Recently, Senator Chuck Schumer introduced a bill that would decriminalize marijuana on the federal level. He stated that the legality of marijuana should be a matter left up to individual states. This ringing endorsement of federalism might carry a little more weight if Senator Schumer hadn’t spent a large part of his political career trying to micromanage Americans’ behavior at the national level. Hillary Clinton is widely considered to be a staunch supporter of the LGBT community; however, she was publicly opposed to marriage equality until 2013. These are just two of the innumerable examples of politicians changing their stances on policy issues in the face of evolving public opinion. This is not a new phenomenon or exclusive to a single political party. Not only is it common for politicians to modify their positions of political principles to match changing public opinion, you’d be hard-pressed to find one who doesn’t. We are dealing with political followership, not political leadership. So, what does that get us? Antony Davies and James Harrigan talk about this and more on this week’s episode of Words and Numbers.
Home » Posts tagged 'incentives'
Tag Archives: incentives
Why We Don’t Have Principled Politicians
Why We Don’t Have Principled Politicians
Why Nassim Taleb Thinks Leaders Make Poor Decisions
Why Nassim Taleb Thinks Leaders Make Poor Decisions
Why do experts, CEOs, politicians, and other apparently highly capable people make such terrible decisions so often? Is because they’re ill-intentioned? Or because, despite appearances, they’re actually stupid? Nassim Nicholas Taleb, philosopher, businessman, perpetual troublemaker, and author of, among other works, the groundbreaking Fooled by Randomness, says it’s neither.
It’s because these authorities face the wrong incentives.
They are rewarded according to whether they look good to their superiors, not according to whether they are effective. They have no skin in the game.
Seasoned readers of Taleb will be pleased to see the so-called “experts problem” pop up in living color in Skin in the Game: Hidden Asymmetries in Daily Life, Taleb’s latest collection of essays on risk, rationality, and randomness. According to Taleb, dentists, pilots, plumbers, structural engineers, and “scholars of Portuguese irregular verbs” are real experts; sociologists, policy analysts, “management theorist[s], publishing executive[s], and macroeconomist[s]” are not.
The difference is that, when people from the first list are wrong about something, it’s obvious from the results and they suffer; they have skin in the game. Bad teeth, crashed planes, and leaky pipes are bad for business. People from the second list rationalize by substituting a different theory. They were not really wrong but just early, and, if they’re lucky, which is to say skillful at apple-polishing, earn promotion after promotion by not failing utterly. (Financial advisors can argue that the fiduciary standard is the most powerful tool for putting them in the first list.) Skin in the Game is full of insights like this, some recycled from his earlier work but many of them new. It is well worth the relatively quick read.
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It Takes a Village to Maintain a Dangerous Financial System
It Takes a Village to Maintain a Dangerous Financial System
Abstract: I discuss the motivations and actions (or inaction) of individuals in the financial system, governments, central banks, academia and the media that collectively contribute to the persistence of a dangerous and distorted financial system and inadequate, poorly designed regulations. Reassurances that regulators are doing their best to protect the public are false. The underlying problem is a powerful mix of distorted incentives, ignorance, confusion, and lack of accountability. Willful blindness seems to play a role in flawed claims by the system’s enablers that obscure reality and muddle the policy debate.
1. Introduction
“If it takes a village to raise a child, it takes a village to abuse a child.”1
The financial system is meant to facilitate efficient allocation of resources and help people and businesses fund, invest, save and mange risks. This system is rife with conflicts of interests. Reckless practices, if uncontrolled by market forces and effective rules, can cause great harm. Most of the time, however, the harm from excessive risk in banking is invisible and the culprits remain unaccountable. They rarely violate the law.
In this chapter I focus on the excessive use of debt in banking that creates unnecessary fragility and distortions. The Great Financial Crisis of 2007-2009 exposed the ineffectiveness of the relevant regulations in place at the time. Yet even now and despite the crisis, the rules remain inadequate and flawed. Policymakers who repeatedly fail to protect the public are not accountable partly because false claims obscure reality, create confusion and muddle the debate.
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150 Strong: A Pathway to a Different Future – Serialisation
150 Strong: A Pathway to a Different Future – Serialisation
Capitalism comes with a potpourri of sweet-scented prefixes, all of which presume that there is something wrong with capitalism per se. There are some other prefixes we commonly hear—crony capitalism and unbridled capitalism—that suggest that we aren’t doing it right.
Perhaps it is Goldilocks capitalism we need? Not too mean, with just the right amount of good will and charity, a measured dose of state regulation, a safety net – not too big and not too small, and the rest left to the free market?
Or is capitalism just capitalism in the context of people being people? The system swings between the poles of libertarianism and social democracy according to the changing tides of voter opinion. Some capitalists have more feeling for their fellow humans than others, while there are always greedy, selfish sorts lurking to do one over the rest of us, and certain trends are inevitable according to the incentive structure inherent in the system.
It is this last point, that outcomes tend to be inevitable according to the incentive structure operating, that serves as the starting point for a book I have recently written, titled 150 Strong: A Pathway to a Different Future, published by ClubOrlov Press. Over the coming weeks it will be serialised on Renegade Inc, with extracts presented.
On the topic of incentives, the book begins with an Author’s Note:
This book began as a response to the use of the word “sustainability,” a concept I became connected to through my training in sustainability engineering: the design and incorporation of environmentally-friendly practices into commerce and industry. It is based on principles such as these:
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