Incentives Matter


By Zach Alsobrook
Special to the
Opelika Observer

Incentives matter. To understand human behavior, there is no greater truth.
When a choice becomes more costly, people will be less likely to choose this option. At the same time, when benefits derived from a choice increase, people are more likely to choose it.
This most basic economic postulate can explain almost anything about human behavior if all natural incentives are studied and understood.
We make our daily choices at the margins of the benefits and costs before us. Almost all decisions in a private free market involve small additions or subtractions from current economic conditions. We generally try to avoid “all or nothing” strategies.
In a perfect world, government policy would similarly make decisions at the cost-benefit margin.
Government, however, does not operate with the same incentives as the private sector.
Governments tend to stress short-term benefits of a policy while ignoring the longer term consequences. The COVID-19 epidemic is highlighting this tendency.
To be certain, government is comprised of people and people act upon incentive. The first natural incentive for our elected government officials is to be re-elected. The second natural incentive is to increase the power of their office.
It follows then that in times of crisis, government tends to overcompensate for risk. This happens because in times of crisis, people become afraid. Fear grants politicians capital to accomplish the second incentive because the emotional winds of the moment means the first incentive is secure. As such, when new found risk presents itself, government will almost always act because that is what we expect when we feel powerless and afraid.
Historically, fear has always been the greatest factor in the increase of governmental power. Fear drove Germans to follow a murderous mad man to total destruction. Fear maintained
Communist control of the Soviet Union throughout the majority of the 20th century. Fear justified the rapid expansion of our Federal Administrative State in the 1930s.
This does not mean that fear is never justified. COVID-19 is certainly a crisis that justifies some level of fear. COVID-19, as of this writing, has already taken 18,000-plus lives in the United States and 60 in the state of Alabama. Our local doctors and health care workers are under a level of stress that they have never experienced in their careers. Every single life taken is a painful loss to a family. Every life lost matters.
This virus, as its name implies, is novel. This means our medical professionals lack the necessary information so that we can best weigh the costs and benefits of what government action is needed. Important information such as transmissibility, mortality rate, degree of criticality, and treatment remain to this day unknown. Exacerbating this feeling of uncertainty has been the news media. Fox News Channel and CNN have had their highest ratings in their respective companies’ history over the past month. Bad news sells. Fear sells.
In turn, this persistent news coverage has influenced politicians to act irrationally. We all heard the apocalyptic notion from both the media and our officials that if we do not abide by absolute social distancing by staying at home then we will all be complicit in the death of millions.
Incentives matter.
We must also understand the incentive of our medical professionals. Their natural incentive is to save lives and to limit the stress of their medical centers. Doctors, infectious disease specialists, epidemiologists, all know more about diseases, their courses, their patterns and so on than the rest of us. We would be ignorant to ignore their advice during this crisis.
With COVID-19, we must remember that limited and imperfect testing means that available statistics vary and can be misleading. To the extent that COVID-19’s characteristics are unique, no one knows exactly what will happen. This is also what makes our current shelter in place orders all the less compelling. This is what makes our sudden loss of individual freedom and liberty all the more shocking.
Our government, on the federal and state levels, have issued policy based on models estimating deaths and medical needs. These models have been wrong. On April 2, the official model being followed by the White House estimated between 100,000 and 240,000 deaths to COVID-19 in the United States “assuming full social distancing through May 2020.” In Alabama, the following day, Governor Ivey issued our Shelter-in-Place Order. Admittedly, this second major directive did almost nothing substantively different from her Order one week before. But she calmed the voices in panic by joining all of the other Governors that had issued such edicts.
On April 5, the same model decreased to between 80,000 and 94,000.
On April 8, the estimated deaths had decreased to 60,000.
Naturally, government officials began praising their swift mandates and our private efforts at social distancing for the dramatically decreasing numbers. One glaring problem exists with this narrative: the April 2 model specifically assumed “full social distancing.”
The only explanation for the dramatic change in the estimated death rate is the original models were grossly inaccurate. Similarly, the estimates for needed hospital beds, ICU space and ventilators were just as unacceptably overestimated.
Certainly models change when new information comes about. The question remains, should we be coercively shut down by our government while it quite literally knows nothing?
The tragic number of deaths now estimated by COVID-19 will pale in comparison to the tragic damage our government’s shelter orders are doing to our economy. To date, more than 16 million people have filed for unemployment. Many other jobs have furloughed en masse. Far more than 16 million are becoming dependent on the federal government to survive.
Perhaps just as depressing has been the loss of human affection and interaction. The very sight of people pouring into grocery stores avoiding every person like the enemy. Neighbors calling authorities if they see too many children playing together outside. Human affection, interaction and common decency have been wholly abdicated by fear and unlawful governmental edicts issued for a virus that is now expected to cause fewer deaths than the seasonal flu caused in 2018.
It is our duty and our calling to understand the incentives around us as we process what we are living through. We, the free people of Alabama, are more than capable of knowing how to live in freedom even during perilous times. At the Financial Times, Yuval Noah Harari writes, “When people are told the scientific facts, and when people trust public authorities to tell them these facts, citizens can do the right thing … a self-motivated and well-informed population is usually far more powerful and effective than a policed, ignorant population.”
This crisis has presented an opportunity for our elected officials to demonstrate their true character and willingness to fight for our liberties and freedoms. It is their duty to immediately and steadfastly study the ever-moving data and act immediately to free our economy. This economic crisis is entirely of a government mandate. A mandate based on faulty models and emotional cries from a people that has been driven to hysteria by the persistent negative news coverage. We must remember that incentives matter and we must remember that liberty and freedom can have no greater priority if we want to truly remain free.
As COVID-19 surfaced here, some of the private sector voluntarily closed operations to protect the public health. Others quickly followed suit as a result of CDC and other public health expert advice. To alleviate the sudden shock to our medical system and its supply chain, private enterprise has mobilized en masse to overfill the gap between production and demand.
As free enterprise mitigates the public health risks of the virus, government should use this opportunity to learn that the best path forward is to provide leadership and guidance rather than coercion.
Economic depressions cause death. The number of suicides from 2008-2010 were higher than the previous 10 years combined in the United States. The trade-off then is not just between the number of COVID-19 deaths and our economy. It is a trade-off with the number of lives lost due to governmental policy in “curing” COVID-19.
We are in uncharted territories. We must understand, as did F.A. Hayek in his masterpiece, The Road to Serfdom, that central planning always fails. It fails because it cannot do what an incentive based free market can do.
It fails because incentives matter.
It fails because freedom and liberty matter.
A parable tells of a rich doctor who went out west in the early twentieth century. This doctor owned a large acreage of land and many horses. One day he purchased a fine black stallion at auction. The horse was a gorgeous beast but had a wild, rebellious spirit. The doctor decided he was going to break the horse himself, even though he lacked knowledge in horse training.
The first thing he did was separate the horse from the other horses into a small corral where the horse could not see others of his kind. He did not let the horse out of this small corral at all unless he did exactly as he, the doctor, ordered. Then he cut its water and feed ration so drastically that the horse almost starved. The doctor slowly increased the horse’s ration as he began to obey. Eventually he allowed the stallion out of its solitary confinement to join the other horses.
The doctor broke the horse’s rebellious spirit, and it became completely willing to do whatever the doctor demanded.


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