Working on policy research at Morningstar, we get a lot of questions asking why the government is (or is not) doing something and why government bureaucrats think an approach will be helpful. We find that many people have an idea of how the government operates that fundamentally misses how it tries to accomplish policy goals. In this column, we will discuss the tools the government uses to help investors. We hope it provides a better understanding of the government’s policy decisions. It is a summary of a longer white paper we plan to release later this spring.
Despite popular perception, governments are not top-down hierarchies that directly carry out social programs through their bureaucracies. Rather, as Lester Salamon argues in The Tools of Government, governments typically try to induce third parties to carry out their policy goals with a variety of tools. For example, to promote homeownership, the U.S. Congress set up loan-guarantee programs with banks and provides generous tax benefits for buying a home. Instead of providing the poor with “government cheese,” food assistance programs provide vouchers for people to buy groceries at stores. To get people to eat better food, the government requires food and beverage makers to disclose nutritional information on packaging, and it imposes excise taxes on some junk food and alcohol.