February 23, 2004
Carrot and Stick Policy
Much of the policy of today is what I like to call "carrot-stick policy". Carrot-stick policy is where the policy in effect dangles a carrot in front of the person (or more accurately a group of people) and tries to get that person to do something.
One problem, people--despite what many might think--are not stupid mules who'll follow that carrot mindlessly. Instead, what they will do is spend an inordinate amount of time trying to figure out how to get the carrot and not go where they are supposed to/or do what they are supposed to.
Some possible examples of how things can be abused. How about trying to reclassify the type of industry you are in to recieve preferential tax treatement. John Kerry has put forward a policy with lots of carrots on the end of a stick for businesses. The idea is to retain manufacturing jobs. The problem is custom tailors are considered a manufacturing job. So are bakeries. Could someplace like McDonalds try to get their industry re-classified as manufacturing? Maybe.
Some other examples are found in this post.
Scully: I think the DRG system works pretty well for what it is designed to do. But we had about 300 hospitals chronically "gaming" the system for $2 billion a year for four years in a row, and we did not catch it. That is right -- $2 billion a year for four years, or $8 billion total -- and the system did not catch it (nor is it designed to catch it). That is over 2 percent of inpatient hospital spending a year "out the door and unaccounted for." We pay claims quickly and efficiently, but we have no clue what is actually going on in the system. What is the chance that Blue Cross of New Jersey or Independence Blue Cross in Pennsylvania would have missed that if their money were at risk? I can tell you: zero.
Instead of using its resources to provide health care, these 300 hospitals diverted resources to gaming the system. This is not productive in that it is a re-arrangment of the economic "pie", not contributing to the economic "pie".
I think it was Howard Dean who had a plan to help subsidize tuition for people who were going to college. Sounds like a good thing right? After all an educated person will have a higher earning potential, which means fewer people putting demands of government programs, paying more taxes, etc. Well, what if they go to college for art history? How much does somebody with a degree in art history earn? My guess is less than somebody with a degree in computer science, engineering, or mathematics. But hey, those are hard majors and you'll be less likely to get laid while in college is you always have your nose stuck in a complex analysis text. Never mind the people who go to college for a couple of semesters, and then drop out. Is this what we want to subsidize?
I agree with Arnold Kling, I too am a bleeding-heart libertarian. The quote at the top of the essay says it pretty damn well,
"I am a bleeding heart libertarian. Because I'm a nice guy and want to address society's problems and I want disadvantaged people to become better advantaged. By instincts and experience I believe that government seldom delivers the benefits the "bleeding heart liberals" and "big government conservatives" always seem to hope for. In many cases government only makes things worse. As with technology and prose, less is often more. I'm not one of those doctrinaire Big-L Libertarians who want to eliminate government. My aim is to improve government by making it smaller. The most important part of this process is to persuade our fellow citizens to demand less of our government." -- Stefan Sharkansky
Precisely right. I don't want people to suffer, in fact I want them to flourish and do well. I want them to have a nice life. I don't want people to sleep on the streets, eat out of trash cans, or have to go without certain goods and services they need. However, I am also far from convinced that government is the vehicle to ensure that people have these things that they need.
In fact, I see getting government out of people's lives as a better solution. Add in the idea that Arnold Kling puts forward of a negative income tax, and you could very well be a good ways towards solving many problems. Of course, along with this negative income tax you'd need to completely dismantle the welfare state. No more medicare, no more medicaid, no more housing support, no more farm subsidies, no more food stamps, etc. Now, people have money and they'll have to make the best choices they can given their budgets. If you are making $14,000 a year and recieving a tax return of $16,000 (i.e., total income is $30,000) then having six kids is probably not a good idea. Don't look to the government for anymore support. Also, I'd like to see this put into the Constitution to prevent people from "voting themselves pay raises" (with a mechanism for adjusting for changes in prices).
Of course, this kind of an idea is impossible to implement. The politics of special interests is the law of the jungle these days. Kerry's plan to revitalize American manufacturing is pandering to those interestes (manufacturing firms, labor unions, manufacturing laborers, people living in communities dependent on manufacturing, etc.). Bush has tried pandering to the elderly, drug companies, and other health are interests with his prescription drug plan. And these are just two examples among many. Such a change in government is not possible so long as politicians are able to divide various groups of people.
Posted by Steve at February 23, 2004 06:59 AM