Wednesday, June 29, 2005

Learning to see the invisible incentive structures that pre-determine our institutions

Do-gooders need to learn about the nefarious and byzantine ways in which government destroys life.

Often a policy debate is cast entirely in terms such as: Should there or should there not be a law against smoking in bars? Should we or should we not teach creativity and critical thinking in schools? Should we or should we not be living in smaller houses? Should we be saving more? Etc.

These passionate political arguments, for and against, are generally blind to the ways in which the invisible incentive structures in our society, which to a considerably extent determine what institutional options are available to us, pre-determine outcomes. We need to learn to pull ourselves out of existing pro- and con- debates, and learn to observe the ways in which incentive structures have created a situation in which only certain kinds of institutions are viable.

With respect to the example of smoking vs. non-smoking bars: If there were fewer obstacles to opening a bar, there would be more bars, smoking and non-smoking. It would be easier and less costly to try out a new kind of bar. Moreover, it has been suggested that because there are fewer restrictions on opening a bar in Britain, and that therefore there is a pub on almost every corner in certain neighborhoods, that there is less drunk driving than in the U.S. I don't know if this is true or not, but I do know that people who argue about bans on smoking in bars never consider this approach to solving the problem.

Often a claim is made that markets won't solve a problem spontaneously, an argument develops in which both sides argue about whether or not the market could solve the problem, and the reality is that there is an enormous underlying distortion that is preventing the market from solving the problem.

This is analogous to the fact that government schools prevent the development of a market in schools that teach creativity, critical thinking, health, and well-being.

Or to the fact that the mortgage interest deduction promotes large houses on big tracts of land in the suburbs while destroying life in the inner cities and reducing the American savings rate (by encouraging large sums to go into the consumption of housing rather than into investments).

Or to the fact that homelessness in the U.S. is correlated with rent control policies in urban areas. Zoning laws that eliminated Single Room Occupancy hotels in many cities also may have contributed to homelessness.

It is my hunch that, the more we learn how to see the world in this way, the more we will discover that well-intentioned political initiatives have resulted in truly damaging limitations of possibility. Did well-intentioned laws intended to reduce the number of bars, and thus drinking, actually result in more deaths from drunk-driving? Did well-intentioned efforts to provide public education for all actually result in a world in which the most shallow appetites for consumption and addition dominate our teen years and thus our society? Did a well-intentioned effort to make it easier to own a home result in suburban sprawl and the destruction of our inner cities? Did a well-intentioned effort to protect poor renters increase homelessness?

Those who aspire to improve the world need to begin to take these issues seriously.

FLOW aspires to be a much more economically-sophisticated do-gooder movement; a quantum leap forward in how to actually make the world a better place, in how to be a realistic visionary.

8 Comments:

Anonymous michael v said...

But Michael, aren't you doing just what you are telling others not to do, e.g. saying that people "should" know X or think in a particular manner rather than examining the incentives causing them to think in that manner? Han Huang would ask what manner of thinking will give them the most money and mating opportunities (broadly construed)?

I really wish, along with you, that there were no public schools, but just as its usually more effective to solve problems through enterpreneurism rather than government action, its also probably more effective to circumvent destructive government than to try to change it.

It sounds like you had a great thing going with your Socratic schools. Such schools compete against public schools on a Massively unfair playing field, but they can still win ground and grow exponentially. Just show that their graduates have more money and mating opportunities (broadly construed).

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