Bang Bang Policy

March 20, 2009

by Roger Koppl

In the mathematics of “optimal control theory” you can sometimes get a system to slam violently between two extremes. You alternate between stepping on the gas as hard as you can and slamming the brakes on full.  Mathematicians call such violent swings a “bang bang solution.”  With today’s bill to tax the AIG bonuses at 90%, Congress is making bang bang policy.  Bang!  Take this money.  Bang!  Give it back. 

When even the government’s fiscal policy is subject to such discretionary change, we’re in trouble.  When the government uses its discretion to influence the market, it acts as a “Big Player.”  Bang bang policy is an extreme example of such discretion.  Congress has become a Big Player jacked up on methamphetamine.  The trouble with Big Players is that you never know where they’re headed.  Instead of paying attention to supply and demand in your corner of the market economy, you have to pay attention to the psychological twists and turns of the Big Player.  After all, today’s supply and demand conditions don’t mean much when the Big Player can override them on a whim.  But the twists and turns of Big Player psychology are inherently impossible to predict.  Thus entrepreneurs are less able to plan and more eager to curry favor with the Big Player.  Economic efficiency, relative scarcity, and product innovation grow increasingly irrelevant to business success.  Bang bang policy is no way to “stimulate” a weak economy.  It’s a pretty good way to increase the arbitrary power of the state, however.

 

2 Responses to “Bang Bang Policy”

  1. RickC Says:

    Yes. A friend dropped me an e-mail on the day Congress started talking about taking back the bonuses. He was just leaving for vacation in Greece. He wondered if when he came back in 10 days if we would still be living the same U.S.A. We have our answer.

  2. javier Says:

    What you described above seems to me like the best description of a democratic system too.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: