“INCENTIVES SURELY MATTER!”

2 PARAGRAPHS 4 LIBERTY: #288

There was a headline in a story in the November 1, 2020 Orange County Register that said “Avalanche of relief program fraud alleged.” The story began by saying “For a few months this year, a U.S. government aid program meant for struggling small-business owners was handing out $10,000 to just about anyone who asked. All it took was a five-minute online application. You just had to say you owned a business with at least 10 employees, and the grant usually arrived within a few days.” Then it went on to say that many of the claimants were simply fraudulent, including many professional thieves from Russia to Nigeria. In addition, even after the first $20 billion fund dried up, the scammers continued to loot a separate $192 billion pot of money set aside for the “loans.”

So this report once again starkly brings home the timeless reality that “Incentives Matter!” How so in this case? Because the incentives for the workers in the government programs are to show how many checks they sent out. That is the measure of success. But in the private sector, the incentives are to show how effectively the money has been spent. So Dr. Milton Friedman’s stated amazement that we continue to entrust so many people in government with making economic decisions who pay no price for bad decisions is again reinforced. That is the reason, among other things, I recommend that we abolish federal agencies like FEMA and instead award contracts for the emergency “work” it does to private organizations like the Red Cross. Similarly the government should contract its environmental protection issues to groups like The Nature Conservancy and the John Muir Society. This will work so much better because these groups are structured to be successful economically instead of politically. And, in addition, all groups know full well that if they don’t perform, the future contracts will likely go to someone else. So, as always, Incentives Surely Matter. You might want to bear that in mind each time you go into a voting booth – and help me spread the word!

Saying for the week: “Life may not always be the party we hoped for, but while we are here we might as well dance.”