The ideology of incentives
Nick Clegg says we need a cap on benefits “not least to increase the incentives to work.” This runs into an obvious objection - that the big problem right now is not so much a lack of incentives to work but a lack of opportunities to do so. There are 2.69 million unemployed chasing 459,000 vacancies - that’s 5.85 unemployed per opening.
Prating about incentives when the big issue is the lack of demand for workers requires the sort of stupidity that doesn’t emerge unaided. It requires the help of ideology. There are several cognitive biases which lead people to over-rate the importance of incentives to work.
For folk to the right of Clegg - and there are some - one of these is seeing what we want to see bias. If you inhabit the dreamland in which market forces always work well, one way to reduce the cognitive dissonance that arises from the fact that millions are unemployed is to emphasise incentives in an effort to diminish the significance of market failure. It’s for a similar reason that libertarians overweight the importance of minimum wage laws as a cause of joblessness. Some people go to great effort to deny the fact that the labour market is probably the most inefficient of all major markets.
There are four other biases:
- The fallacy of composition. I’ll concede (more so than most lefties I suspect) that many individual unemployed people would have a good chance of getting work if they tried harder - if they, ahem, brushed up their CV (as Iain Duncan Smith did) or were more flexible. But what is true for one is not true for all. If all jobseekers were to try harder, there’d still be millions out of work.
- The fundamental attribution error. If you come from the sort of background where you can do anything if you try, you will naturally come to exaggerate the importance of individual agency and to downplay the role of environmental factors, such as there being few jobs available.
- The halo effect. Clegg says it’s fair that those out of work get less than those in. It is, however, a common error to believe that if something has one good quality, then it has others; which is why the good guys in the films are so often better-looking and better shots than the bad guys. It’s tempting, then, to think that what’s fair is also what’s efficient. But it ain’t necessarily so. (The left, of course, is especially prone to this error).
- The action bias. Governments can’t do much to greatly increase labour demand, especially if they are committed to fiscal tightening. But they can “improve incentives.” And because politicians have a bias towards doing things, they act like lonely men who exaggerate the virtues of their few friends and exaggerate the importance of incentives.
Now, I don’t say this to dismiss all talk of incentives. Instead, such talk is an example of what I’ve called the “small truths, big errors” syndrome. And sometimes, this syndrome is motivated by bias and ideology.