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So If Incentives Are Overrated…

Summary:
New Nobelists Duflo and Bannerjee in the NYT: [E]conomists have somehow managed to hide in plain sight an enormously consequential finding from their research: Financial incentives are nowhere near as powerful as they are usually assumed to be. David’s critique is excellent.  But supposing Duflo and Bannerjee are right, I have a few questions. If incentives are overrated… 1. Is it OK to reduce penalties for tax evasion? 2. Is it OK to cut regulatory enforcement? 3. Is it OK to curtail the right to sue? 4. Is it OK to cut pay and benefits for government employees? My underlying point, as I’ve said before: The connection between heterodox economics and left-wing policies is fragile at best. Yes, “incentives matter” helps the case for some right-wing policies.  But

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New Nobelists Duflo and Bannerjee in the NYT:

[E]conomists have somehow managed to hide in plain sight an enormously consequential finding from their research: Financial incentives are nowhere near as powerful as they are usually assumed to be.

David’s critique is excellent.  But supposing Duflo and Bannerjee are right, I have a few questions.

If incentives are overrated…

1. Is it OK to reduce penalties for tax evasion?

2. Is it OK to cut regulatory enforcement?

3. Is it OK to curtail the right to sue?

4. Is it OK to cut pay and benefits for government employees?

My underlying point, as I’ve said before: The connection between heterodox economics and left-wing policies is fragile at best.

Yes, “incentives matter” helps the case for some right-wing policies.  But “incentives matter” also helps the case for some left-wing policies.  If you think textbook economics is misleading – as I often do – you should do a full rethinking of your policy views.  Don’t just single out the policies you dislike because they rest on questionable assumptions.  Scrupulously investigate the implications for policies you like, too.

What if the heterodox assumptions turn out, on balance, to be politically inconvenient for you?

Perhaps you went heterodox a little too hastily.

Or perhaps reality just isn’t politically convenient.

Bryan Caplan
Bryan Caplan is Professor of Economics at George Mason University and Senior Scholar at the Mercatus Center. He has published in the New York Times, the Washington Post, the Wall Street Journal, the American Economic Review, the Economic Journal, the Journal of Law and Economics, and Intelligence, and has appeared on 20/20, FoxNews, and C-SPAN. Bryan Caplan blogs on EconLog.

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