Incentive Models Deceive Us

Economic Incentive is great, but if you don’t have the skills, you’re out of luck.

A few days ago, I found myself browsing websites about economics. In particular, I was looking at the Evonomics website. I like what they write there. I found it by accident as I was intrigued by an article about how land disappeared from the way we teach economics. But in the last few days, I’ve been thinking of the phrase, “incentive models”. I remember this article that said that there has little to no evidence to support incentive models of economics. And now I think I understand why.

I have come to think of capitalism as a massive behavior modification experiment, but with dollar signs as indicators. I sometimes think of it as a Skinner Box, where we learn how to press buttons to get the things we want. Some of us have a very nice Skinner Box with lots of bells and whistles, some of us don’t have one at all. The quality of our Skinner Boxes seems dependent on a combination of luck and skills, mostly luck.

When I listen to conservative rhetoric about what happens when the government gives people money, I always hear the word, “work”. For example, during the debate over extending unemployment benefits last year, many Republicans in Congress expressed concern that if we made the benefit too large for too long, then people would stop working. Indeed, some even said that the enhanced unemployment benefit would compete with employers and compel employers to offer more money than the government offered for not working. It is assumed that if you give a man money, he will have no incentive to work.

But I’ve been watching a growing body of evidence that shows that if you give someone money every month, something to help them established a base that they can rely upon, they begin to plan for the future. They begin to build skills to parlay that basic income into something else, something that they can build into a comfortable living and they’d still be working. Why? Because they knew that basic income would still be there if they failed.

Still, I think of the federal minimum wage at $7.25 an hour. That’s a meager sum if I ever saw one. I’ve never worked for minimum wage. I’ve spent all of my adult life earning something more than that, significantly more. When I read conservative literature, I see their justification for keeping the wage low, but I see it veiled in “verbiage”, in esoteric terms that are not so easily understood. I hear the word “fear” in their words. I can’t help but have the sense that Republicans want people to be motivated by fear.

Fear of starving. Fear of living out on the street. Fear of losing things like cars, houses, and assets. Fear of not being able to provide for one’s family. They can’t seem to frame their desire to keep people working in terms other than fear.

You know, they say that you get what you pay for and that if you want people to produce more of something, you pay more for it. Considering our public policy decisions of the last 40 years, and how wages have stagnated during that time, it’s hard not to have the impression that Republicans don’t want people to work for money. They want people to with the motivation of fear, to not starve, or live out on the street.

All that time in the last 40 years, they were perfectly content to let the corruption slide. They were content to send our jobs overseas, while supergenius MBAs were making money sending those jobs overseas. In the 1990s, where we sent hardware and know-how to China, to open their borders to trade, we made a direct contribution to the conditions that led to the rise and the collapse of the housing bubble in 2008. Notice that nobody who profited from that unfortunate episode in American history was ever prosecuted. Doesn’t it seem ironic that the cause of the collapse of the housing bubble, “trade with China”, wasn’t important until Donald Trump ran for president?

All those geniuses had plenty of incentive, in the form of money, to do better and they didn’t. They were mostly “conservative” men and women who were content to watch housing prices rise much faster than inflation for a decade and then act all surprised when people could not keep up and let the whole thing collapse. Those are the same people who will tell you that “basic income” is “pie in the sky”. They will tell you that medicare for all is unsustainable. They will also tell you that astronomical CEO pay is justified by their performance. And they will tell you that it’s OK to let the CEO and his friends on the board of directors of some of our largest corporations decide how much they should get paid without any shareholder oversight. Then they will warn us that giving too much money to ordinary people struggling to keep it together, might “overheat the economy”.

I try to think of this in simple terms like, “wealth != intelligence” for I have seen very wealthy people make very serious mistakes. Consider the present trend for global warming. It’s well established that mankind has increased the levels of carbon dioxide in the atmosphere to the point that the planet is warming up. Exxon knew about this in the 1980s. They had all the skills to see, but perhaps not enough “incentive” to stop. When they see roads in Florida overcome with the high tide, they seem to think that changing course is important. They even told us they couldn’t see this coming, despite hiding evidence of their knowledge for decades.

Quite often in the news, I read stories about employers who complain that good help is hard to find. Well yeah, it is if you don’t pay enough for the work you want to hire for. I remember a story about an owner of a roofing company who complained that $17 an hour should be enough for the work, but few were applying. One person did apply, but he ghosted the employer. Gosh, there’s an employer who believes in the law of supply and demand for everything except employees.

Then there is another story about Dan Price. Mr. Price owns a credit card processing company. He made the minimum wage at the company $70k a year and he took a paycut, and that was in 2015. What happened to him and his company now? Mr. Price says that since then revenue has tripled. When they have an opening, thousands of people apply for the job, and that means he can set a high bar for entry for the best of the best. He’s happy. His employees are happy, and as can be gathered, his customers are very happy.

All of this stuff that we do requires skills. You can dangle all the money out there you want for employees to work for you, but if they don't have the skills, they can’t do the job. Same is true the other way. You can pack people with fear of losing, fear of starving and living out on the street, fear of not getting what they want, but if they lack the skills, they can’t save themselves. This deficit of awareness of skills in conservatives and in Republicans in particular is what concerns me the most. They worry that people won’t work if we make unemployment benefits too high, if we give health care out for free, and god help us if someone should ever get a free lunch.

But if Wall Street takes record bonuses after tanking the economy like they did in the years following the collapse of the housing bubble, who cares? Not once did I see a headline calling for prosecution of those responsible, from either party, but since the GOP paints itself as a model of accountability, I would expect to see them at least doing something about it. I guess what matters to them is that there is incentive to do something for money, without really specifying what we want people to do for money. “Show me the money!”, they say.

So I don’t worry that much about giving people free money. There will always be people who want to do more, to do better. There will always be people who want to earn more money than they’re getting. There will always be people who want to sleep at night knowing they did the right thing. And there will always be people who lack the skills to do better. There will be people who always need help. That does not mean they’re not worth helping.

Write on.

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