The Equilibrium of Social Policy–Why Conservatives and Liberals Need Each Other

I recently discussed the role of states in effecting social change and the conflicting messages we send.

But there is an important concept in economics that needs to be more widely discussed among the public. That is equilibrium.

Let’s go back to your first economics class (or let’s create our own if you never had one!).

Back to the basics.
Back to the basics.

You will recall that the point at which supply equals demand is called “equilibrium.” The downward sloping demand curve exists because of the law of diminishing returns, which says that the more we consume something, the less meaningful or useful the next unit we consume becomes (called marginal benefit), so we are willing to pay less for that marginal unit. This is just part of human nature. The upward sloping supply curve exists because the more we can sell a good for, the more we are willing to make. It is also related to marginal cost, which, to simplify the concept to human nature, is comparable to the situation in which the more we are committed to make, the less productive we become as time and energy begin to wane.

How does this apply to social policy?

In economics, the equilibrium point reveals the quantity and price at which society is in its best position, where marginal cost equals marginal benefit You don’t have unused production sitting there because they can’t get buyers to buy at the cost of their production, and you don’t have buyers sitting around wanting a product that no one is making at the price they are willing to pay.

Every policy enacted by a legislature, upheld from the bench, or signed by executive order has a cost. As laws become more extensive (i.e. the quantity goes up), the costs of enforcement and monitoring tend to rise. At the same time, as people see policies enacted that become more narrowly focused and complicated, they are less and less willing to pay (via taxes and time/attention) to support those policies. Eventually, the marginal benefit to additional policies is going to cross paths with the marginal cost of enacting another policy.

What happens when we reach a point at which the marginal cost is the same as the marginal benefit? Conservatives think we have arrived or are soon to arrive. Liberals think we haven’t or we are far off.

But because of special interests, there will always be another group hiring lobbyists in Washington to enact policies that are preferable for them. There is a social cost to every action and change, and yet the costs of change are most often not borne by the people who pressed for them. There is constant and inescapable pressure to pass the equilibrium point.

This is why liberals need conservatives–to pull back the reigns when passions for change cloud the vision of the social costs of those changes.

Conservatives need liberals to point out when marginal benefits really do outweigh marginal costs when preferences for the status quo cloud the vision of real improvements.

This might explain why so many involved in social and public policy work are politically liberal, while so many in business are politically conservative–the focus on costs and benefits is so different, leaving most apolitical economists to try to demonstrate both in an effort to provide information on where we actually are along our political supply and demand curves.

I am left pondering on the following questions: Do we have the political fortitude or wisdom to know that we have reached equilibrium and to not pass it? Who will the next group be? And what is the role of the state in addressing social ills that lie beyond that point? What can be left for individuals and communities to take care of?

How can an organization like the US government, whose measure of success is the number of legislative actions passed, possibly be self-aware enough to consider the true costs of their actions? The answer to this final question for me is, “Not likely.”


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