s Equality and Efficiency: the Big Tradeoff. Published just five years before his untimely death of a heart attack at age 51, Okun’s Brookings Institution essay ruminates on the challenge policymakers face in balancing the two major goals of economic policy.
One of the things I found most convincing in Okun’s book was his insistence on the importance of balance. At the time I was an organizer and admittedly saw the public policy world as a zero-sum game. Doing high school debate and being the competitor I was, I saw the public policy world as one of winners and losers, where one person’s gain was necessarily another’s loss. Okun saw it differently. He saw the public policy world as one in which competing social goals had merit and the real challenge was figuring out how much of each outcome was “best” combination for society.
His most famous example of this is what he calls the “leaky bucket” thought experiment. He characterizes a redistributive program as taking resources from one person and giving them to another. Along the way, resources will be lost to both parties through administrative costs, deadweight loss, or other costs imposed by the program. So a redistributive program can be seen as a leaky bucket that takes water from one well to another, losing water along the way.
The thought experiment he poses is as follows: how much water would you be willing to lose from the bucket before you determined it wasn’t worth using the bucket in the first place?
Okun wagers most people would not tolerate 100% leakage (all the redistribution evaporates before it gets to the least well-off) and most people would agree to use a 0% bucket (zero administrative cost, zero deadweight loss, all the money redistributed goes to the less well-off). He says if you don’t agree with both of those, you’re an ideologue and this reasoning will not make sense to you. But most people are somewhere in between.
This reasoning opened me up to the world of policy analysis. It’s a world of tradeoffs, a world where there’s always a hidden cost, an unintended consequence. And it’s up to the policy analyst to help the policymaker understand what those are.
But that latter point matters, too: if we can find situations where there are win-wins, we should implement those policies.
I wonder if we are coming into an era where people are starting to embrace this logic that Okun put forth almost fifty years ago now. I wonder if early childhood and child allowance policies combined with what we’ve learned about child development could be something that could both advance equity and grow the economy. We still have time to find out, but Okun may just be smiling down on us these days.