Stumbling and Mumbling

Author: chris dillow   |   Latest post: Fri, 22 Jun 2018, 01:40 PM


"Incentives" as bigotry

Author:   |    Publish date:   |  >> Read article in Blog website

Amber Rudd says she's stopping child refugees entering the country because "we do not want to incentivise perilous journeys to Europe particularly by the most vulnerable children." This should remind us of an old trick of the Tory party - the ideological misuse of the language of incentives to justify their own prejudices.

For example, we've been told for years that the rich need high pay and low taxes to incentivize effort. This, though, is deeply doubtful. Financial incentives can crowd out intrinsic motivations: bankers' serial criminality (rigging Libor and FX markets; PPI mis-selling; and so on) suggests that bonuses crowded out professional ethics. They can encourage short-termism or cooking the books. They can discourage creativity (pdf). They can worsen performance by over-motivating people. And they can create inefficiencies by encouraging (pdf) workers to focus upon jobs that are easily monitored to the detriment of other important tasks - as when teachers teach to the test.

One simple fact should tell us that all these adverse effects can add up: that the UK's GDP growth rate has been worse in the 28 years since Nigella's dad cut top tax rates in 1998 than it was in the previous 28 - 1.5% against 2.5%.

At the same time as telling us that the rich need big carrots, the right has long told us that the poor needed sticks in the form of welfare reform to incentivize them to get jobs. This claim too is doubtful. To a large extent, it is job opportunities that get people into work, not benefit reform.

A scientific assessment of incentives requires careful analysis of tricky questions: how do income and substitution effects net out - a matter which differs from worker to worker? What margins of adjustment do people have? What are their information sets: do they know what options they have? And so on.

Tories, however, neglect such issues. They know - regardless of facts - that the rich need carrots and the poor need sticks. As George Carlin said:

Conservatives say if you don't give the rich more money, they will lose their incentive to invest. As for the poor, they tell us they've lost all incentive because we've given them too much money.

All we're seeing in Rudd's lamentable words is an extension of this mindset to Syrian children. Talk of incentives merely provides a pseudo-scientific justification for small-minded bigotry.

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