Wednesday, February 16, 2011

Why We Work...

Why do you go to work? 

So you don't get fired?  To make money?  Maybe you're just bored but don't need the money (not that it isn't nice, you understand).  The court said you had to hold down a job?

Whatever the reason, you're trading your time, your skill, your efforts for some incentive.  So it goes with all aspects of human existence.  There is always a quid pro quo.  The old saying "Freedom isn't free" is true.  But, in the [paraphrased] words of Inigo Montoya, "That [saying] I do not think it means, what you think it means."  Quite often people are referring to the heroic sacrifices of our armed forces.  More often, this quote reminds me of another quote, this time from Benjamin Franklin "Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety."  Freedom to succeed comes with the price of freedom to fail.  If you want the security of a temporary safety net, then you must give up some of your freedom. 

Have I mentioned that I hold Freedom as next to sacred?  It truly is.  The idea that my destiny is determined by what I put into my life, that I can reap what I sow is vital to me.  Without that freedom we are slaves.  Currently I am a well paid slave, living in a lovely home, about to marry a wonderful woman.  I am still a slave.  Almost 40% of every dime I earn goes to provide me with "security."  I did not choose this.  Others have chosen it for me. 

But, what about crime?  What about national defense?  There is a place for the prosecutions of crimes.  (Does that equal prevention?)  There is a need to defend our nation's borders.  I'm open to the argument that we should also defend our allies and the interests of our citizen's abroad.  Does this mean we have to have military bases in every country on the globe?  Does this require us to invade and occupy foreign nations?  Yes, I would wish everyone to have the same freedoms that I enjoy, but no, I'm sorry.  I'm not willing to trade mine for yours.

Let's get back to incentives.  An interesting phenomenon came to light last spring.  As seasonal jobs began to open up around the country, people were faced with an economic decision that went something like this:  Do I continue to draw unemployment (now guaranteed for 99 weeks) or do I take this job offer that will only last me 5 months, pay me only $200/week more than I receive on unemployment, and require that I spend $300/week for the care of my children?  The obvious answer is NO!  Of course you don't take that job.  You get nothing for your efforts.  There is NO economic incentive to work. 

Our nations healthcare system?  If an insurance company agrees to sell you an insurance product, I firmly agree that they should not be able to deny claims based upon pre-existing conditions.  If they want to protect against this they can either not sell you the insurance or price it such that it makes economic sense.  But wait.  We have a new law.  This one allows you to pay a nominal "fine" for not buying insurance, then, in the event that you become sick, you can purchase insurance and they are forced to cover you.  (I need an expert (do any exist?) in this new law.  Is an insurance carrier forced to sell insurance to someone if they are sick?)  Then there are the employers.  They can pay a fine for not offering coverage that is quite often LESS than the amount they would have to spend on insuring their employees.  The Governor of the State of Tennessee authored an op-ed piece in the WSJ last year explaining that it was to the economic advantage of his state and many other employers to do just that.  If offered up savings of better than $800 per year per employee!  There's an incentive for you.

If a company in this country sells goods overseas, they pay taxes overseas.  They can then either reinvest that money overseas or bring it back and reinvest it in this country.  Many countries have a tax on what is termed "repatriated revenues."  The tax rate in the United States is one of the highest in the developed world.  The company that has already been taxed once on that revenue must now pay nearly 35% of that revenue to the US government in order to hire more workers here, build new facilities, pass that money to its shareholders.  All of these activities are then taxed again.  So, what happens?  US companies continue to invest overseas, creating more revenue that is never seen again in this country.  In essence we are incentivizing the exact opposite behavior we claim to encourage:  domestic job growth.

To promote home ownership the government has for years been buying mortgages from their originators.  This provides more money to those originators to provide new loans, new loans provide more opportunity to buy homes, more bought homes drives up the price of existing home inventories.  Beginning in the 1990's and continuing through today, the government wanted to encourage home ownership to a broader group.  They then provided an incentive to make riskier loans be lowering the standards of the loans they would purchase.  This incentivized loan originators to make riskier loans...the rest is the history of the current crisis.

Incentives truly work in all aspects of our lives.  For the addict, the incentive to continue the addiction is a chemical release.  For those who give to charities or volunteer, it may be the warm tingle, the tax write-off, or the addition to their resume.  Entire works of economics have been devoted to the power of the incentive in our lives.  Authors Steven Levitt and Stephen Dubner expanded on how the power of the incentive effects differnt aspects of our culture in their hit bestseller Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (P.S.) and Steven Levitt's powerful followup SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance.

"So, how does this fit with Freedom again?"

The incentive for giving up Freedom is a powerful one.  It's the illusion of security.  Yes, it's an illusion.  That safety net can't support us all and when it's gone it's gone and there's no surety that you get your freedom back.  The illusion of police stopping crimes is that well, they don't.  They enforce laws, investigate crimes and try to bring the perpetrators to justice.  Robbed is still robbed, violated is still violated, dead is still dead.  The illusion of national defense is that in order to pay for our military policing the world, we're borrowing trillions of dollars.  If you don't think our government's creditors can influence what we do in this country then please stop and think again.  If your credit card company will harass you for $500 outstanding balance, what will our nation's creditors do to ensure they collect the outstanding $14.15 trillion we owe them?

I'll be back again tomorrow.  In the interest of full disclosure.  My only incentive for writing this blog to date is a warm glow.  Good night.

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