With the presidential election going on, I've been thinking a lot about the efficacy of politicians and the government. The founding fathers hit upon an inspired idea to form our government around a policy of checks and balances. Going off of what I am going to call Assumption 1, which is
People will generally abuse the power they are given if they can get away with it, the founding fathers set a circular check on the powers of each of the three branches of government. So far it has worked remarkably well. While the roles of these branches has evolved over time, no one person or group of people has exercised undue power over the others. More than 200 years of stability is a testament to this principle's success.
The problem I have with government today is its ever-expanding size and scope and the spending that goes along with that. The root cause of this, I think, is what I call Assumption 2, which is
People generally want to do as little work as possible to receive the greatest reward. The inability of the government to check its own size, scope, and spending is due to a lacking corollary to checks and balances that I call
Incentive Theory:
Incentive Theory states that the incentives and disincentives of each involved party must be balanced to achieve the desired outcome, given Assumption 2, that people generally want to do as little work as possible to receive the greatest reward.An obvious example in government is welfare and unemployment benefits. The desired outcome is that those in a poor financial situation can be sustained while finding the means to become self-sufficient. Receiving money while doing no work is the epitome of Assumption 2, therefore a substantial incentive or disincentive is necessary to achieve the desired outcome of self-sufficiency. In this case, since there is little incentive the government can give other than money, a disincentive is probably required. Discontinuation of funds if the individual fails to meet certain criteria, or a requirement to pay back an increasing percentage of funds received could be appropriate disincentives to remaining self-unsufficient.
As another example, let's consider a typical government entity. The desired outcome is to provide the service intended with the least amount of burden on the people. With little threat of losing jobs or marketplace, and in accordance with Assumption 2, the entity's workers can underperform, yet receive the same reward as if they had done more work. Sometimes inefficient work even provides a greater reward as it can result in greater funding. The individual taxpayer who helps fund the entity would have to exert a disproportionate amount of work to regain his fractional contribution, an unlikely occurrence given Assumption 2. Incentive Theory could suggest an incentive for the entity, such as bonuses for work achieved or for cost reductions or a disincentive for the entity such as firings for failing to achieve those goals. Another approach would be to give an incentive to the taxpayer by specifying the responsibilities of that entity and allowing non-government corporations to compete for the contract.
If that last suggestion seems far-fetched, consider a ubiquitous government entity: the public school system. The desired outcome is to give our children the best education possible for the least amount of money. As it stands, taxpayer money is collected from all, regardless of whether they have children or whether their children attend private school, to administer a government-run school system. This has an advantage over a completely private system in that it distributes the cost of educating children over the entire population (because well-educated children are a benefit to society as a whole) and puts schools in locations that otherwise would not have enough money to create demand. Because the funding is compulsory, the public schools hold a pseudo-monopoly, which encourages teachers' unions and reduces alternatives for education. In accordance with Assumption 2, the unions negotiate for higher pay regardless of suboptimal performance (and often because of suboptimal results), while the public school system retains underperforming teachers because the work required to fire them, which could result in strikes and poor parent perception, is too great. The work required by a parent to send a child to a private school in addition to compulsory education taxes is often not possible or worth the reward. Thus the teachers have no incentive to increase performance, the schools have a disincentive to firing underperforming teachers, and the parents have a disincentive to finding alternative options.
A voucher system balances some of those incentives. The government could continue to tax everyone since the reward for an educated populace is worth the amount of work needed for that fraction of one's salary, therefore there is an incentive for funding. The amount allocated to each child could be directed to the school of the parents' choice. For a small amount of work in choosing the appropriate school, the parents are rewarded with a better education for their child, therefore there is incentive for the parent to participate. With more employment options, the strength of the teachers' union would be weakened, allowing for higher pay for those who perform well and loss of employment for those who perform poorly, therefore there is incentive for teachers to perform well. Schools would want to reduce spending as much as possible to maximize profits, therefore there is incentive for schools to be fiscally efficient in accordance with the demands of the customer, the parent (e.g., some may want to pay more for music education). There are of course drawbacks to this method, such as what to do if no one wants to run a school in a certain area, or to a lesser extent, waiting for the market to balance school locations with demand, but it conforms much better to Incentive Theory.
As I said at the beginning, I've also been thinking about the efficacy of politicians. In my mind, the disincentive of being voted out of office does not balance the incentive of saying whatever it takes to get elected nor the incentive of doing things for power, influence, or money that are contrary to the constituents' desires or not beneficial to them. (I also think the incentive to do what the people want does not always balance the disincentive of misfortune if what the people want is bad for them, but it is the job of elected officials to do what the people want.) A disincentive such as criminal punishment, however, seems impossibly hard to adjudicate and unnecessarily restrictive when situations change and any physical incentive would be impossible to regulate objectively. Perhaps the politician's compensation could be determined by the satisfaction of the constituents at the
end of each term?
Anyway, that's the gist of what's been swirling around in my head lately. If you skipped to the end, I don't blame you. This is one of those topics I wanted to think through by writing it out, and it took a bit of writing. I'm sure there are plenty of holes in my examples, but I think the fundamentals of Incentive Theory are sound and could be applied to almost any situation. I'd be interested to hear any thoughts any of you have or applications to other scenarios.
As you all probably know, we got a visit from hurricane Ike over the weekend. Knowing the storm was heading our way, I was given the day off on Friday to prepare. Since we were already prepared and weren't planning on evacuating, that just meant a lot of sitting around getting anxious. It was eerie knowing that a huge storm was coming but having the weather be so calm beforehand.
