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Perverse Incentives: Well-chosen incentives can produce discipline

How would you describe our federal government today? Let us guess: Dysfunctional, gridlocked, controlled by special interests, lacking civil and rational dialogue, and too often characterized by dishonesty and disdain for its citizens. This is clearly not what the founders had in mind when they launched their idealistic experiment in democracy.

In fact, we are today in such dire straits that Abraham Lincoln’s words at Gettysburg seem to aptly describe our situation:

“Fourscore and seven years ago our fathers brought forth upon this continent a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal. Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and dedicated, can long endure.”

It is not a stretch to view our current situation as a civil war, with political “war rooms” engaged in tracking enemy movements and developing strategies (including raising vast sums of money) to counteract these movements. It is seen by the participants as a high-stakes struggle for the soul of the country.

Could any endeavor be more worthy of our attention, concern,

and active participation than this one?

In a business situation, when an individual performs badly, it is helpful to examine the incentives of the system in which he operated; often, his performance was a direct result of the incentives of this system. In that circumstance, can we hold him personally culpable if we are displeased with the result?

If we look in this light at the perverse political activity that occurs regularly in Washington, isn’t it often the result of the incentives (which may be subtle) that we have allowed to become part of our system of governance? Once we realize how important incentives are, we can deal with them and change the system of rewards that permeates our system. A well-designed system would force desirable outcomes of civil and rational debate, thoughtful review of pertinent factors, transparency of the process, and accountability in the results. So why do we sit idly by and permit our elected officials to engage in the same unsatisfactory behavior over and over . . . why don’t we take action to change their incentives and instill some discipline into our political system?

The solution requires fundamental reform of the federal government.

Frank Keeney

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