Judging from the ticket sales & long queues at amusement parks, many people lover roller-coaster & other thrilling
But such stomach-churning experiences are no fun when it comes to economic life. As such, you would think that public-sector officials would rigorously avoid them.
And they could do so if they followed a crucial invocation of economists relating to the importance of incentives, i.e., payoffs & punishments associated with rules & regulations.
It seems that the Obama Administration is tone deaf to the refrain that “incentives matter”. As it is, they seem incapable of understanding that expectations of heavier future tax burdens from excessive borrowing & spending will change people’s behavior.
Logic & history & theory suggest otherwise. Just as “cash for clunkers” induced people to buy sooner rather than later, expectations of higher tax burdens inspire a shift in investing, saving & spending to minimize long-term liabilities.
As such, looming increases in tax rates with the expiration of the Bush tax cuts will lead to front-loading of dividend payments, cashing out for capital gains & other such behavior that may boost results this year. However, that means that there will be even less activity next year when burdens on start-ups will be higher & penalties for success will be greater.