I agree that financial incentives/disincentives result in failures (ie. social problems) of all kinds. One of the biggest reasons, as I’m sure you mention at some point in your book, is corruption. ie. the beef/dairy industry pays off environmental NGOs and government to stay quiet about their environmental impact.
But don’t you think that non-financial rewards/punishment also play a large role in impeding social progress, in particular social rewards/punishment? ie. people don’t wear enough to stay warm in the winter because others will tease them for being uncool, people bully others because they are then respected more, etc.
Non-financial incentives clearly play a major role both in dysfunctional systems and in well-functioning ones. A lot of those incentives are harder to observe and quantify, though; and I’d expect them to vary more interpersonally, and to be harder to intervene on in cases like the Bank of Japan.
It isn’t so surprising if (say) key decisionmakers at the Bank of Japan cared more about winning the esteem of particular friends and colleagues at dinner parties, than about the social pressure from other people to change course; or if they cared more about their commitment to a certain ideology or self-image; or any number of other small day-to-day factors. Whereas it would be genuinely surprising if those commonplace small factors were able to outweigh a large financial incentive.
I agree that financial incentives/disincentives result in failures (ie. social problems) of all kinds. One of the biggest reasons, as I’m sure you mention at some point in your book, is corruption. ie. the beef/dairy industry pays off environmental NGOs and government to stay quiet about their environmental impact.
But don’t you think that non-financial rewards/punishment also play a large role in impeding social progress, in particular social rewards/punishment? ie. people don’t wear enough to stay warm in the winter because others will tease them for being uncool, people bully others because they are then respected more, etc.
Non-financial incentives clearly play a major role both in dysfunctional systems and in well-functioning ones. A lot of those incentives are harder to observe and quantify, though; and I’d expect them to vary more interpersonally, and to be harder to intervene on in cases like the Bank of Japan.
It isn’t so surprising if (say) key decisionmakers at the Bank of Japan cared more about winning the esteem of particular friends and colleagues at dinner parties, than about the social pressure from other people to change course; or if they cared more about their commitment to a certain ideology or self-image; or any number of other small day-to-day factors. Whereas it would be genuinely surprising if those commonplace small factors were able to outweigh a large financial incentive.