By John Kessler for the Fort Wayne News Sentinel print and online edition for August 20, 2012
Economics cautions us against passing judgement on the Chinese, Indonesians, Koreans or Spaniards for ostensibly losing their Olympic bouts; like them, we all respond to incentives.
These athletes were merely responding to the incentives they faced. They, like everyone else, want to do what is best for them. In economics we call it pursuing your self-interest. They want a gold medal, and if losing will help them achieve that goal then seeing them try to lose should not surprise us. Their actions were merely an unintended consequence of the rules of the game. If you don’t like it, then change the rule. Don’t demonize the players.
We all pursue our self-interest within the confines of the rules of the game — rules that in life are established primarily by government. While these rules may have the greatest intentions they often have unintended consequences. Welfare recipients respond to incentives by working less. Owners of rent-controlled apartments respond to incentives by not repairing buildings or renting to wealthier, more connected clients. Employers respond to the incentives of minimum wage by hiring fewer workers, and when they do hire, hiring older, more experienced workers. People respond to higher marginal income tax rates by finding ways to avoid paying taxes.
Politicians are no different – they respond to incentives as well. Because increasing taxes is politically undesirable they borrow money to pay for today’s spending and increase our debt. Because many special-interest groups depend on government spending, they lobby for more spending and our debt increases. We’ve known for decades that Social Security and Medicare are in trouble and yet nothing is done to fix them because of the incentives politicians face for reelection. None of this should be a surprise – people respond to incentives.
The rules of the game matter in sports and in life because they create the incentives. If we don’t like the outcomes we need to change the rules instead of complaining about those playing the game.
John Kessler, M.A., an adjunct scholar of the Indiana Policy Review Foundation, marathon runner and one-time track coach, is a continuing lecturer in economics at Indiana University-Purdue University Fort Wayne. To book John Kessler to speak at your event, click here.