Incentivize Me

I hear a lot of talk about economic incentives, and I am puzzled. OK, I’m bothered. I think that bother comes from the same source as the irritation when people are referred to as “consumers.” Let me see if I can think this through.

Some economic incentives are clear and simple to understand. A supermarket runs a sale on canned tomatoes, and you go and buy 15 cans, or however many your pantry can hold (two cans, if you’re a New Yorker). The newspaper runs a special: 6 weeks subscription at half price. You take it – what the hell. It’s cheap. You find an electronic gizmo on special, and you buy it – those headphones usually cost $40, but they are on sale for $15, so you are really saving (and therefore sort of earning) $25.

In all these instances, you are, indeed, rightly called a “consumer.” No objection, no annoyance there. And while all three examples involve good prices, only one is really much of a deal, and that is the tomatoes. The supermarket knows this, and they take the hit on the price just to drag you into the store (it’s called a loss leader). Newspaper subscriptions usually are for the long haul, and a six-week reduction, averaged over the life of the paper, isn’t much to bear for the news company. Besides, once you get the paper, you are probably going to maintain your subscription. Who ever calls to cancel? Too much trouble. Again, they are trying to draw you in, to get you started so you will continue. And the headphones are the worst. You don’t need new headphones, and the thought of buying something because it is cheaper than it used to be is crazy. I am far from immune to the impulse, and it is lucky that I have moved houses a lot of late – moving gives you a great incentive to throw out all that junk.

I guess my point about all that is that these “incentives” don’t seem very incentivizing. They prey on our desire to accumulate stuff (more groceries! more news! more electronics!), and the incentive might be powerful, but the economic reality is something else. Buying an extra pair of headphones that you don’t need is not like saving (earning) $25, it is like burning 15 one-dollar bills on a cold day to keep warm.

I should perhaps point out, before going on, that I never took an economics course in my life. And it probably shows.

Even more baffling to me are large-scale incentives. Let me offer my favorite example: myself. I recently took a job as a college professor. I actually was making more money before, but the job I took seemed like it would make me happy (it has) and would make my life sane (ditto). I chose to live near my work, where property taxes are extremely high, rather than go just a few miles away, where they are lower and where property itself is much cheaper. With my imputed savings had I acted differently, I could easily have saved enough money to afford a really high-quality private school for my son, and still come out ahead. That seems a powerful incentive. Yet I chose to do what I did, partially because of my perceived quality of life (driving 20 minutes to work? Been there, done that, and more) and partially because I believe, yes I do, in public education. I am happy to pay my property taxes, and would happily pay more if I were convinced that it would really improve all our schools.

The point here (it’s hard to find, I know) is that there are many things I (we?) do that fly in the face of economic incentive. I am not primarily a “consumer” – I am a human being (just accept that temporarily; you can argue that point in the comments) who makes decisions based on a weighing of factors of which economics is a part but not a whole.

Perhaps this is why those on the left and those on the right can’t seem to talk to each other. If you assume behavior is governed by economics, you view the world one way, and if you assume it is governed by other considerations, the whole picture looks different. Companies are merging, growing larger and more powerful – is this a good thing (cheaper goods for all, and therefore better living) or a bad one (McDonald’s and Walmart for all, and therefore indigestion, zits, and stuff that breaks pretty quickly)? Our quality of life is way up from 100 years ago. Believe me, I have no interest in taking my laundry down to the river to beat it against the rocks. But are we, as a society, living lives of greater human meaning and worth, or is that becoming harder and harder? I guess only the consumers of tomorrow can answer that question.


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2 Responses to Incentivize Me

  1. B-Rob says:

    The flaw in your analysis (as you once said to me) is that your decisions are absolutely rooted in economics. You decided to live close to work and pay higher taxes because you put a premium (in the economic sense) on being home for dinner vs sitting in traffic (is there traffic in Madison?). The economists actually have a word for this that I can’t recall. But, if you pay an extra $15K a year in taxes to live closer to work, then you are paying $15K for the privilege of eating dinner with your family. That’s a simple cost/benefit economic decision. And, I would applaud it. People accept lower paying jobs all the time because they pereceive them to be more enjoyable. But, to say these are not economic decisions is incorrect. You have just failed to consider the fact that things like enjoyment of work, time with family, etc. All have an economic value. In evaluating what choices people are likely to make, you have to account for that value.

  2. Dan Grabois says:

    Well, if there’s only one flaw, I count myself doing ok. Let me wrestle with your major point, which is that my decisions actually do have an economic basis, whether I like it or not. I am most interested in your parenthetical remark, so let me quote you as a reminder to all who are following this debate with avid interest (probably just the two of us): “You decided to live close to work and pay higher taxes because you put a premium (in the economic sense) on being home for dinner vs sitting in traffic (is there traffic in Madison?).” My question: is it certain that the premium I put is, in fact, in the economic sense? I guess you are right that I did engage in a decision process of sorts that involved economics, but in my head it went like this: “We’re moving to Madison and living in town. I don’t care what it costs.” That seems to me to be an anti-economic sense.

    Here’s a different way to try (I’m getting desperate) to make my point. I decide to paint my living room cream yellow. I like the color. Could one make the argument that this is an economic decision? In a cream yellow room, I will be happier, resulting in a life of greater balance, resulting in higher productivity, with a net gain in either income or happiness, and if the latter, then that is also an economic motivator since happiness is clearly “worth” more on the Grabois econo-meter than actual income.

    The economists may have a word for this, but I do, too, and the word is “stretch.” You can trace absolutely everything to some imputed economic gain, but isn’t it sometimes a bit of a stretch? Is there not a single thing in life that we do, not against our economic interest, but merely with an absolute disregard for the monetary implications? I can hear an economist answering, “In that case, disregarding monetary implications has a higher monetary value for you than regarding them.” But at that point, our economist isn’t really saying anything (which often is a preferred strategy for academics, since not saying anything but doing so at great length is a recipe for success in the academic world, leading to tenure, slightly higher salaries, and the ability to purchase some new Danish modern furniture, and therefore is an economic incentive).

    I want out of that world, into a better one where we can care about people whether or not there is a profit involved, and where we are permitted a moral sense over and above dollar-wise calculations. To me, that would be a better place than what we’ve got now (and therefore will attract more people, which will raise housing values and salaries, and I’ll make more money).

    As to your secondary, but equally important question: yes, there can be some slight back-ups on one of our roadways during rush minute.

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