Houston, We Have a Problem

Maybe it’s just what I read but today I’m seeing a recurring theme. It’s something I tell my clients fairly frequently: if you idiot-proof something, they will build a better idiot. The response to a work process that’s too cocooned it to become lazy and neglectful. You’ve got to walk a narrow line between letting your employees be more creative and industrious and allowing your lowest-level employees to set company policy.

When you bail out companies that have made dumb mistakes or are just too weak to survive, either by direct government subsidy or the soft, indirect subsidy of asset inflation, as complained about here, it doesn’t build stronger companies. It builds weak, dependent, stupid ones. When real white collar criminals, as complained about in this New Republic article, are treated the same as people who didn’t file their paperwork on time, not only will you get more criminal behavior by thugs who use pens (or keyboards) rather than their fists but you’ll foster the view that there are two standards of justice—one for the rich and another for the poor.

When every kid “succeeds” but nobody actually succeeds and you never allow people to hit rock bottom as a consequence of their own fecklessness, a lot more people will aim for it.

I don’t know the solution to all of this better than anyone else does. But I do think there is a problem.

3 comments… add one
  • I don’t know the solution to all of this better than anyone else does. But I do think there is a problem.

    There are actually two problems. The first is to understand how incentives matter and if you have designed bad incentives you get bad outcomes. That part is easy. A talented 4th year undergrad in economics could explain it (i.e. a 22 year old “kid”). It is what Michael keeps claiming the Democrats are good at (but not really), observing reality and acting in accordance with said observations.

    The second problem are getting politicians to craft policy that deals with reality. All politicians are either ignorant or willfully ignorant of the reality of bad incentives. The ignorant ones aren’t the real problem though, they can be educated. The real problem is the second group, and this likely includes almost all politicians, these people know what the reality is, but refuse to deal with it when creating policies. For this, I don’t know what the solution is. The ballot box has shown to be woefully incapable of forcing discipline and since that is about the only mechanism we have, there may not be a feasible solution–i.e. one that actually works.

  • “are getting”?…dammit, need to proof read better as I’m re-working these comments….

  • PD Shaw

    I’ve browsed the settlement document on HSBC and didn’t see any agreement by the feds not to seek criminal charges against individuals. Unless there is more, there may be criminal charges and there may not.

    As far as incentives, HSBC helped funnel $800 million related to Mexican/Columbian drug cartels and hundreds of millions more relating to Iranian/Libyan sanctions. What were their profits on this? A few million? Ten million?

    The bank agreed to pay $1.92 billion in fines, spent $2.91 million in remedial efforts, closed a number of its businesses and agreed to an enhanced regulatory and monitoring scheme for at least a five year probationary period.

    Usually deterrence is observed when the losses imposed by a system far outweigh the benefits of the violation. Around $2 billion losses imposed for around $10 million in gains is at about a 200:1 ratio.

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