[PEN-L:2693] Re: [Fwd: Re: Shleifer and Incentives]

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

Peter Dorman writes:
>Shliefer's theory of soft incentives goes like this: We know that
>private, profit-seeking firms minimize costs.

I know that Peter knows this, but profit-seeking firms do not minimize
costs _in general_, but only their own (private) costs. As E.K. Hunt
pointed out years ago, this means that they actively seek out ways to
externalize internal costs (in prose, to pollute) and to internalize
external benefits (to engulf and devour). We can see this happening in the
Amazon right now.

One scandal among economists is the common statement by economists that
capitalist firms are "efficient" because they minimize costs. But that's
only private costs that are minimized.

Given the ubiquity of external costs and benefits, the only real solution
is some sort of government rule of the economy. Given the way in which laws
don't work well unless their purpose has been accepted and internalized by
people, we need "enterprises" run by publicly-minded people. The only way
to make sure that the laws and the public mindedness don't conflict is to
intensify democratic control over the state.

All of this goes against Shliefer's neo-liberalism, which emphasizes narrow
greed over public mindedness (as extrinsic motivations crowd out intrinsic
motivation) and the technocratic state over democracy.

(The spell-checker translated Shliefer as "Slicer" and "Shifter" and
"neo-liberalism" as "neocolonialism." From the mouths of machines!  Of
course, Peter was Doorman.)

Jim Devine jdevine@xxxxxxxxxxxxxxx &
http://clawww.lmu.edu/Faculty/JDevine/jdevine.html