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Incentives in markets vs politics

Incentives in markets vs politics

by David Veksler

People tend to become better at doing the thing they are rewarded for doing. Entrepreneurs are good at turning money into products, politicians are good at getting votes, bureaucrats are good at increasing their budgets and influence, and welfare recipients are good at becoming more needy.

In markets with well-defined property rights, there is a tendency for explicit and actual motivations to match.  For example, Apple, BMW, or Wal-Mart want to make stuff I want because they are rewarded to the extent that they make stuff I want.

In politics, the trend is reversed.   Incentives in politics are often the opposite of political promises or goals.

For example, politicians and bureaucrats may honestly want to fix poverty, pollution, corruption, and terrorism, but they are more often rewarded for making all these things worse.

The worse the problem becomes in the voters mind, the larger the politician’s power and scope for action.

The more efficient a democracy, the more it tends to reward those who re-direct resources away from problem-solving activity and toward towards vote-generating activity. In an inefficient or indirect democracy, someone who is a good problem solver can win though the support of a minority that directly rewards success.  In a popular democracy, the ability to get votes will tend to triumph over the ability to achieve campaign promises.

The intentions of politicians and voters are mostly irrelevant – whether they are good or evil, the outcome depends only on what kind of behavior is incentivized. Studies show that most voters are altruistic, not selfish — and this is very destructive. Selfish voters tend to vote based on their own evidence and reward problem solving. Altruistic voters tend to vote based on campaign platforms, have no empirical basis to evaluate a candidate’s proposals, and no incentive to follow up on outcomes.

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