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Adverse-incentive paradox solution

By Nicholas Lisac | Freelancer
On January 31, 2012

The adverse-incentive  paradox is extremely relevant in modern politics and is often used as an argument against socialist type legislature. It is simple and is as follows:

By helping those who cannot help themselves, we offer an incentive for others who have the means to help themselves to abuse the given assistance. Or…

Give a man a fish and he will eat for a day; teach a man to fish and he will eat for a lifetime. Or…

In economic terms, the free rider problem.

This dilemma has been around as long as society has been established and possibly just as long as the first self-aware parent birthed their first self-aware child. Fortunately, the solution is just as old, if not older.

As with parents and children, governments and their constituents serve one another. The parent acts as a guiding force, and the child as a driving force. The same is true with governments and constituents. The difference being that in the first case, the chicken came before the egg and in the second, the egg before the chicken.

And as in governments, the adverse-incentive paradox comes into play in parenting. A parent would be considered irresponsible if they were to give their child everything they wanted, but, being a parent, they also want to provide for and add to the happiness of the child. If they provide too much, the child could become ‘spoiled' and misbehave, but if they provide less than they possibly can for the child, then the guilt slowly starts building up within the parent's consciousness. The more a parent gives, the more a child finds it needs.

Examples would be children who are smothered in attention having attachment problems, and children who are given everything having a sense of entitlement.

This problem has been very intelligently solved by millions of parents around the world. The solution is to lower the expectations of the child (making them think they get less) while maintaining the flow of output by the parent. This must be done without the knowledge of the child. What does this mean?

The answer is to lie: "no little Johnny, Momma cannot buy you that Game Boy – it is too expensive." What little Johnny does not know is that Santa has bugged the toy store and his elves are now scheming on how to get that hand-held gaming system under the tree without anyone noticing.

It is the oldest and best parenting trick in the book. I do not plan on debating the morality of lying to your children, and I am operating on the premise that the strategy does in fact work, so I will bring it back to the argument for applying this archaic tactic to government.

If no one expected to get bailed out, incentives would imply that everyone might try a little harder to keep themselves afloat. If you start bailing people out, incentives imply that people will attempt to get a free ride on the life-boat. The unfortunate truth is, however, that no matter how hard some people try, they will not be able to keep afloat on their own.

It is because of these people that safety nets are put into place to take care of things like retirement, injury, or relocation. These safety nets are big messy and, most of all, opaque. Because everyone wants the safety nets to be something different, there is an awful lot of red tape surrounding them.

So much, in fact, that the tape reduces the efficiency of the programs to the point where we are not sure if they will be there if we were to fall. Does this make us try harder to stay afloat? Not yet, because at the moment we can borrow at our hearts content to keep the safety nets well padded

What if we could not see them, and yet they were still there?

The government would have to convince us that there were no safety nets and that we had to watch out for our own necks. Because there would be less of a free-rider problem, the government could much more easily and efficiently operate a secret program designed to help those who actually need it without interference of special interest groups.

Of all of the secret government programs that may or may not exist, this would have to be one of the better ones to have.  

Of all of the things for a government to lie about, helping people while denying that they have helped is one of the ones I am more likely to go along with.


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