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Of Human Design, but not of Human Intent, Once Again

Arnold Kling

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From The Tax Foundation

The Treasury action invalidating SILO depreciation deductions encouraged the banks to look for any opportunity to get out of the contracts. The situation is exacerbated by an IRS settlement offer to banks that lets them keep 20 percent of the disallowed deductions if they terminate the agreements with the agencies by the end of 2008.

That's where the fine print comes in. The escape route that the banks have needed since 2004 opened up when American Insurance Group (AIG), an insurer that had guaranteed many of the deals

It's a convoluted story. At the heart of it is a tax dodge that was created and then disallowed. The unintended consequence is that some large metropolitan transit systems that participated in the tax dodge suddenly need cash because their counterparties are willing and now able to demand that the deals be unwound.

My point in mentioning the story is that the consequences of tax and regulatory policy are beyond the ability of policymakers to forecast. I have started to refer to the knowledge/power discrepancy. For me, that discrepancy is the essence of the libertarian critique of government intervention.

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CATEGORIES: Political Economy

COMMENTS (3 to date)

Latest Comment

Unit writes:

They don't know what they're doing, but have to pretend they do, because people really want them to. This is fine when governments are small and inefficient, but the larger they become and the more fine tuned, the worse it gets.

Posted October 30, 2008 9:50 PM

fundamentalist writes:

":I have started to refer to the knowledge/power discrepancy. For me, that discrepancy is the essence of the libertarian critique of government intervention."

I agree completely. Hubris rules in govenment.

Posted October 31, 2008 9:01 AM

Jason writes:

Do you mean that policymakers specifically lack the knowledge to forecast properly or are you saying that nobody can accurately predict the outcome? If nobody is capable then we simply find ourselves in an unfortunate situation. If our elected officials are not capable then they should be replaced with those who are. I don't believe the example you gave is a strong argument against government action.

Posted October 31, 2008 12:35 PM

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