I agree with the slug of Nobel award-winning economists Esther Duflo and Abhijit Banerjee’s op-ed in the New York Times:
On their own, markets can’t deliver outcomes that are just, acceptable — or even efficient.
but their broader claim, that incentives don’t work at all or work very little, is obviously overblown. How else do you explain the hundreds of thousands of Americans who are fleeing high tax states for low tax ones? Or that changes in tax policy result in easily measurable changes in behavior? Or, frankly, that people don’t just routinely blow through red lights on the street?
I would like to see a more extensive treatment of the conditions under which incentives work or do not.
As to whether tax incentives are good policy I would much rather see tax policy be limited to raising money than changing behavior if only because it’s hard to measure the effects of anything along multiple planes simultaneously.
“On their own, markets can’t deliver outcomes that are just, acceptable — or even efficient.”
Childish and simple minded. “Just” is a debatable value judgment that need only be considered in cases where the outcome impinges on the rights of a party. Which of course is exactly where the authors are headed. Imposition of THEIR values at the expense of YOUR rights. A “just” result no doubt.
“Acceptable.” Ditto, and we have mechanisms, market and other, to address that.
“Efficient” – the usual red herring.
Shorter from the authors: “be reasonable, see it my way.”
Markets aren’t perfect. The alternatives are almost always worse, and, further, are corruptible and will be corrupted.
The reason that Medicare was initially adopted was that seniors were being impoverished by their health care bills and then becoming wards of the state. There was no market-based solution to that problem but the solution that was adopted lent itself to overreach by providers.
There were things that might have been done but Congress being lazy just let things stew for about ten years and we got what we have now. The most expensive health care in the world.
Large corporations engage in rent-seeking to eliminate competition. There is no market-based solution for that. That’s why anti-trust legislation was enacted. Our problem now is that we’re afraid to enforce it.
Your comment makes my point. Medicare is on the road to bankruptcy.
“There was no market-based solution…”
That’s an assumption, not a fact. I know of no material activity that cannot be insured. And here in FL I hear ads all the time for groups electing to band together and basically self insure because Medicare and the private systems have been bastardized. Your argument only holds for the poorest of the poor, and we (supposedly) provide for them in all manner of ways. The natural way of politics and government is to provide free beer to the few, until the many get thirsty too, and then the system collapses.
Incentives do work, we just dont always know which ones or how much. We like simple answers so we often focus on one incentive and miss other equally important incentives at work. Markets remain the best pricing mechanisms ever. When markets fail it almost always benefits a small group of wealthy people. They then say stuff like “the alternatives are worse, especially if you get government involved”. They create think tanks to spread that message too. They want the status quo to continue, from which they benefit.
Steve
“And here in FL I hear ads all the time for groups electing to band together and basically self insure because Medicare and the private systems have been bastardized.”
I hear ads for products that will cure any cancer. Cant seem to find any evidence they work. There is lots of evidence that people are pretty happy with Medicare and that it works. Maybe you have evidence of these plans we have never heard of also working?
Steve
‘Shorter from the authors: “be reasonable, see it my way.‒
I think you meant to say ‘be reasonable, DO it my way. Or else. and trust me. You’d better.’
Anybody who makes a statement that markets don’t work has a strong incentive to ensure they don’t work.