Understand Incentives and Disincentives

One of the things we know about economics and about many other aspects of life is that incentives matter. When there is an incentive you get more of the behaviour you want and where there is a disincentive, less. You knew that and have applied it to raising children, helping employees move ahead, and by voting and other activities that change the governments we have.

People underestimate incentives and disincentives and their effect because they seem so natural. Every once in a while it is worth looking at them from the producer aspect and from the recipient side.

In an election year

Elections bring out the best of incentives from politicians. Free this, more that, less of something we hate. The idea is properly organized incentives and disincentives will attract votes. Attracting votes produces more power to do the things they really want to do. By chance alone, some of those may be part of the incentive/disincentive list.

Politicians don’t have the same needs as the rest of us. They must be seen to be doing something popular, even if it never materializes. They must be able to cause you to think their priorities are your priorities and the things they are working against are the same as you would choose. It’s about selling ideas. Unfortunately, they never do it in the sense of convincing by reason, evidence, and faith in their ability to execute. I wonder why not.

There is little evidence, little reasoning, and God help us all if we believe in their ability to execute efficiently. As Ronald Reagan pointed out in his inaugural address in 1981, “Government is not the solution. Government is the problem.”

Why is the government the problem?

It is about mismatched incentives. Governments try to accumulate power. Their story is they need it to carry out their plans. Do they ever back away from it when the need passes? Not often.

Do they do much other than try to accumulate more?

It is small intrusions we must notice. The big intrusions like 1970’s invocation of The War Measures Act seem too ambitious to leave in place, even for them. You’ll notice these acts remain on the books after the need passes, though. The idea is they can be swiftly invoked and that is sold as a good thing. It might very well be, but it does allow them to reappear without parliamentary or societal debate. That is a hard one to justify. Perhaps they could be invoked with a time limit. I  believe laws with sunset clauses are best. it forces us to rethink them once in a while.

The total of their power and your freedom is constant. What they have, you do not and vice versa. How is the needle moving?

Governments have a valuable place

Governments are better at administration than any individual or group. Most laws are easy to agree with and obey. Stop at red lights, drive on the right, no assaults, no fires in the dry season, and no overloaded trucks on the highway are just common sense. Restricting how dark a restaurant can make toast though, maybe less.

We should respect the effectiveness and efficiency of police, fire protection, food safety, weights and measures, healthcare, the military, and a few more. We should notice how the effectiveness and efficiency issue are faltering when politics supersedes the real needs and we should notice the truly useless that has been created.

How can they create useless?

They tend to do dishonest cost/benefit studies, if they do them at all. All the benefits but only a few of the costs. Thomas Sowell has suggested we have replaced things that work with things that sound good. You can’t do that if you do honest cost/benefit studies.

The current pandemic question is one that is difficult to assess. Certainly they have the power under some “health emergency” guidelines. Have they used that special right well enough to be helpful? Have they gone too far or have they not gone far enough?

I certainly don’t know and I have tried to know. They are either making decisions that have effects on us without evidence, or they are hiding the evidence. No trust and they wonder why.

There is not much in the way of evidence that the government tells us and the little they do tell us is unconnected. How are we to make reasonable estimates of our best choice? Sadly for them, more information would lead people to need the government less.

That’s where the commonality of interest breaks down

Until the government goes back to governing for the benefit of the people, politics will grow in importance. That means they gain power and we lose freedom to act in our own interest. Think about what incentives and disincentives are at work in that context.

Can a health emergency be used for other purposes once the power is taken? Maybe climate change is a health emergency. Maybe racism. Maybe guns.  It might be nice to see them apply the emergency power to things like Fentanyl, but they seem stymied there. You will notice they tend to bypass anything like hard action to solve problems like hard drugs, guns, border security, people trapped in Afghanistan. They try. I am reminded of Yoda. “Do or do not. There is no try.”

The question of the day

Should there be incentives for politicians to behave as though governing was their responsibility. Do you know how to tell when it is happening? It is not so hard.

When the government is doing their true job, party won’t matter. Most conservatives and most liberal agree on the things that benefit the people. They must resort to party power to do the other things. At one time, the opposition might disagree on the extent, timing, or cost of some project, but agree with the purpose.

Do you ever see that today? That’s politics in action. We could do with a lot less of it.

I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com 


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