It is easy to underestimate the difficulty of creating the right incentives.
In the 1940’s, the paleontologist von Koenigswald was searching for early human remains on Java and decided to enlist the help of the locals in his search by offering them “ten cents for every piece of hominid bone they could come up with.” Unfortunately for von Koenigswald (and for his findings), he discovered too late that the locals “had been enthusiastically smashing large pieces into small ones to maximize their income.”
(The story is from the book A Short History of Nearly Everything, which is one of the best books I've ever read. The amazing thing about the book is that it is in fact a short history of nearly everything.)
Combine the difficulty of getting incentives right with the inherent problems of Government and a dangerous mix results. For example, every time a subsidy is created, a special-interest group sprouts up dedicated to preserving the subsidy in perpetuity, long after it has outlived its utility.
> It is easy to underestimate the difficulty of creating the right incentives.
My favorite "Incentives matter" story is FedEx - they were having a hell of a time getting drivers to get packages shipped on time. They tried all sorts of things - threatening, praising, performance reviews, training, etc.
None of it worked.
Then they changed their pay from "per hour" to "per shift" - you work a shift, you get paid a certain amount. Go home when you complete your shift, regardless of how long it takes you.
Right away, their on time rate went massively up - in fact, a lot of shifts started being completed early at that point.
The danger of this sort of an incentive is that there may be some hidden externalities that will be exposed. I wonder if the accident rate per shift also increased when this system was established (c.f. Dominos delivery and unintended liability...)
I was a driver for a big pizza firm. We were paid bonuses depending on how fast we delivered.
Unfortunately for me, I wasn't close friends with the manager of the store. He gave all the shortest runs to all his mates, making it nigh on impossible to get a bonus unless you suffered his patronage.
I'll tell you what happened--they started reporting "nobody at home" so they didn't have to ring the doorbell. Haven't you ever been sitting at home waiting all day for a package to arrive, only to find on the website that the driver reported "nobody home"?
I've had more problem with that from UPS. Both my wife and I were home all day, hell I even at one point went to the porch and waited outside for the package to arrive. UPS truck never came by and driver claimed "nobody home". Had to go to UPS center and pick up the package at the guard shack and there were about 12 other people. The guard said, "Wow that's funny you're all here to pick up packages from the same truck/driver."
Haven't you ever been sitting at home waiting all day for a package to arrive, only to find on the website that the driver reported "nobody home"?
Nope. Not once, ever.
But then again, I don't use FedEx Home Delivery, as they are not actually FedEx. (FedEx contracts that out to random local trucking companies. The express deliveries are the ones they handle themselves, and fortunately everything I get via Amazon Prime is either UPS or FedEx Express.)
So Fedex also supplies the local contractors with branded trucks and uniforms for the Fedex Home delivery? I have seen such people pull the not ringing the door bell stunt and had to go run out after them. If those aren't Fedex employees it seems like a sure fire way of ruining their reputation.
(When I was a contractor for Bank of America, I got the same Bank of America business cards that everyone else did. Contracting does necessarily mean "setup this one webserver" or "deliver these 83 random boxes today"; it can also be a full-time thing.)
I assume they don't mind the reputation damage because the price is what matters in the "home delivery" business. They care that their $100 overnight letters get delivered on time; your 60 pound box of laundry detergent doesn't mean much to them.
Actually being that they are contractors, they supply that stuff themselves. My uncle had a few of those trucks that he owned and was paying drivers to operate for a while.
Yup, my dad did this for a while. Had to buy the truck. In a rural area this was a real losing proposition, the area he had to cover was so huge he was putting in 12hrs a day to get everything delivered. With all the wear and tear on the truck, causing it to need regular repairs it eventually became apparent that he was losing money delivering their packages.
This is exactly what happens. I often work from home, and I see them do this all the time.
You would think that with the explosion of personal shipping in the last fifteen years caused by the Internet, that these companies would have figured out residential deliveries by now but, if anything, it's become worse.
I've had this happen. I always try to get residential deliveries from UPS because they seem to understand this better. Maybe Fedex needs to add an incentive for successful deliveries instead of just completing the shift. Or maybe they don't care because they really focus on business deliveries and residential is just a distraction.
My buddy owns a small courier company (which I helped found a few years back). I'm about to write a piece of android software for his couriers to solve exactly this problem: when they get a "nobody at home" situation, they'll have to post a note on the door, then take a picture of the note and scan the package, while the software records the GPS (or network) coordinates.
A HTC Wildfire is around $50 with subscription, and once all couriers have them we intend to extend the system as much as we can. Lots of cute stuff should be possible with a combination of camera/barcode reader/gps/internet device.
I used to get this all the time, I once received an 'undelivered' slip for a package allegedly attempted to be delivered at 11am, but the slip was pushed through my mail slot at nearly 2pm. I was out the door and saw the truck driving off, was back in and called the number on the slip and told them, not so politely to put the manager on the phone right now. Explained what just happened, from that day on my package was always delivered.
An old friend from India told me a parable he brought from his homeland. It's similar to this, except it backfires on the greedy guy.
There's a king who wants have very rich and flavorful soup, so he tells his chef that, for every drop of grease floating in his bowl, he will pay a coin. The greedy chef wants to maximize his pay, so he dumps a lot of oil into the soup. Of course, this results in a single oil slick across the entire top of the bowl, so the king pays him only a single coin.
A classic example are the companies that have sprung up for the sole purpose of maximizing Medicare payouts. Ever see those ads for scooters on TV "at no cost to you"?
An acquaintance used to work for a doctor's office where they used billing software designed to find the best treatment codes to use when preparing a bill. The goal was to select codes for those things that were covered by Medicare or insurance.
Every so often someone would call up and ask about some odd item on their bill, and it would end up being some bullshit charge for something they didn't get, or a carefully selected charge that was similar to, but not really, they service that was actually provided.
But since most of the time the costs were covered by some other party most people didn't bother inspecting their bills or statements, or bother looking closely at what was charged.
Sorry, off-topic: I highly recommend the audio book version of A Short History of Nearly Everything narrated by Richard Matthews (not the one narrated by the author).
It's interesting that they tried the tactic of micro-regulating every aspect of the ship captain's business and that didn't work as well as broad incentives.
Today, this micro-regulation is politically popular as voters can more easily comprehend the direct effects of regulation as opposed to the indirect effects of broad incentives. For example, we force drug companies to perform very extensive clinical trials for new drugs and this makes us feel safe. But simply increasing the liability drug companies face for producing harmful drugs may be more effective and would certainly be a lot cheaper (as much as 90% of the cost of a new drug is meeting FDA requirements). But I doubt voters would feel as safe in a regime of broad incentives even if it worked better.
It's also driven partly by a preference for that kind of regulation from the companies themselves (though they would prefer less regulation overall). Having to follow a bunch of rules on FDA trials is a manageable, mostly predictable expense; large, nearly unlimited potential liability if a drug turns out to have significant negative effects 10 years down the line is much scarier to managers and stockholders.
That's one reason the health industry is currently lobbying to move it in exactly the opposite direction of what you propose: they want less broad liability, and are willing to accept more FDA micromanagement in return if that's what it takes. The proposed bargain is something like: the FDA should tell us what to do, and if we follow their rules, we should be shielded from all liability.
Regulation = Barriers-to-Entry. Businesses accept (and secretly cheer on regulators.) People get this connection, even though it is non-intuitive on the face of it.
What is less studied are the regulators themselves. They rarely impose the kind of regulation that opens industry actions to sunshine and converts them to common knowledge.
There is a substantial body of theory that shows that the price system breaks down in the face of informational asymmetry. But regulators don't go for it since it does not make them more powerful. That's human nature. And it's fine with businesses, who would prefer to answer to the One rather than the Many. Preserves barriers to entry.
Another example is reducing fuel use: Any economist will tell you that if you want to reduce fuel use you can simply tax fuel (or tax it more heavily). Instead we get things like CAFE standards, which are both less effective (more efficient cars = cheaper driving = some amount of additional driving) and probably more expensive for everyone involved (i.e. someone that doesn't drive much might be better off with a cheaper, less efficient car). But no politician is willing to buck up and propose a higher gas tax (in fact recently members of both parties in the US proposed a gas-tax holiday).
(Note: there are other reasons why CAFE-type standards might be a good idea, but they are far from the most effective way to reduce fuel use).
Fuel taxes are a great way to reduce fuel use, but they aren't a very direct incentive to reduce fuel waste. Since there's no viable replacement for fossil fuels for cars (and public transportation in America generally sucks and can't be fixed quickly), it's fuel waste that needs to be attacked more than aggregate fuel use.
> as much as 90% of the cost of a new drug is meeting FDA requirements
It's easy (and convenient) to blame this on the government. I'm somewhat familiar with the pharma industry (payed for my house), and I can tell you that at least some of these "regulatory" costs are things like flying doctors to expensive shindigs, to coordinate the research they're doing for you.
On this note, if a govt. agency throws a multi-thousand dollar party, it's a scandal, but those kinds of costs are built into the way (privatized) pharma operates.
It's easy to waste millions when you're making billions, and you don't have to answer to taxpayers.
This "government is wasteful" meme ignores the fact that there are powerful non-government actors milking the government.
It's easy to waste millions when you're making billions, and you don't have to answer to taxpayers.
Quite the opposite. The taxpayers only wake up once every 4 years, and even then they buy the crap that's shoveled at them, and the fearmongering ("OK, we may have made a few mistakes, but you still have to vote for us because the other side is evil"). Anything that happens between now and the next election will be largely forgotten, and anyone who tries to remind the electorate will be shouted down for "negative campaigning".
On the other hand, the shareholders are watching the actions of the corporations every day of the year. I'm not personally doing so, but I pay a variety of mutual fund managers to do it. If they can't maximize my return by steering clear of corporations that are flushing money away, I'm going to fire the fund manager and put my money elsewhere.
And that's why you'll never see a private organization as poorly run as a government agency, at least for any period of time. The quality of education we get is absurd for the money thrown at it. The amount of time it takes for a highway construction project to be completed (not to mention the number of workers I see loafing around when the town is filling potholes) would never be tolerated in industry. I could go on all day...
This "government is wasteful" meme ignores the fact that there are powerful non-government actors milking the government.
This is certainly true. But it doesn't absolve government of its responsibility as stewards of our money. The fact that government is just so huge that this is impossible is just another symptom of the root problems.
On the other hand, the shareholders are watching the actions of the corporations every day of the year. I'm not personally doing so, but I pay a variety of mutual fund managers to do it. If they can't maximize my return by steering clear of corporations that are flushing money away, I'm going to fire the fund manager and put my money elsewhere.
The recent financial meltdown should have made it abundantly clear that the "watchers" were in fact not watching and at times were colluding with those they were supposed to be watching to get a cut of the take. Shareholders do not watch companies for waste, they just watch the stock price (and maybe the bottom line if they are particularly dilligent.) In many cases government agencies are better managed than corporations of an equivalent size; there are usually better internal auditing and fraud controls in place and if you get caught trying to defraud a government agency you are more likely to go to jail than if you were to perform a similar fraud against a corporation.
The recent financial meltdown should have made it abundantly clear that the "watchers" were in fact not watching
That's true, but it's a very specific example that has a clear explanation in two parts, those being the government and the private sector together creating the problem.
First, there was the government (e.g., Barney Frank's efforts) that was forcing industry to accept risks that industry would have avoided under more natural market conditions. Second, forced to absorb those risks, industry experimented with ways to mitigate and dissipate that risk -- but the experiment failed badly.
It showed that nobody knew how to properly model the situation -- neither the regulators nor the industry. And for that reason, it's not really an instructive lesson to draw conclusions about industry. We've learned those particular lessons now, so you shouldn't see this repeated again.
Shareholders do not watch companies for waste, they just watch the stock price
That is patently absurd. It's not even true for any responsible individual investor, but for any fund manager that would be outright negligence -- and then the yields of his funds would tumble, and even the stupidest of individual investors would throw him out on his ear.
By contrast, I offer government idiocy, programs that have blatantly failed by any objective measure, yet continue to be money black holes. Consider public education, and the war on (some) drugs. Both actively damage society, and waste uncountable sums of money in doing so.
In many cases government agencies are better managed than corporations of an equivalent size; there are usually better internal auditing and fraud controls in place
Citations, please? Here are some counters: Aside from my examples above, consider Medicare, a well-known money pit that politicians have said they'll clean up for years if not decades. Indeed, government does all it can to prevent us from seeing the depths of its waste. I have a friend here in NJ who works tirelessly to uncover government waste, and the reason it's such a big job is the constant resistance to the use of open public records laws.
"'According to some estimates we cannot track $2.3 trillion in transactions,' Rumsfeld admitted. $2.3 trillion -- that's $8,000 for every man, woman and child in America."
-- CBS News, 1/29/02, U.S. Secretary of Defense raises evidence of government, military corruption
"A GAO report found Defense inventory systems so lax that the U.S. Army lost track of 56 airplanes, 32 tanks, and 36 Javelin missile command launch-units. When military leaders were scrambling to find enough chemical and biological warfare suits to protect U.S. troops, the department was caught selling these suits as surplus on the Internet 'for pennies on the dollar.'"
-- San Francisco Chronicle, 5/18/03
"The Defense Department spent an estimated $100 million for airline tickets that were not used over a six-year period and failed to seek refunds even though the tickets were reimbursable."
-- New York Times, 6/9/04
It's funny you mention Medicare, since it's actually more efficient than most private insurers when measured by fraction of revenue spent directly on patient care. The reason Medicare is a money pit is that it pays for expensive care for a huge population of elderly people,
Many people say this, but it's simply not true. The numbers miss crucial information, and I'll explain why. The reason that I've got this knowledge that isn't widely known is that my wife works for a hospital, where she is the "Manager of Budget and Reimbursement". That means that half of her job (and that of her department) is to secure reimbursement from Medicare (and Medicaid).
If you're sharp, you'll already see where this is headed.
The problem is that Medicare, while not quite a monopsony, is so large that they can call the shots pretty much as they like. Where other healthcare insurance providers (say, Aetna) still exist, Medicare's market share -- and thus power in the market -- is many times larger than the biggest of them. That being the case, Medicare can largely dictate unilaterally the terms under which it's willing to pay out. And that is the very raison d'etre for my wife's department.
So while other providers show greater expenses for administrative costs, Medicare's own expenses for the equivalent is far lower. But that doesn't mean that, in the larger picture of the patient's care, these expenses are not being incurred.
Medicare's size and market power allows them to demand that providers (e.g., my wife's hospital) offload a huge amount of the administrative costs, doing much of what ought to be Medicare's own work (by comparison with what's done by and for other carriers) for them. This means that while Medicare isn't paying directly for it, the administrative expenses are still incurred in the course of patient care; it's just that the costs are hidden from Medicare books, and must be amortized across the rest of the hospital accounting.
This means that half of the expenses the hospital pays for my wife and her department are really Medicare expenses, but don't show up on Medicare books -- instead, they're amortized as a fixed expense across the whole hospital.
> On the other hand, the shareholders are watching the actions of the corporations every day of the year.
This is simply not true in any useful sense. What is Lockheed Martin's entertainment budget? How much money did Pfizer spend on airline travel for doctors? What percentage of the doctors who flew in better than coach seats could have flown in coach?
There's no way for a share-holder to reasonably find out this information.
> And that's why you'll never see a private organization as poorly run as a government agency, at least for any period of time.
This is just dogma. As long as the overall organization is profitable, sub-domains can be spectacularly unprofitable for surprisingly long. You just don't get to see it as an outsider.
> But it doesn't absolve government of its responsibility as stewards of our money.
So, how do they do that wrt sub-contracting? They try to cover their butts with more and more regulation. Then the same people who are robbing them blind scream about government interference.
If you want to claim that only the government is an inneficient actor, I can only deduce that you've never worked in a Fortune 500 company with more than 100.000 employees.
Inefficiency is built into most of the large human structures. In large corporations few people have real incentives towards the bottom line, so we have industries that live off their cash cows while the rest of the organization is a complete mess.
You are also discounting the fact that inefficiencies are not necessarily a sufficiently important factor in productivity. American military contractors are some of the worst providers of value in terms of efficiency, yet their ability to play the political and legal game gives them all the advantage they need.
Disagree that having a broad incentive is good enough for this case. This is an example of how hard it is to create an effective broad incentive. Since drugs can be created under the shelter of limited liability of corporations, people will just find a way around it. Shell corporations would be much more likely to risk other human lives than the FDA would. In addition to that, if the expected value of a risky drug is still positive, then many corporations may still rationally opt to proceed with the drug.
Agreed. Bring in that sort of incentive-based deregulation and suddenly every new drug would be made and manufactured by an entirely new company (which just happens to be 100% owned by an existing big pharma company).
Incentives aren't the solution to everything, sometimes regulation works better. For instance, you're liable for all the damage you cause while on the road, and yet we still need road rules to stop people from behaving like dicks (and even then, it barely works).
If a smaller company is 100% owned by a larger company then people suing the smaller company would have access to the large company's assets (there is some sort of equity cut-off here, in banking I believe it's as low as 9.9%). Corporate law thought of this.
OK, so you set up a wholly independent company owned by a few employees. This company licenses the patent for NewDrug from BigCompany.
Heck, you don't even have to do it with shelf companies. Hi there, I'm BigCompany, and I'm willing to license this drug which I think might work to any startup that feels like selling it! Or if that would expose me to liabiilty, I'm willing to license this substance which I developed which may or may not be useful as a drug. That would still be a win-win situation.
It sounds crazy when you put it like that, but people really will swallow a random pill given to them by a man they've never met in the toilets of a dodgy club in Brixton...
> as much as 90% of the cost of a new drug is meeting FDA requirements
Really? I'll take it that you're not including marketing (which is where most of the money goes), as that doesn't kick in until the new drug is going to be approved.
Does that 90% include things like clinical trial, which should be done anyway?
Marketing may include those things, but isn't limited to them, and much of the marketing money is spent elsewhere. It's easy to tell the drug companies are awash in money dealing with them. Not that I blame them.
> Marketing may include those things, but isn't limited to them, and much of the marketing money is spent elsewhere.
And you know this how? And where exactly?
I'll assume that you're referring to ads.
> It's easy to tell the drug companies are awash in money dealing with them.
Oh really? I see significant ad campaigns for 4-8 drugs. Even 20 would be a small fraction of the total drug portfolio of a single company, and there are multiple companies.
I'm not terribly certain of that one. I don't disagree on the principle in the general sense, but (having been in clinical trials at one point) it seems every new drug will kill / have adverse effects on someone. Its the nature of the thing, drugs do not react the same for everyone and sometimes it is adverse. No amount of testing will fix that.
Each drug gets passed through to a holding company that funds R&D and assumes liability. How do you hold Pfizer or Novartis resonsible for a drug they don't "own"?
How do they earn any profits if they don't hold the equity? If they hold the equity, then they also are on hook for the liability. I used to work in banking and a lot of our clients would have loved to sell all their bad loans to a fully owned subsidiary, but the law simply doesn't let you do that.
I'm not a corporate lawyer but in my experience in the financial markets it is simply impossible to avoid liability while holding equity. Maybe there are some loopholes but it is not nearly as easy as you suggest.
IANAL either, but I could imagine many structures that would allow for the effect the holding company would want.
Pay a company for distribution and logistics expertise and make that transfer-pricing arrangement profitable for the logistics company.
Then, what profit remains goes to the company owning the patent on the drug (and the liability). The parent company could hold limited partnership stakes, convertible bond and/or options with a fixed term (which might be conveniently the same length as the patent term). If the drug "survives" 17 or 20 years without significant lawsuits, call in the options and claim your equity. If the drug explodes and tanks the discovering company, the parent company holds options, bonds or LP shares that are now worthless. Still, they're in business.
It's a fair question, and I personally don't see a good way around the legalities of this.
However, the moral questions are quite obvious, and it seems obvious to me that there would be consumer watchdog groups (like Consumer Reports) that would keep us abreast of these antics. Even if the law can't pierce the corporation, crowdsourcing and reputation certainly can.
Lots of people die from not getting life-saving drugs because they are held up by the FDA too, including drugs which are already available and shown to be effective in other countries with less strict regulatory regimes. The net lives-saved statistic of FDA regulation is really hard to calculate.
But assuming that you have some number of lives-saved in mind, you have to ask yourself if that number is worth delaying pharmaceutical research. Maybe your counter-factual world is downright apocalyptic - I don't think that's likely. But if so it makes sense to have strict regulation. There are some scholars of the issue that think the lives-saved number of FDA regulation is negative, in which case of course the cost is not worth it.
edit: I removed an illogical claim that may make follow up comments make less sense.
I read a few places before that 90% of the cost of developing a drug occurs after clinical trials begin but I have things to do other than write HN comments so I didn't look it up again. I will be happy if someone else finds a reference to support or deny that and will happily admit I am wrong if I am.
Of course I'm totally wrong about the 90% delay I put in this last comment, I was thinking about this on the way to the office. If we're thinking about the added cost of regulation we have to compare the cost of regulation to what drug companies would spend on clinical trials in an alternative regime, and that number is not $0.
Charlie Munger: "One of my favorite cases about the power of incentives is the Federal Express case. The heart
and soul of the integrity of the system is that all the packages have to be shifted rapidly in one
central location each night. And the system has no integrity if the whole shift can't be done fast.
And Federal Express had one hell of a time getting the thing to work. And they tried moral
suasion, they tried everything in the world,
and finally somebody got the happy thought that they were paying the night shift by the hour, and
that maybe if they paid them by the shift, the system would work better. And lo and behold, that
solution worked."
The Maersk Dubai incident is a real-world modern-day story of a captain killing some stowaways:
On March 12 1996, two Romanian stowaways, Radu Danciu and Petre Sangeorzan, were discovered on the container ship Maersk Dubai and ordered overboard on a makeshift raft, approximately 70 kilometres off the coast of Gibraltar. On May 18 of the same year, en route to the Port of Halifax, another Romanian, Gheorghe Mihoc, was found hiding in a large cargo container and forced overboard at knife point by Captain Sheng Hsiu and four of his officers. A fourth stowaway, Nicolae Pasca, was discovered by Filipino crew member Rodolpho "Rudy" Miguel and kept hidden until the ship arrived at Halifax, where eight Filipino crewmen (including Miguel) jumped ship and reported the incident to the authorities.
Upon arrival in Halifax the Maersk Dubai was stormed by the Royal Canadian Mounted Police (RCMP) and Captain Hsiu and his Taiwanese officers were arrested and charged with first degree murder. The radio operator attempted to escape by jumping into the Halifax harbour and was later arrested. Captain Hsiu attempted to deny access to the ship under international shipping laws...
I learned about this story because it's part of the theme of the concept album Magellan's Wake, by Savatage (which is largely the same as the more popular "Trans-Siberian Orchestra")
It should be mandatory for any incoming politician to take a couple introductory economics courses before serving. There are too many laws where incentives are not aligned properly, fundamentally dooming the policy to failure.
A good example of an incentive problem that's recently unfolded: now nearly 50% of US households have no federal income tax liability.
Edit: It's nearly 50%. It was 38% in 2007, 47% in 2009. Also, 40% of households "make a profit from the federal income tax system, meaning they get more money in tax credits than they would otherwise owe in taxes".
Are there any official sources for that number? All I've ever been able to find are articles like this one: http://finance.yahoo.com/news/Nearly-half-of-US-households-a... where everything is "according to projections by the Tax Policy Center" or similar groups. And, the explanations given in that article are less than compelling to me. For example, they focus heavily on the "family of four making as much as $50,000 [with] two children younger than 17". I'm a little skeptical that such families actually make up 50% of US households. (Just consider that you'll pay taxes for 50 or 60 years, but if you have 2 children, you can only be in this category for 15 years or so.) They are also throwing in stuff like credits for "buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances". But, again, there's not that many new houses bought, and the people buying them are mostly not families of 4 making under $50K. Nor are those families running out to spend thousands, or tens of thousands, of dollars on home upgrades. Finally, this argument also ignores the fact that most of the social safety net programs are paid for from payroll taxes, not income taxes.
When a majority of a countries people are not paying for the country or (worse) profiting off the government, then they have no incentive to keep government spending under control. This leads to the increase of tax money coming from fewer and fewer citizens until the whole thing collapses. Paying for something means that you pay more attention and be more critical of failures.
It doesn't actually work that way, if you think about it. In an election your vote pretty much doesn't matter. That means that if you're just going to vote for your own self interest you might as well not bother getting out of bed in the morning. Instead people mostly vote in ways that let them tell themselves that they're good people. Empirically, this is pretty well backed. For instance there isn't much correlation between income and how people vote on taxes, or between age and how they vote on social security.
Of course people have little incentive to find out which policies will bring actual good results as opposed to those which superficially seem nice. Luckily politicians who hope to be reelected can't do anything that turns out to be too stupid in practice... some fraction of the time. And so we sort of muddle our way through things.
I was just talking about this issue last night with a couple friends. One is a teacher, and she said that every morning for the last week or so, she's been getting a list from the teachers' union of the candidates she should vote for. The other friend works for a non-profit, and she says that it's repeated to them in no uncertain terms that if they want to keep their jobs, they better vote a certain way; after all, their funding depends on it.
So while your post makes a lot of sense on an individual basis, it seems that self-interested groups are almost certainly a factor in the way people vote. It would be pretty easy to miss this looking at things like income or age; I'd be more interested in seeing studies based on union affiliation or some other sentient grouping (as opposed to a non-sentient group like "people over 60").
There is quite a class of people who vote for their own self interest (e.g. California Government Union employees). 2000 should be the biggest counter example to your vote doesn't count(1).
1) The history of the 2000 election actually makes a serious point about polling and the failure of a news organization (Fox) to realized polls hadn't actually closed in the panhandle of Florida (Central Time). That area of Florida is heavily Republican and lower voter turn out because of the pre-announced winner (Gore). A few more Democrats voting or a non-preannouncement could have prevented one of the stupidest episodes in US voting history. Vote like you've heard nothing.
That is probably what he meant, but it isn't rooted in reality.
If that was the case, then you would expect to see most of the rich as republicans, but in actuality a lot are democrats. Taxes are not the most important issue for a lot of people in the upper class.
Lets forget the social issues which can be drivers of that, and focus strictly on the numbers.
A rational person wants to maximize the amount of money they have in their pocket at the end of the day. If government policy had no influence on the economy then obviously the best way to do this is through lower taxes.
But what if government policy does have an influence on the economy? I would rather pay 35% taxes on $100,000 than 30% taxes on $80,000.
This effect gets magnified at the top, especially when bonuses are in play.
Believe it or not, history has shown the economy to be better under democrats than republicans in the post-war period, and this will only become further exacerbated because this data doesn't include what has happened in the last 2 years.
In the U.S., we pay taxes on a graduated percentage of our income directly to the national government. Due to various offsets and credits, most low and moderate income taxpayers actually end up owing nothing. Some states and localities have their own income tax systems that work similarly.
It's important to note this doesn't take into account national, state, and local taxes that everyone pays regardless of income including sales, gas, and property taxes, tariffs, filing fees, tolls, etc. The whole "who pays federal income tax" argument is somewhat of a red herring.
I'd settle for "any". If they can understand that increasing the cost of hiring workers leads to more unemployment, then that will be an improvement. Sometimes I think politicians can't even reason through the most basic of incentives.
I think they do understand this. The problem is, they don't care. Their incentive is to convince marginal voters to vote for them, not to make the economy work.
> They call this tax Social Security but it is just a tax like any other.
SSI is collected like a tax, but, unlike almost every other tax, the money collected is mostly returned to the payer. (Folks who didn't pay much get much better return than folks who paid a lot.)
This will only be true if, as seems increasingly unlikely, the social-security surpluses accumulated over the past few decades are actually used to fund social security (the mythical "lockbox"). My bet is on the money never being returned to the social-security system. In that case, the surplus portion of the payroll taxes from the past few decades should be historically reclassified as (regressive) general income taxes.
But it is also the only regressive tax we have, as all income over a certain amount is untaxed. So it ends up being a really complicated curve of who gets what return on their money, so the super rich and the super poor get the best deal, while the middle class gets hosed.
This USA Today article says that 47% of people payed no Federal Taxes. I think the more interesting number is that 40% make a profit on the federal income tax.
About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.
Also, the irs.gov site has tons of data with various breakdowns.
Well, if the other country has income taxes. For example, in the British Virgin Islands the income tax rate is zero.
I don't get why more Americans aren't enraged about the United States' treatment of emigrants. For citizens of most other countries, if you don't live there and you don't make money there, you don't pay taxes there.
Why would Americans be enraged about that? The U.S. has a long history of distrusting people who leave the country. Sticking it to emigrants (i.e. people who "abandoned the USA") would be popular among both the left and right, and among many social classes. Emigrants aren't very well liked among populists in either the Republican or Democratic parties, sometimes even seen as approaching a mild form of treason, whether they left for draft-dodging reasons (Candada during Vietnam), tax-dodging reasons (BVI & co.), or political reasons (communists who emigrated to Russia). People don't mean "love it or leave it" in the sense that both are legitimate choices!
I say this as someone about to start a job in Europe myself; it's somewhat of a sore point with many people ("America not good enough for you?"). The current economy being bad is really the only thing that makes it relatively easy to smooth over, because I can fall back on, "well nobody in the U.S. was hiring in my area and this opportunity in Europe came up", and people sorta understand because everyone's willing to believe that the U.S. job market is bad right now.
Mostly I can't think of the constituency that would support lowering taxes on emigrants. Republicans are usually the enthusiastic tax-cutters, but emigrants are even less popular among Republicans than among Democrats, partly due to heartland-patriotism type of culture, and partly because the expat vote is skewed Democratic.
I'm not sure the problem is that most politicians don't have a decent grasp of the power of incentives or lack a basic understanding in economics.
Unfortunately I think they are in fact extremely adept at understanding incentive. Is it possible that you haven't carefully considered which incentives are driving their behaviour :).
Let's put aside the single-parent part. Last year I made about $25,000.
I enjoyed the protection of the US military, was treated at hospitals using techniques developed with federal funding, and benefited from the federal regulation of interstate commerce.
I also had a nice room in a shared house in Santa Barbara, CA. I had a car, ate healthy food, went out to bars, and lounged on the beach.
Oh but you did pay taxes. The cost of your rent is directly tied to the amount of property tax that house owner is required to pay. All the goods you purchased would have been taxed as well. The gas you bought for your car helped pay for the roads. You may not have paid a federal income tax (I don't know if that is true though) but you still paid social security taxes, and your employer paid payroll taxes that factor in to how much you get paid.
> The cost of your rent is directly tied to the amount of property tax that house owner is required to pay. All the goods you purchased would have been taxed as well.
Well, we were talking about federal taxes. That's why I listed services of the federal government. Property and sales tax are state. Social security and gas axes are supposed to be a closed systems. None of those pay for the military, interstate commerce regulation, or medical research.
But the important thing is that I wasn't claiming I didn't pay taxes. (I did, although not much.) I was challenging the notion that I shouldn't be paying taxes just because I make less thank $30k.
It can happen. If you get a large enough body of voters that start to live off the government, that government can stay in power for a long time. See New Zealand from late 90's to a couple of years ago.
Barring a study in economics, this is why you generally want politicians who have done the budget cycle at a lower level (mayor to governor). Military Generals also tend to get it.
Sorry for this off topic comment but it's related(kind of):
I've always wondered how a crime committed on a ship can be caught. For example, the crew of a ship mutinies against their captain and throws him overboard. When they get back to port, they claim that their captain was swept overboard during a storm. The crew, as one man, sticks to their story. Will anybody ever be able to prove otherwise?
This approaches being the perfect crime as the number of crew members go down, doesn't it?
I suppose the investigators would look for inconsistencies in 'the story' as told by different parties. If 'the story' is true then additional detail will be forthcoming and generally non-contradictory between accounts. If its all a cover-up then individual suspects will invent different details and give themselves away. 'We know at least one of you is lying.' At which point someone will betray the conspiracy for favourable terms, and the police will have a real witness. Maybe also this is the reason for a 'captain's log' - if that went missing too then there'd be even more suspicion.
It is very infrequent that the whole crew is a part of mutiny. Captain usually has at least a few adherents as well. Kind of hard to explain away disappearance of the captain and his clique.
Yes, but the scene of crime in this case is still available for the police to look at, and the dead body doesn't go anywhere.
The position of the body can in most cases show if the victim tripped or was pushed. Tampering with the body after the fall leaves even more clues for the police to find.
There is a strong dividing line between officers and crew on a ship. There is no reasonable way for the crew to recruit the officers to go along with eliminating the captain. In a mutiny, all of the officers would be killed, making any story the crew tells statistically improbable.
I think the law of the mother country applies on the boat. i.e. a boat flying an english flag is subject to english law on the boat. If you have your own boat, fly a pirate flag instead (i.e. not a member of any country), then you can make your own rules. However other countries might sink you.
There was always a Royal Navy presence on the convict ships, even if the ships were privately hired.
Why? Well, apart from the possibility you mentioned (which is unlikely -- just you try committing piracy on British soil in the 19th Century in a ship with its name and identifying information written on the back), there was presumably the possibility that a captain might let a prisoner escape in exchange for money. Also there's the problem of maintaining security on the prisons. And finally, I'm sure there was a constant need to cycle guards as well as prisoners back and forth from Britain to the colonies.
They rarely brought prisoners back. They were a large part of the initial colonization of Georgia and Louisiana in the US, and of Australia, probably other places too.
The fact that is would be an incredibly stupid thing to do? Kidnapping English citizens was a capital offense and piracy doubly so. If they started doing this routinely, they would have been hunted down by the Royal Navy.
I doubt many merchant captains had the forces necessary to kidnap large numbers of people anyway. Besides, It would have been much faster and more profitable to just go straight to Van Diemen's Land and drop off the 'cargo.'
To take my sophistry to its logical conclusion (at least I am admitting it :-) wouldn't this be only an specific solution for the Australia instance? can we apply this "rule" to the transport of, say, refugees?
All I am saying is, counting the cargo is not the most ideal solution for the Murdering Captain problem.
Sometimes you might even get willing participants. Say, a ship paid to transport 100 Cubans to the U.S for political asylum might just be better off bringing 100, paying Costa Ricans (ignoring linguistic identification :-)
I have an academic interest in this because I have been a refugee escaping on a boat, helped by traffickers to leave Somalia. And also, because I have an interest in the accurate identification of undocumented individuals (with their active participation, of course; adversarial identification is something better left to Langley)
Oh, it's a unique fascinating personal tale that I just happen to share with another 4 million people :-)
Survival stories are not worth telling if they're widely shared and experienced. In fact, there are people in New Orleans who have had it worse than us. Because of that, I prefer to be silent, and grateful.
That doesn't really stop him from the recreational murder of X prisoners, and replenishing his inventory with X Kiwis before heading to Parramatta :-)
(I have the Australia Almanac and it's full of interesting tidbits. One of them was when I read "The English met with the Aborigines during a time of hunger .. 5 men where eaten". I shook my head briefly at the inhumanity and went on to read .. then paused, and re-read the passage again. Turns out, the English ate the Aborigines.)
Got a reference for that? The history of precisely who killed whom in British/Aboriginal relations is pretty well studied, and I've never heard of any cannibalism on either side.
Whether the Aborigines ever engaged in cannibalism was a somewhat fraught political topic in Australia a few years ago. (The answer is "probably someone got eaten by somebody at some point in the 40,000 year history of the thousands of Aborginal tribes, but you're not supposed to talk about it.")
Anyway, the story isn't about captains "recreationally murdering" prisoners, which is the kind of thing that only a tiny number of psychopaths would do. It's just about them failing to take quite as much care of them in terms of food, water and medical treatment as they really should have.
Heh. I said right there "Australia Almanac". It's a popular book in Aus, and have seen it in a few places. It chronicles Australia from the stone ages to late 80s (at least my old copy does.)
As for cannibalism, my profile info has been a passing reference to it, in jest; it doesn't concern me at all, at least not until the zombie apocalypse (if food rations run low, I might have to hunt a few zombies and raid the mall shops for flat-screens and warm Heineken!)
Although I am sure there is the opportunity for this kind of depravity among sea captains, for the majority of them it was probably a crime of convenience. It is easy to say "he is a criminal, let him die." It is much more difficult to say "I am going to take a free man from his life in order to make an incremental amount more in my business."
How do you create a manifest of people without photos, finger prints or genetic testing?
The wealthiest and most powerful families of that era, or any time before 20th century, had difficulty identifying kins and heirs. The whole study of Genealogy (and, perhaps the institution of marriage!) was created for the secure identification of blood relatives and safe transfer of property.
Even visual identification is spotty when IDing strangers.
I once worked with a guy whose grandparents sailed from Portugal to California. The captain of the ship held food back from the passengers to sell when he got to California. When they arrived in California, the passengers found out and hung the captain. Which is a different kind of incentive.
I totally agree that incentives are great, but sometimes laziness beats incentives. I was told by someone that they paid workers in a 3rd world country by the amount they did, thinking they would do more, but instead they did the same amount in less time and then sat around for the rest of the day.
There's no denying that incentives matter, but the key difference between the regulations they tried and the financial incentive they finally adopted is accountability. It was easy to hold the captain of a ship accountable for the number of prisoners who walked off a ship in good health, and impossible to enforce regulations about what should happen on the ship itself. The fact that they tied that accountability to a financial incentive is a red herring. They could have just as easily tied it to a regulatory penalty, with similar results.
It's depressing that a professor is using such sophistry to justify his existence to his students.
This story seems too cute and oversimplified. Did it really take an economist to figure that out? I'd like to see the real story, does anyone know have a reference?
It really does. It's as if I was paying UPS to pick up my packages, but it only delivered 2/3 of them. I wouldn't be wracking my brain very long to come up with the same solution.
My guess is that the problem was that there were no incentives for politicians to think of this as a problem, and seeing as it survived a "scandal," probably some incentives not to care. I'd like to know who was getting the contracts, and who their connections were.
I also wonder if there was some faction screaming about not imposing crushing regulation on the noble businessmen who were providing a crucial and critical function to protect our civilization, and if they overlapped with the connections:)
EDIT: Also, this is a simple matter of paying for what you want. If you want people to get rid of the prisoners, pay them to haul them away. If you want prisoners delivered somewhere, pay them for what they deliver.
I'm wondering if folks here have any "best practices" they can share for creating the right incentives? (Or should that be a new thread?)
This was something I was very good at figuring out for raising my sons. Thus, issues related to this at my job really get on my nerves (because I am convinced it can be done better). So I am wondering what people know about solving this issue for corporate culture -- or even on the start-up scene.
One party (the government) was paying another party (the captain) for their services and then they figured out the best way to do it to get what they wanted. This is not an example of governmental regulation.
In the 1940’s, the paleontologist von Koenigswald was searching for early human remains on Java and decided to enlist the help of the locals in his search by offering them “ten cents for every piece of hominid bone they could come up with.” Unfortunately for von Koenigswald (and for his findings), he discovered too late that the locals “had been enthusiastically smashing large pieces into small ones to maximize their income.”
From http://freakonomics.blogs.nytimes.com/2009/10/20/when-youre-...
(The story is from the book A Short History of Nearly Everything, which is one of the best books I've ever read. The amazing thing about the book is that it is in fact a short history of nearly everything.)
Combine the difficulty of getting incentives right with the inherent problems of Government and a dangerous mix results. For example, every time a subsidy is created, a special-interest group sprouts up dedicated to preserving the subsidy in perpetuity, long after it has outlived its utility.