Show Me the Incentive

The government fabricated disposition of Americans to make poor decisions.

America is presumably an advance and sensible nation, yet it is plagued with an assortment of economic and cultural catastrophes. Society as we know it is not a random collection of unique decisions and interests. There are distinct trends in the country. Certain demographics have tendencies to act a particular way. The development of a shared psyche is not incidental. Those with the means to distort public conduct will do so for their own benefit. The trick is to incentivize the desired result so the people, with supposed free will and personal decision making, are producing the envisioned outcome on their own accord. How free are a people who are inclined to act a certain way based on economic and political factors beyond their control? Can the degradation of the United States be explained with a series of financial incentives?

“Show me the incentive, and I will show you the outcome.” – Charlie Munger

Incentives are the fundamental aspects of economics. They shape human behavior and decision making through a system of rewards and penalties. The conformity of any large population is chalked up to what those people are inclined to do. Basic human nature instils a motivation to find the easiest and most worthwhile route. Individuals instinctively pursue the path of least resistance. Drivers of incentives can sway opinions and emotions to achieve a particular result. Any societal phenomenon can be explained by understanding the existing incentives. The various economic calamities facing the nation are driven by fabricated preferences that cause a willing public to make decisions contrary to their own interests.  

Absolute Power Corrupts Absolutely

Political leaders, corporate oligarchs and central planners are responsible for a majority of these societal incentives. However, the laws put in place to drive shared conformity are rarely done so with malice and hate. They are people themselves with their own incentives stemming from profit potential, voter appeasement or ideological dispositions that can have ill effects despite benevolent intensions. It is important to place blame on the systematic power structures themselves that create the potential for manipulating markets and human behavior. The fault lies with the opportunity endowed by our governmental system that creates mischievous tampering of human inclinations. Where there is an opportunity to exercise power over other individuals, there will be a person to abuse that position irrespective of their initial altruistic goals.

The Stanford Prison Experiment was a psychological test of situational variables that showed the corruption of morals initiated by power trips. It was a simple simulation of the prisoner and guard dynamic that led to severe abuses of authority. Unrestricted influence over others is a violation of basic ethics. Despotism can turn the most ethical person into a tyrant. Natural Law is intrinsic to the characteristics of people, the rights of which are granted by God, and should not be constrained by others. These are rights of life, liberty and the pursuit of happiness, considered unalienable. Human rights on the other hand, are endowed by society and the governing bodies that provide certain necessities like shelter, sustenance and safety. As governments grow in scope, the declaration of rights expand to include healthcare, retirement, the free exchange of commerce, access to credit, and anything else politicians come up with. The provocation and abeyance of these assumed rights are the easiest way to influence a whole country and adjust their behavior to suit the wants of any bureaucrat or cartel. Dependance is the true tragedy of the commons.

I’m From the Government and I’m Here to Help

The incentivization for profit has been the preferred target of protest by those unfamiliar with the factors of microeconomics. In a free market system, consumers have the ultimate power in deciding what products and services they spend their money on. Fair competition ensures that there are plenty of options for individuals to choose amongst. Any entrepreneur or corporation must satisfy the consumer with quality, convenience of use, and a satisfactory price. The law of supply and demand determines the cost of goods, and thus, the people have the ultimate say in the success or downfall of any given business. The issue is that the free market does not exist in America. This is a controlled economy with government instituted monopolies, political obstructions and preferences, financially protected industries, and an entity with unlimited money.

The incentives of the average rational consumer are often distorted by a lack of options, price controls, or alleged affordable selections accompanied by a heavy cost of interest. Governments violate free market principles that influence decision making for profit-seeking businesses and bargain hunting consumers. For every market, the inclusion of an entity that does not adhere to cost-benefit analytics and has endless capital at their disposal, will destroy factors of supply/demand and natural price discovery of that market.

It's Basically Free…

The most expensive and distorted markets are services that carry the disputed title of human right and thus incur the most government influence. The housing market is covertly manipulated by government influence through taxpayer sponsored mortgages and lending protections for banks. This is designed to facilitate greater housing opportunities for ineligible income levels by ensuring mortgage payments are paid timely to the lenders irrespective of the risk of subprime borrowers. This twisted system created the 2008 housing bubble and financial crisis. The irresponsible lenders who financed unaffordable mortgages were promptly bailed out by the government to save them from total bankruptcy. A true free market would allow these institutions to fail, but instead the government continues to guarantee mortgage payments without any assumption of risk and these banks get the official stamp of “too big to fail”. The housing market will become increasingly expensive despite the exponential unaffordability by average Americans. The banks are incentivized to lend with zero risk and the people are incentivized to become homeowners even if they cannot afford it. Price controls on rent, Section 8 Housing vouchers, and the continued protection of reckless lenders will inflate prices in perpetuity until the inevitable crash occurs with a subsequent bailout required to blow another bubble.

College Tuition and the market for higher education has seen drastic price increases and changing student incentives with the inclusion of government subsidized loans. Universities used to provide serious educational incentives with a presumed value escribed to each degree and the employment opportunities that it came with it. The cost of tuition lined up with the income potential and created the incentive to pay for school outright or borrow with the expectation that a future job would easily pay it down. Once government got involved and considered higher education a right for all, the incentives for students and universities changed. With subsidized loans students were now able to attend school at no cost until graduation. They could even qualify for loans in excess of tuition, to cover all living expenses and then some. This incentivized the culture of a care-free college experience rather than paying their way through school. The degree pursuit, educational attainment, and job opportunities took a backseat as university life became synonymous with a 4-5 year summer camp. Any 18-year-old could rack up hundreds of thousands of dollars in government student debt but would never qualify for a business or home loan. Students could get a pointless degree with limited employment potential and care less about the actual cost so universities rapidly raised tuition fees and provided more nonsense liberal arts degrees to sell to the government who paid in full every semester. The quality of education has fallen without resistance from the consumer. The convenience of a shorter trade program or certification has lost its luster compared to a “free” 4-year vacation. The incentives are dislocated due to government involvement, and thus, so is the price.

Healthcare is a guaranteed right in many modern countries. Others have a competitive market of physicians and insurance providers. America has some disgusting combination of both that makes its healthcare the most expensive in the world bar none. The most common form of bankruptcy is due to medical debt. Hospital visits carry price tags bigger than most mortgages and even basic care has become absurdly priced. Most Americans are afraid to call an ambulance in an emergency because of the insane cost. Government sponsored healthcare programs like Medicare and Medicaid create a blank check customer for insurance companies that will pay any medical bill without resistance. Healthcare providers are happy to raise the price of services if insurance companies ensure a portion of the cost will be paid out immediately. The insurance agencies are happy to pay out big hospital bills because they are then free to raise premiums while government entities cover a big chunk of the costs. Americans are left with massive copayments and the uninsured are left destitute. The profit incentives for physicians, and pharmaceutical providers, are distorted and considered unlimited with the amalgamation of government and insurance providers willing to pay any price. Elective procedures not under the purview of insurance are some of the cheapest forms of medicine like LASIK eye surgery, cosmetic procedures and holistic practices. Without the government intervention, these markets are adequately free and competitive to establish true prices patients are willing to pay.

Make Them Eat Cake

Government intervention as determinant in the economy goes way beyond direct market manipulation. Tax codes incentivize corporations and individuals to spend and report their income a particular way. Tax havens and shifty accounting are desired by those willing to pay less taxes at the expense of activities favorable to personal or corporate interests. The forceable redistribution of wealth has historically incentivized relocation, decolonization, and even violent revolution. There is only so much tax that can levied before the productive populace simply exits and leaves the unproductive freeloaders to fend for themselves or starve. Society only works if people are rewarded for their production.

Regulations are significant purveyor of monopolies and can be antithetical to consumer preferences. Businesses are incentivized to lobby government officials to institute barriers to entry in their industry. Corporations seek dominate market share, but this can often be more easily achieved through government enforced patents, regulations, and supply constraints, rather than creating the undisputable best product or service. The biggest campaign donors are the main drivers of consumer incentives as politicians govern at the will of their favorite corporate financier. The defense contractors, financial institutions and big tech companies are far more influential of policy than your average voting bloc. The federal agencies that regulate consumer products are all but controlled by the largest pharmaceutical and food processors. These companies determine what is safe for public consumption through the revolving door of regulator and regulated. The media used to be another gatekeeper of consumer protection, but they now have the same advertisers as the politicians. The health crisis in America is a direct result of the failure of government regulations and the preference for corporate interests over American’s health and safety.

Americans are free to make their own choices. They can choose the products they consume, refuse corporate monopolies, make good financial decisions, and lead happy lives. But what are they incentivized to do? The are inclined to live lethargic, unhealthy lives consuming carcinogenic products that encourage disease and sterilization. They are incentivized to finance every purchase with loads of unaffordable interest paid to institutions that assume zero risk of default. They are swayed into dependance on welfare and government programs that inevitably increase costs. In every aspect of their lives, they are persuaded to take the easy route that protects them from immediate pain and plagues them with unexpected long-term sickness and indebtedness. The powers that be cannot force compliance with every law, but they can incentivize behavior and decision making at a universal level. The damaging trends in this country are no accident. The arrangement of corporate and political interests that galvanize poor choices are enshrined in law, but they can just as easily be removed.

The solution appears insurmountable yet it’s quite simple. Americans need to be educated in financial literacy, basic nutrition, and the identification of propaganda and advertising. There are many problems and shortfalls in this country but the ignorance of those three disciplines can create the most pain, and the expertise of those fields can generate the most prosperity.

There is a clear incentive to help and educate your fellow American, we all live in the same country.