Tuesday, July 19, 2005

Incentives for Bad Behavior ...

When a child steals a toy from another child, does the parent reward the child who stole by giving it more toys? Of course not. The child would only continue stealing toys from the other children in hopes of getting more and more for himself.

Yet this is the way the system of incentives works in government. The politicians are much like the child in the above example: they steal (via taxation or regulation) from the average guy who doesn't contribute much to their campaign and transfer that wealth (via subsidies or the natural result of regulations in their contributor's favor) to those who make large donations. We criticize politicians for "caving in to the special interests" and forget that it is the system of incentives created over time that have enabled politicians behave in such a manner. We forget that we have demanded that politicians spend other people's money for our benefit, and given them our vote in return. When we continue to reward bad behavior, can we honestly expect it to cease?

We ask, Why doesn't the government stick to doing its job? The easy answer is that it is profitable for those in charge of running it to exceed the scope of their job. Let's say you are my employee and the employee handbook says "No working past 5:00," yet, when you do, the accountant pays you an extra $1,000/hour. Which speaks louder: the instruction to not work past 5:00, or the bonus you get for doing just that?

The Constitution is that employee handbook. It is the list of restrictions on what government may and may not do. But the special interests are those 'accountants' who pay our employees to do more than their stated responsibilities. Is it a wonder that the government's "employee handbook" is disregarded in favor of bigger government?

Next question: Can we change the system of incentives so that it is compatible with a truly limited government?

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