Money trouble

Payments for mask-wearing, and other threats to our utopian future

This pandemic of ours offers many opportunities to reflect on the phenomena which economists call externalities: situations in which an individual’s private choices impose costs on others—“external” costs—which are not taken into account by the individual doing the choosing. If I go out without a mask on, hacking and coughing all over the folks around me, I don’t face much or any of the cost to others of the illness I spread. From the perspective of society as a whole, it would be better if I didn’t do all that hacking and coughing, but because I don’t face much of an incentive to not hack and cough there is an inefficiently large amount of hacking and coughing and society as a whole is in worse shape than it would otherwise be.

Vaccines provide another example. The social costs of me refusing to get a vaccine are larger than the personal cost I bear by not getting vaccinated, so I have less of an incentive to get a vaccine than a perfectly informed social planner would prefer and society ends up with lower levels of vaccination than would be economically ideal. (There are such things as positive externalities as well, like the very large social gains generated by research into treatments and vaccines. Positive externalities imply that society doesn’t get enough of something it would like more of.) Economists tend to view externalities as problems of incentives, and they tend to conclude that the best way to address externalities is to tweak those incentives: by taxing bad things or subsidizing good ones. Unsurprisingly, this thinking is increasingly being applied to the particular externalities raised by Covid-19. Take this recent piece at Slate, by Joshua Barocas and Gregg Gonsalves, in which the authors write:

Incentives should go beyond the purely practical—they might even look a little like bribes. For an incentive to work, the perceived gain must be greater than the perceived loss. For example, if someone feels like they have to give up not just $10, but personal autonomy, to wear a mask, the incentive to wear one will need to be pretty high. Because attitudes around masking vary by geographic location and political affiliation, incentives must be community- and context-specific. In grade schools and high schools, the incentive could be extra credit (as some teachers are already trying) or additional recess time to students in exchange for consistent mask wearing. Colleges and universities could incentivize mask wearing by providing vouchers for books, meal cards, or tuition remission for those who wear them consistently to class. Businesses could provide discounts on products to customers who wear masks while shopping. Even in cities where there are mandates, this could boost morale. Cash payments of $100 could encourage Americans to download a contact tracing app, as Johns Hopkins University’s Jemima A. Frimpong and Stephane Helleringer have suggested. When a vaccine is available, as economist Robert Litan has suggested, the government could pay people $1,000 to take it.

These guys aren’t even economists! But economic thinking about externalities is so seductively simple it can be hard to resist: people face bad incentives and society is made worse off, so let’s just change the incentives. And to be clear, there are certainly situations in which this approach is a sensible one. But does the case of mask-wearing or of vaccination fit the bill? And more importantly, why mightn’t it?

Start with this: while an externality can be seen as a failure of efficiency, that is not the only way to characterize it. It is also a failure of ethics. Take the example at the beginning of this dispatch: me, wandering around maskless, hacking up germs on those around me. If you, masked and dutiful, end up on the receiving end of my coughing, you might tell me to stop contributing to an inefficient response to the pandemic. Alternatively, you might tell me to stop being an asshole and to take a little more account of the welfare of others. You see, society had a whole system in place for dealing with externalities before economics ever got around to studying the issue. Ethical guidelines, and the social habits which support them, serve to encourage individuals to take account of costs they might impose on others and thus to discourage the imposition of such costs. The informal social rules which encourage us to be upstanding citizens, good neighbors, etc, play an important role in reducing the social costs of a million little everyday incentive problems. We could have government-funded noise police wandering every neighborhood imposing micro-taxes on households in order to discourage the welfare-reducing playing of loud music. Or we could just cultivate a society in which people endeavor to be courteous to those around them.

Must it be either-or? Barocas and Gonsalves argue that public shaming around the issue of mask-wearing is not getting the job done. Best, then, to supplement the ethical argument for masks with a monetary incentive. The trouble is that the introduction of market incentives can actually crowd out ethical considerations. Samuel Bowles, in his book “The Moral Economy”, presents a number of research results demonstrating this effect. There is the example, for instance, of the day care centers which sought to reduce tardy pick-ups by introducing a fine on parents who showed up late. Late pick-ups subsequently rose, and remained higher than before the introduction of the fine even after the financial penalties were dropped. The fines changed the context. What parents had seen as an obligation to adhere to the rules and respect the time and welfare of the care workers became transactional: the purchase of one thing with another, stripped of moral content. In a paper co-written with Sandra Polanía-Reyes, Bowles considers fifty experimental studies examining the relationship between external incentives and intrinsic motivation, and finds that crowding out of ethical behavior is common. The upshot of all this is simple: you can’t introduce a financial incentive and just assume that all other things will remain equal. A financial incentive which undermines a propensity to behave ethically may not achieve its intended effect. Indeed, it might make things worse.

That could end up mattering quite a lot when it comes to something like the pandemic. Mask-wearing and vaccination present big, easily identifiable incentive problems which seem as though they lend themselves to incentive-based policy solutions. But the present circumstances are both unique and high-stakes. The social costs to a failed intervention which backfires could be enormous. Beyond that, the pandemic presents lots of little, varied externalities—far too many to be targeted by clever policy wonks. Should you host a small get-together? Should you go home for the holidays? Should you hoard toilet paper? Should you eat at a restaurant? Should you schedule an elective surgery? There is neither the interest nor the will to try to work out appropriate financial incentives to elicit a socially optimal response to each of these questions. It’s an absurd thing to even consider. But because it’s absurd, we have to rely on ethical rules to encourage people to behave in ways that raise overall welfare. Broad ethical guidelines “get in the cracks”, you might say, where fine-tuned policy interventions can’t reach. But incentive-based policies relating to mask-wearing or vaccination which undermine the notion that behaving appropriately during the pandemic is first and foremost a matter of social responsibility undercut the power of ethical rules to do their work—and may well leave everyone worse off.

Once you start reflecting on this dynamic, you may begin to wonder whether we don’t have a bigger problem on our hands. Advanced economies rely pretty heavily on market mechanisms to do the work of resource allocation: counting on individuals to respond to incentives and follow their own self-interest in pursuit of material gains. America in particular has a tendency to dismiss ways of addressing social problems which depend on community or public institutions. We prefer to see if someone can figure out how to make a buck doing it. But is it possible that a reliance on financial incentives to do the bulk of the work of coordinating our collective activities is, as a side effect, eating away at our capacity to harness other sources of motivation? Have we been crowding out other impulses, like altruism and ethical responsibility, in favor of narrowly focused self-interest?

It’s an interesting question, and one that may be beyond our capacity to answer in a definitive way. I certainly will not answer it definitively in this dispatch. But it’s worth asking, as a sort of thought experiment, what it might look like if in fact a very market-oriented society unwittingly ran down its stock of what you might call ethical capital. What sorts of things would happen? Would we detect a rise in callous rent-seeking across the economy? Would there be a change in the sort of people we lionize, away from public-spirited heroes and toward amoral opportunists who have succeeded first and foremost in the acts of self-promotion and self-enrichment? Would we find ourselves facing political crises, as leaders felt ever less bound by a sense of duty?

As interesting as such hypotheticals might be, one might argue that they’re not of much practical use. Whatever their side effects, markets have proven themselves as instruments of progress, while other mechanisms of social organization have not. We’re a modern society, and modern societies cannot depend upon the goodwill of their citizenry or primitive forces like shame if they hope to reap the benefits of highly complex economies. Serious people understand that markets tended by clever technocrats generate prosperity; unserious people prattle on about norms.

But that’s not the way I see it. In practice, modern society is built on interlocking sets of institutions—markets, states, communities—all of which rest on a foundation of shared social norms and values. Markets versus states versus whatever else is a question of degree, and it might well be a reasonable and serious thing to conclude that too heavy a dependence on markets is unwise, because what one gains in allocative efficiency is offset by reduced social capacity. What’s more, it is a very unserious thing to suggest that people, even the most clever of them, are smart enough to play the role of omniscient social planner. We lack the cognitive capacity to design perfect incentive systems—or even, in many cases, just barely good enough incentive systems. Economists sometimes talk about markets’ ability to draw upon “tacit knowledge”: or useful information that people cannot easily communicate to others and may not even realize they have. Hayek and others saw this social opacity as something which recommended markets over states as instruments of social organization. But that same opacity means that the people in a position to choose between market and state (or other institutional options) are unable to identify every market failure, or indeed to grasp the full social consequences of using markets to address particular problems. Much of the heavy lifting needed to keep society from collapsing is thrust on social norms, which can “get in the cracks” and limit potential social harms we don’t even recognize are there. Societies throw aside that valuable collective resource at their own risk.

And then, finally, we ought to stop every now and then and imagine what sort of future we’d like to live in, and how we would ideally like our decisions to be shaped. Social constraints of some sort are going to be necessary; there’s simply no way to have a functioning society in which everyone does exactly what they want to do and nothing more. The only question is what sort of constraints we want to live under. Not coercion, certainly. But do we really want to be led around by money for the rest of our lives? Do we want that for our children? Think about the money to be offered to people to get them to wear masks. Under what circumstances are financial incentives like that effective? In a world of material scarcity and hardship, certainly, when more money can alleviate the discomfort of not having enough. And also in a world of abundance, in which people are socialized to never be satisfied and always want more.

Do either of those sound particularly appealing? Are strong social norms which encourage people to take account of the welfare of others and behave in socially beneficial ways not preferable? I should acknowledge that I’m cribbing from Keynes here, who wrote that in a sufficiently rich society we would be…

...free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue-that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

We have not yet exhausted the utility of markets or, unfortunately, of the habits of mind which allow them to work effectively. But in any good future we will be ever more free of the constraints of scarcity and have ever less need of markets to do the work of allocating limited resources. In that world we’re still going to need to decide what to do with ourselves, and we will still need to get along with each other. Other-regarding ethical codes offer the most humane and free mechanism for shaping our choices in a world like that. It seems unwise to neglect the preservation of our capacity for such things. We may find ourselves in a world of abundance, completely unable to enjoy it.