“…by the content of their character”

I think it is important to remember this part of MLK’s speech:

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.

Unfortunately, there is a tendency to confuse judging the content of character with the judging of other things like skin color.

This is a feedback problem. The reactions we get from how we behave are feedback that signal when our behavior is acceptable and unacceptable to others.

If it is made easy to believe that changing our behavior will not change the reactions we produce in others when we behave unacceptably, because we attribute their reaction to something else (like skin color), then we are less likely to change our behavior.

In his book, Black Rednecks and White Liberals, Thomas Sowell traces the origin of the collection of behaviors that we recognize today as the ‘thug’ and ‘redneck’ cultures. He hypothesizes that these are evolved versions of the same culture with the same origin.

He also shows that both of these cultures were waning in American society through the first half of the 20th century, due to normal societal feedbacks that encouraged politeness, productivity, self-reliance and cooperation. However, the introduction of the welfare state reversed this course among both blacks and whites, because it enabled folks to get by without adopting these virtues.

Sowell also shows, remarkably, that the behaviors commonly associated with these cultures tend to produce the same reactions in others no matter the skin color of the person practicing them.

I recommend reading it.

Shameless Behavior

W.E. Heasley, of the Last Embassy, points to a troubling study on recipients of the Social Security Disability benefit.

One excerpt from a survey of 2,300 that I hope is not representative of the 11 million SSDI recipients:

Returning to work is not a goal for 71 percent of the SSDI recipients, 60 percent of the SSI recipients.

Here and here I wrote about feedback loops that use to keep such behavior to a minimum. I think those feedback loops are broken.

Update: In the comments, Mike states it well:

Not only is the old negative feedback loop – shame – broken, a new positive feedback loop – pride in gaming the system – has taken over.

He also pointed out that, in this case, ‘gaming the system’ means ‘pulling one over on their fellow citizens.’

This reminds me of a point that Daniel Hannan made about localism of welfare in his book, The New Road to Serfdom, which I wrote about here (in the last part of the post). His point is that the more local a welfare program is made, the more likely it is to retain the shame feedbacks and the less likely it is to pick up the ‘pulling one over on the system’ feedback.

Why? Because, now instead of pulling one over on some faceless and distant third parties spread across the country (Federal taxpayers), they’re pulling one over on their more direct neighbors and they a bit more incentive to speak up about being taken for granted.

Able-bodied vs. plausible-no-fault-of-your-own tests

In “the old days” it seems like if you seemed able-bodied, you were expected to find something to do that was worthwhile. There was no dignity for burdening your fellow-man. There were plenty who were not able-bodied that needed our help, after all.

Somewhere along the line, that able-bodied test has morphed into any plausible excuse that you found yourself in an unfortunate position through no-fault-of-your-own, even if by most accounts you could have done a great deal to, at least, prepare for that inevitability.

All of us get in a bind now and then and can use some help, but once we ‘systematized’ that help, we removed the helpers from the helped and created a bureaucracy to administer in between the two. We changed the incentives.

Before the helpers would give friendly advice to those they helped to prevent them from needing help again. They provided gentle nudges and signals to the helped that planning was their responsibility. Perhaps you could have saved more? Maybe you don’t need to drive two Tahoes? Often, the helped was grateful enough for the help and being steered in the right direction, that they would come back and do the same for others. It was a virtuous feedback loop.

But, when we systematized it, we made it so that the helpers could just get by putting the right bumper sticker on their car. They voted for the right people. The people who will take a lot from the wealthy to help those who need it. All they need to do is demonstrate their choice to the rest of us and no more thought is needed.

The helped no longer needed to face the gentle nudges, signals and advice from the helpers.

And, the bureaucracy responds to incentives. The folks in it want to perpetuate their jobs. One way to do this is to work really hard to remove any stigma with being helped. I wonder how many people would take unemployment if there was even a minimal 10 hour per week work requirement attached to it.

‘Government is overhead’ follow-up

Last August, I wrote this post about how I think we should view government as an overhead expense. Yesterday, Edward wrote the following response to that post:

A very interesting post. I agree with your premise that government is overhead. However, if you look at government expenditures relative to GDP, they are lower than the average overhead rates of successful companies. Currently this rate is 19 percent or so (gov/gdp) and for companies this number is in the high twenties. Why is it that anti-tax folks presume that the correct level for our national enterprise is even lower than the faultless private sector can achieve?

This is my response to Edward.

The Federal government is not the only overhead in the economy. It’s a piece of it. Comparing Federal government spending to all business overhead is an apples-to-oranges comparison.

For example, all government — Federal, state and local — is part of overhead. According to this graph, all government spending makes up nearly 40% of GDP, which is more than ten percentage points higher than Edward’s ‘high twenties’ benchmark.

And still, all government is only a part of the economic overhead. For example, all the overhead tied to successful companies that Edward mentions, is also economic overhead.

Also, anything we do to comply with the government is overhead. For example, the time and money you and the companies you deal with spend to keep records and prepare your taxes — at all levels — is economic overhead that does not show up in government spending.  That’s time or money that we could have spent doing something productive, like cleaning our toilets.

Edward then asked a question that I’m really glad he asked:

Why is it that anti-tax folks presume that the correct level for our national enterprise is even lower than the faultless private sector can achieve?

First, as I pointed out above, economic overhead is higher than the ‘faultless private sector’.

Second, and more important, folks of my political persuasion don’t believe the private sector is faultless, as Edward suggests. Far from it. I’d guess the failure rate of government and private sector is about the same. Why wouldn’t it be? Both are run by humans after all.  Are the humans in government less fallible than the humans in the private sector, or vice versa? No.

One reason we favor the private sector is the difference in how it and government naturally respond to failure. The private sector is better in this regard, though not perfect.

The private sector — you, Edward and I — reward organizations that provide us with stuff we value by buying that stuff and we punish the others by not buying their stuff.

When it comes to government, that success/fail feedback isn’t quite as strong, and sometimes it’s the opposite of what it should be.

For example, for years the answer to “Public schools are failing!” was “Public schools need more money!”

This sounded reasonable to a lot of folks. I bet those same folks would scoff if “Public schools” was  replaced in those two sentences with “Enron”.

We realize that giving more money to the corrupt leaders of Enron so it could try to “fix its problems” and save some jobs would have made no sense.  Those corrupt leaders would have blown that money on themselves.

The market clobbered Enron’s stock and put it out of business long before the government even figured out what was going on.

We realized that the best thing was for Enron to go out of business. The market naturally stripped the fraudsters running Enron of their power. Its failure caused some painful collateral damage to people down the totem pole, but it also taught a generation of people valuable lessons in prudence, investment diversification and ‘if it sounds too good to be true…”  And, all this happened without taking the whole economy with it. Markets naturally isolated the disturbance.

This wouldn’t be the case a few years later when government actually encouraged fraudulent practices in home lending.

I also believe that the success/feedback loop is weak in overhead functions, whether those functions are in private companies or government.

I’ve been a part of overhead of private organizations most of my career. I’ve witnessed this from the inside. Strong underlying businesses can feed crony, corrupt and political bureaucracies in the overhead departments, precisely because the success/fail feedback loop is weak.

It wasn’t a stretch for me to recognize that government also had this success/fail feedback problem.

Again, that is precisely the reason government tends to grow in good times and bad and is one reason why anti-tax folks would like to minimize government and overhead.

Politicians tell you they can solve your problems if you vote for them and allow them to spend your money (or the rich guy’s money) and too many people believe them.

Four broken feedbacks in public K-12 education

I believe that most problems are caused by broken feedback loops.  In 2009, I listed four broken feedback loops hurting quality in the public K-12 education system.   These include parent choice, teacher quality, grading and student discipline.

This weekend, the Wall Street Journal features basketball star Jalen Rose’s efforts to make a difference in education with his Leadership Academy charter school in Detroit.  Jalen addresses these feedback loops.

Parent choice:

“We didn’t cherry pick these kids,” says Mr. Rose. “They chose us,” he notes…

“There should be parental choice,” he says clearly. “Schools should be open. If it’s a public education, and the school in your district is poor-performing, you should be able to put your student or kid wherever you want.”

Choice could be relatively easily implemented, he says. “I’m a taxpaying citizen, right? So if I’m paying $4,000 worth of taxes and I don’t want my kid to go to this school, why can’t they give me my $4,000 and allow me to pick where I want to put my kids?”

Teacher quality:

His school also doesn’t have tenure for teachers. “I hate tenure. Tenure allows teachers to put their feet up on the desk and possibly have a job forever. That’s why I got turned on to charter schools. It’s a business model. Every employee and every teacher will be monitored by performance.”

Grading:

“This is college prep. We expect 90% to 100% to go on to college”

Student discipline:

Kids too: “We have a code of conduct here. If they act up, they’re suspended. They come back with a better attitude.”

 

All problems can be traced to the feedbacks

At least that’s my theory.

Problems in feedbacks in human behavior can also be called incentive distortions.  What looks to many people like a “free market” failure, is usually an incentive feedback loop that has been distorted by government intervention.

Sowell hits on this in his column today:

Obama says he wants “federal housing agencies” to “help more people refinance their mortgages.” What does that amount to in practice, except having the taxpayers be forced to bail out people who bought homes they could not afford?

No doubt that is good politics, but it is lousy economics. When people pay the price of their own mistakes, that is when there is the greatest pressure to correct those mistakes. But when taxpayers who had nothing to do with those mistakes are forced to pay the costs, that is when those and other mistakes can continue to flourish — and to mess up the economy.

People paying the price of their own mistakes is an important feedback loop in a free market. It encourages more prudent decision-making in the future.

Pushing the cost of those mistakes to taxpayers who had nothing to do with those mistakes, distorts that feedback and loop, and causes mistakes to “continue to flourish.”

Why private is better that public

This post by Don Boudreaux on Cafe Hayek reminded me of the insight that made me realize that private markets are more effective than public (government or politically-driven) markets.  It’s a two-parter.

Part I:  You first have to realize that most plans fail.

Part II: Feedbacks in private market clean out the failures, reward successes and encourage learning from failure.  In the public markets, feedbacks are not as strong to clean out failures while other feedbacks reward failure and there is little incentive to learn from failure.

Do you have any compelling arguments against that?  I haven’t heard any.

The arguments I’ve heard are “some government programs succeed” (which does not counter the insight, since it only says that successes are less likely, not impossible) or “the private market won’t invest in some things, that’s why it’s the government needs to do it” (that should be telling) or “voting works better than the private market, that’s why we vote (yet we all pretty much have the shoes we want, but at least half of us generally don’t have the politicians that we want).”

More about Part I:

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