A million dollar question

Thanks to Mike M for posting the following Youtube clip (audio) in the comments of this post. It features a discussion between a caller, Lucy, and hosts on a radio talk show.

In many discussions on welfare I’ve run into the argument from supporters that nobody would choose the paltry sums and stigma of welfare over working. I didn’t realize it before, but they were arguing from their personal preference bias. What they really meant was that they would not make that choice.

They failed to account that not everyone is like them and everyone doesn’t face the same opportunity costs.

Lucy says she and her family live off welfare. According to her, she receives various forms of welfare totaling about $1,300 per month. Her parents were on welfare. She doesn’t begrudge those who work, that’s their choice, and she doesn’t see herself as a bad person for depending on the system that is there to help her.

She mentions that if she takes a job, she’d have to pay for daycare for her three kids and lose some of her welfare benefits. She’d be worse off. Incentives matter.

Lucy also does us a favor by asking an insightful question.

What if someone offered you a million dollars, no strings attached?

Lucy’s question gets us over the hump of the personal preference bias. Suddenly the unimaginable situation where somebody chooses welfare over work is replaced with something that my discussion partners can more readily identify with.

A million dollars would be hard to turn down, even if it was coming from other taxpayers. It probably wouldn’t be too hard to convince yourself of the good you could do with it. And, maybe you could. Who knows?

But, that’s not the point. The point is that incentives do matter. We should NEVER forget that.

Saying that you believe nobody would ever choose something that you don’t think you would choose (though you might if you faced similar incentives) isn’t a good argument. It just shows that you haven’t thought about it beyond your current situation.

Near the end of the audio, one of the hosts also makes an insightful comment about incentives. Lucy’s million dollar question sinks in for him. He asks, If your money was cut off, would you go to work? Lucy replies, Yes, I’d have to.

He then says:

…the government puts a gun to my head with the promise of imprisonment if I don’t pay taxes. Does anybody put a gun to your head to take that money?

Lucy answers, Nope. With this he brings the distorted incentives of punishing producers and rewarding non-producers to life.

I would have asked a follow-up questions. Are there any expectations attached to receiving this money? Likely answer: Other than having low or no income, nope.

Which gets to a subtle and unhealthy incentive distortion in society.

There seems to be a condoned attitude where the producers can be roughed up. Pay your taxes. Don’t complain. Complainers are greedy and soul-less.

But, as Lucy, confirms, such treatment of the recipients on the other side of the transfer payment is not condoned — even when they happen to be in situations like Lucy’s where they appear to be smart and capable, but unwilling to carry their own weight.

It’s as if expecting them to be grateful and to say thank you is too much to ask. As if saying ‘thank you’ would be demeaning.

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4 thoughts on “A million dollar question

  1. “Near the end of the audio, one of the hosts also makes an insightful comment about incentives. Lucy’s million dollar question sinks in for him. He asks, If your money was cut off, would you go to work? Lucy replies, Yes, I’d have to.”

    I was a vegetarian for about 25 years. I had several people over those years ask me the following question: “if you were stranded in the woods and you HAD to eat meat to survive, would you do it?”

    I answered yes with no hesitation.

    Sometimes we adapt because we have to. Sometimes we adapt because we want to.

  2. “Does anybody put a gun to your head to take that money?”

    The one radio host was obviously a bit slow. There’s no reason to put a gun to Lucy’s head to give her an incentive to take the free money. The money itself with no strings attached IS THE INCENTIVE.

    The way incentives work is that if you have A and want B more than you want A, you have an incentive to trade. If you have both A and B and want only A and B, there’s no incentive to trade. Applied to Lucy, A is “money” and B is “not working”. The government gives Lucy A without asking her to give up B. Lucy understands this. Why can’t our political experts?

    • I agree that one of the hosts was slow, but I don’t think it was that one. The one that kept asking her if she felt wrong about it was slow. But, I think this one got it.

      He knew the answer to his question and I think it was a good way to frame it because he contrasted his and her incentives, and the incentive distortion, for the audience. That distortion is that through government, society punishes producers and rewards freeloaders.

      I would add that those punishments and rewards aren’t only monetary. Producers are held in disdain. Their success is questioned (‘you didn’t build that’) or there’s some belief that ‘the system’ granted them unfair advantages.

      On the other end, great strides are taken to make sure folks like Lucy don’t feel shame for freeloading. Society let them ‘slip through the cracks’, they weren’t successful because of unfair disadvantages, so they’re only getting what they deserve.

  3. I agree. This one got it real quick, but the other guy seemed a bit slow. The slow guy seemed to think that people will always do what’s “right” (as defined by what HE thinks is right) and ignore other (monetary) incentive. As you note,non-monetary incentives such as doing what one feels is right or shame are often incentives that may be stronger or less strong that monetary ones depending on the individuals core beliefs. As Madison noted, “If men were angels, no government would be necessary.”

    I think that the understanding that men are NOT angels is what Adam Smith got right (and what the right gets right), but he understood that each of us acting in our own self interest – with the knowledge that everyone else acts in his own self interest also – could be beneficial. The left makes the mistake of assuming that we can elect or appoint a pious group of men who not only know what’s in our best interest. but will also actually act in our best interest and that we should assume that they have that knowledge and will act in such fashion.

    I think most (but not all) liberal politicians recognize at some level that politicians (including themselves) don’t act in such a noble manner. Of course, some are either naive (I’m being polite and generous) and actually imagine that they have such knowledge and can act in my best interest or they convince themselves that they do in order to justify their behavior.

    Those who vote for them generally fall into two camps: The first genuinely believe in the pious beneficent big government theory while the second (which includes Lucy) simply makes an economic decision based on IMMEDIATE self interests, i.e. who’s going to give ME the most stuff now at the lowest cost TO ME. As you have probably recognized, the key here is “immediate” as the longer term consequences of such perverse incentives ultimately “shrink the pie” by slowing economic growth.

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