“You can lead a horse to water, but a pencil must be lead”. We might like to think of ourselves as free thinking agents, unaffected by marketing and spin, wholly original and too clever by far. We are not petty and grasping, we play by the rules when they are fair. We always do our best. The problem is everyone else.
People smoke and drink themselves to death, they gamble away their money and eat themselves fat. Too few are the paragons of virtue that give their money to charity and separate their waste. Too few exercise and enjoy fine art, while too many rent the homes they should be owning. How do we mold this unruly mob into an army of model citizens?
“You can always count on people to put their interest ahead of yours”. By using incentives, we can gently lure and nudge people on to a path that promotes good behaviour and punishes bad behaviour. Extra tariffs on cigarettes, alcohol and burgers. Tax deductions for charitable donations and mortgage payments, rebates for renewable energy and countless other incentive schemes softly encourage and better society.
“I spent a lot of money on booze, birds and fast cars. The rest I just wasted” said the late George Best. There are a couple of problems with governments’ use of incentives. Firstly, the schemes are often very poorly designed and have unintended consequences that run counter to the goals of the program. Perhaps the poor quality of government work, even in this area, is evidence of an altogether different incentive problem. But far worse than that, is that government incentives are inherently immoral and conceited.
“Certain unalienable rights, that among these are life, liberty and the pursuit of happiness”. We are all of us mortals. Destined to die one day, a day likely not of our choosing and for most of us that day will come many years too soon. The problem with government incentives is that they alter and interfere with our pursuit of happiness. What is good behaviour? What is the right amount of charity? What is bad behaviour? Should smokers be punished? Once you accept an incentive scheme we pass judgement on the activity it pertains to. Who are we to interfere with other people’s choices in their own short lives?
I know that fast food is bad for you, I do not know that for a particular person the added health risks outweigh the enjoyment he gets from that chicken wing. I do not know if there are enough hairdressers or homeowners in the economy, but I do know that governments bureaucrats are also clueless, despite their conceit.
Sure, there is behaviour that we can almost universally consider bad, like killing and stealing. But these things fall into a different category, these are hostile actions with an unwilling victim and the law should protect us from those that would do us harm. We use the threat of violence towards those that would harm others to discourage them from doing so. This is not the kind of incentive I am discussing. I am condemning sin taxes and tax breaks (better to cut taxes across the board than to pick winners and losers).
This shallow patriarchism deserves condemnation. Of course, there is nothing wrong with private incentive schemes, they are not allowed to punish us and can only reward us by private means. If a company pays you 5c when you return an empty bottle that is very different than the government taking 5c out of your pocket to give to someone else when they do something ‘good’, or fining you 5c for every bottle not returned on time.
Luckily, incentives are extremely powerful. I say luckily because politicians and bureaucrats are also people, people who respond to incentives. Once we the people reject this sort of government meddling, it will become profitable for them to put this bad behaviour to an end.
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| Yes friends, a school bus being towed by a truck; the eternal symbol of the private sector's burden that is the state |
I agree almost entirely. However I would say that the Government is within its bounds to alter incentives to the extent that they resolve externality issues. The vendors and consumers of cigarettes do not pay for the damage done by second and third hand smoke. It is within the Government's right to correct for this, either by controlling use, or through incentives. Similarly, in countries with free health care, the consumers of cigarettes and some other demerit goods are not paying the full medical costs associated with their habit. It is within Government's right to correct for this. Why should I pay for a smokers cancer drugs when they brought it on themselves?
ReplyDeleteSimilarly, energy generated from PV panels is cleaner than fossil fuels. It makes best sense to tax the burning of fossil fuels to the extent of the value of the marginal pollution that the process creates. Otherwise 1. we will consume energy in an inefficient manner and 2. we will allocate production of electricity across different territories and technologies in an inefficient manner. Such an approach needs to be adopted globally in order not to damage competitiveness, and taxes on energy are hardly politically popular.
Unfortunately these things are never implemented correctly. With cigarettes Politicians found a convenient way to raise money through the taxation of a highly inelastic good, and most other incentives are more oriented around scoring cheap political wins than anything else.
Instead politicians prefer to allow us to over consumer energy now at the detriment of our children whilst rewarding clean energy, to at least limit the damage in terms of the allocation of resources across technologies. An incentive is much more popular than a disincentive.