Tag Archives: Unintended Consequences

Chapter 2 – Fines vs. Fees: What Money Can[‘t] Buy, Part 2

In the first post in this series, I chewed on the material from chapter 1 of Professor Michael Sandel‘s book, What Money Can’t Buy. The first chapter was all about jumping the line (or budding, as I remember it from my elementary school days). In Chapter 2, the theme was incentives.

I had finished reading chapter 2 a little while ago, but I’d been busy recounting the bits from that paper over the last several days, so I’d sidelined a post about chapter 2. Now that I’ve finished the paper (A Collection of Scriptures for Guidance), I thought I’d chew on the material from chapter 2.

As I said, the title of chapter 2 was incentives. There were a few things that I wanted to highlight (though, I thought the whole chapter was fascinating). In particular what stood out to me were three things: incentives (and the perverting of incentives), fines vs. fees, and paying kids to read. Let’s start with the last one, which will link to the first one.

Nowadays, some parents pay their kids to read. In fact, some schools encourage the idea of rewarding children for reading. At first, this seems like a great use of the free market, right? Incentivizing the reading of books to get kids to read more books. Except, what if part of the pleasure of reading is the pure desire to read? By paying kids to read, it robs them of that intrinsic motivation. In fact, by paying kids to read, it could de-incentivize them from reading when there is no reward involved (perverting the incentives).

In thinking about this example, it made me contemplate just how hard it can be for lawmakers (i.e. Congresspeople, Members of Parliament, etc.) to write legislation that will properly incentivize the citizens to act in a way that is best for themselves (and the town/city/county/country, etc.). Paying kids to read seems like an easy way to get kids to read, but when one plays out the incentive and considers the unintended consequences, one can see how this perverts the intent of getting kids to read.

The next piece I wanted to talk about was fines vs. fees. This part was really interesting to contemplate. From the book:

What is the difference between a fine and a fee? It’s worth pondering the distinction. Fines register moral disapproval, whereas fees are simply prices that imply no moral judgment. When we impose a fine for littering, we’re saying that littering is wrong… It reflects a bad attitude that we as society want to discourage. Suppose the fine is $100 [for littering] and a wealthy hiker decides it’s worth the convenience of not having to carry his empties out of the park. He treats the fine as a fee and tosses his beer cans into the Grand Canyon. Even though he pays up, we consider that he’s done something wrong. By treating the Grand Canyon as a dumpster, he has failed to appreciate it in an appropriate way.

Sandel goes on to talk about how this fines vs. fees attitude can also be applied to disabled parking spaces, speeding, the subway/metro, renting videos, and many others. I found this discussion especially interesting because of the moral-ness to it. When one is creating fines, one is (whether one means to or not) using morals. We don’t think it’s morally right to litter and that’s why there’s a fine for littering. Paying to park your car in a garage is a fee.

There’s one more passage that I think was really important to remember from this chapter:

But why does this mean that moral philosophy must enter the picture? For the following reason:

Where markets erode nonmarket norms, the economist (or someone) has to decide whether this represents a loss worth caring about… The answer will vary from case to case. But the question carries us beyond predicting whether a financial incentive will work. It requires that we make a moral assessment: What is the moral importance of the attitudes and norms that money may erode or crowd out?

If you liked this post, you might like one of the other posts in this series:

Maybe We Don’t Need to Workout At All

About a week ago, I wrote a post about the perfect exercise routine. My point was that there is no universal perfect exercise routine because there are so many different people on the planet, but that there may be some universal principles that could be applicable across peoples. It turns out that one of those “perfect” exercise routines might just be not exercising at all. Curious?

I recently came across a post from Harley Pasternak in, of all places, People. The post has a great opening illustrating just how sedentary our lives have become — amounting to the fact that we spend 45 minutes at the gym and the other 23 hours and 15 minutes sitting at our desks or sleeping. I really encourage you to read it because it paints quite a picture.

After I read it, I was reminded of the post I wrote a week ago that I referenced above (perfect routine), but also of the post I wrote about the obesity crisis. In that post, I focused on the neuromarketing aspect. That is, the idea that consumers may not have an *unbiased* choice to make when they reach for that bag of potato chips or for a second piece of chocolate cake. My main point in that post was that neuromarketing is having a large impact on the choices that are leading to the obesity epidemic. Pasternak argues that are innovation is also leading to obesity. Because we’ve worked so hard to make it easier to do things, we’ve cut out a lot of the time we spend getting from A to B or completing task A and completing task B:

They take leisurely daily walks, do their errands on foot, and walk, bicycle, or take public transportation to work. To make my case, consider this: the average European walks 237 miles every year and cycles 116 miles. The average American walks just 87 miles and cycles just 24 miles. No wonder Europeans are healthier – they’re three times as active!

It never occurred to me that public transportation would be linked to a country’s health, but I guess that just goes to show you the power of externalities and unintended consequences. This revelation makes me think that it’s even more important for the US to get on with advancing the infrastructure of the public transportation in the country.

~

This brief bit about public transportation increasing a country’s health does remind me of something I read recently about the amount of time that patrons spend walking to and from public transportation. Something to the effect of it doubling the number of steps they take in a day. I couldn’t find that particular article, but I was able to find something from the CDC (Center for Disease Control and Prevention) that supports that finding:

Walking to and from public transportation can help physically inactive populations, especially low-income and minority groups, attain the recommended level of daily physical activity. Increased access to public transit may help promote and maintain active lifestyles.

Best Posts Written in 2012 at Genuine Thriving: Top Posts, Part 2

Yesterday, I detailed the top 6 posts for 2012 from Genuine Thriving. Since 5 of the top 6 posts in 2012 were from 2011, I thought it’d be good to look at those posts that were published in 2012. So, today, I’ll look at the top posts that were published in 2012 from Genuine Thriving that received the most views. Here are the top 6 posts with an excerpt for each:

If You Can’t Explain It Simply, You Don’t Understand It Well Enough

Don’t get me wrong, I like jargon. I enjoy expanding my understanding of language and the different words we have to describe things. (Today, I just learned what eleemosynary means: charitable or philanthropic.) Although, I think it is important to take note of one’s company. If you’re working on a project and not everyone is of the same understanding of the topic, it is ofparamount importance that the language used be accessible to all (or most) parties involved.

John Green’s Crash Course in World History

Back to Crash Course World History: , I really think that people should have a basic understanding of world history. If that’s too much to ask, I think that I would like to have a basic understanding of world history. Especially because of my inclination to take a ‘systems perspective to things,’ (look for a post on this soon!) I think that having an understanding of the macrolevel events that led to today can help us (me?) gain a better understanding of where we might be headed in the future. If nothing else, it serves as ‘trial and error’ of what’s happened in the past, so as to avoid (or at least attempt to avoid) doing in the future.

You Are Exactly Where You’re Supposed To Be

After I continually repeat some iteration of these two phrases (the title and the one in the previous sentence), the advice-seeker’s demeanor begins to soften in a way that lets me know that they’ve taken ‘it’ in. It’s one of my favorite pieces of advice (along with ““) Why? Because it gives the advice-seeker the permission to stop second-guessing themselves, something that our culture is rife with. It lets the person be okay with where they are and in another way, gives them permission to stop wishing they were somewhere else.

Operation Cat Drop: A Lesson in Externalities or Unintended Consequences

That’s not to say that those folks who were involved in Operation Cat Drop (if there was one) didn’t think about the unintended consequences or (externalities) of what they were doing, but just to illustrate the importance of these concepts. A perspective that takes into account the “whole system” would — at a minimum — consider the possibility of externalities and unintended consequences. I think that as the world grows closer together (read: ) it is vital that decisions take into account even disparate connections.

Martin Luther King, Jr. Day: Wisdom for Today from the Past

There isn’t a lot I want to say today, but I do want to point to a speech by Dr. King. I couldn’t find this speech on YouTube, but there is some audio of the speech (but it’s only the final paragraph). Nonetheless, I thought the speech, especially in its context (, etc.), is quite powerful. Moreover, I think the words that Dr. King spoke are applicable to some of the issues that are facing the world today. I’m speaking particularly to the all-time lows in  and the continued .

It’s Amazing How Quickly Things Change

I wouldn’t be surprised if you stopped to reflect on your life and found a similar thread of unanticipated changes in your life. And those changes, (by their very nature [and definition, in this regard]) could not have been predicted prior to their occurrence. They took you by surprise. They’ve certainly taken me by surprise. Sometimes, we fall into the trap of being (or sometimes, lack of changes). I would implore you not to do so. It’s impossible to know how pursuing scenario X, being presented with scenario Y, or being surprised by scenario Z, will eventually lead you to ultimate fulfillment.

The Marshmallow Study Revisited: Context Matters!

Have you heard of The Marshmallow Study? It’s a classic experiment in self-control. All kinds of longitudinal research was conducted on those who weren’t able to “control themselves” and wait for the second marshmallow. In fact, there was even a movie that adapted the crux of the marshmallow experiment and used it as part of the plot.

A little over a week ago, the University of Rochester published some research that ‘updates’ the marshmallow experiment. I have to say, I’m quite pleased with the findings. Previously, it was thought that the participant’s ability to control themselves from eating the marshmallow in front of them and hold out for the second marshmallow was an indication that the participant may be more likely to succeed in the future. With this updated addendum, if you will, it now seems that there is more to the experiment than simply self-control.

When juxtaposed, my interpretation of the results of the original experiment from 1972 and the one discussed in the video is, quite simply: context matters.

Could “General Managers” Have Stopped JP Morgan’s Loss?

Jamie Dimon (CEO of ) has been in the news for the last couple of weeks and I’m sure he’d much rather not have been (at least not in the news for the reasons he and his firm are in the news). The :

JPMorgan Chase says losses from a massive trading blunder in the bank’s London have reached $5.8 billion and could go as high as $7 billion.

That’s a . I think that this occurrence (and probably the kerfuffle with ) is tied to something I read in the Harvard Business Review last week. It was an article by in that talked about the :

At one time general managers were at the center of the action. Two decades ago, organizations were designed around stand-alone business units, so all managers had to understand finance, technology, manufacturing, sales, marketing, strategy, human resources, and more. . . However starting in the 1980’s, many companies evolved to “functional” structures to cut costs and reduce duplication. The transition consolidated those support functions which were common among the BU’s [business units]. GE, for example, went from hundreds of discrete BU’s to a dozen large businesses with each one having strong, centralized finance, HR, engineering, marketing, and manufacturing units. . . In fact, for many chief executives I’ve recently worked with, the first real GM job that they had was CEO!

While I can see how this trend has helped to save companies lots of money, I find it a tad worrisome. I’ve about having an eye towards the bigger picture and I wonder if by consolidating these business units that this eye towards the bigger picture has been shielded. That is, not having a general manager there to act as “oversight” may have made it easier to shirk long-term goals and focus on short-term profits.

Tying this back into the JP Morgan Chase loss: I wonder if the firm had a number of general managers (at more levels than the ) would this have happened? Would a general manager responsible for the trader in question have allowed this kind of trade to happen? The same question could be asked about Barclay’s and LIBOR. Would a general manager have created an environment where it was okay to behave so unethically? It’s nearly impossible to answer these questions either way. Nonetheless, it is worth considering the trend of the organizational structure of firms. Is it really in the best interest of the firm to eliminate all general managers? Are the short-term gains worth sacrificing the long-term sustainability?

Operation Cat Drop: A Lesson in Externalities or Unintended Consequences

In the last 3+ months, I’ve been meaning to write a post about “.” With my recent “” of having to write an “article,” I feel more comfortable recounting the story and adding a few of my ideas to the post. For those unfamiliar with the story of Operation Cat Drop, here’s a that has collected many versions of the story. According to said site, there are at least  of the story. Regardless of the number of variants on the story there are and the , the lessons from the story still stand. Here’s a brief account found on :

In the early 1950s, there was an outbreak of a serious disease called malaria amongst the Dayak people in Borneo. The World Health Organization tried to solve the problem. They sprayed large amounts of a chemical called DDT to kill the mosquitoes that carried the malaria. The mosquitoes died and there was less malaria. That was good. However, there were side effects. One of the first effects was that the roofs of people’s houses began to fall down on their heads. It turned out that the DDT was also killing a parasitic wasp that ate thatch-eating caterpillars. Without the wasps to eat them, there were more and more thatch-eating caterpillars. Worse than that, the insects that died from being poisoned by DDT were eaten by gecko lizards, which were then eaten by cats. The cats started to die, the rats flourished, and the people were threatened by outbreaks of two new serious diseases carried by the rats, sylvatic plague and typhus. To cope with these problems, which it had itself created, the World Health Organization had to parachute live cats into Borneo.

The coincidental nature (for me) of having wanted to write this post so many times in the last few months is striking. Two of my most recent submissions for coursework have involved me explaining: 1) unintended consequences and 2) externalities. They are, essentially, the same thing, but has a history in the economics literature. My point in raising the story about dropping cats into Borneo is that it’s very important to consider the ramifications of the actions being taken.

That’s not to say that those folks who were involved in Operation Cat Drop (if there was one) didn’t think about the unintended consequences or (externalities) of what they were doing, but just to illustrate the importance of these concepts. A perspective that takes into account the “whole system” would — at a minimum — consider the possibility of externalities and unintended consequences. I think that as the world grows closer together (read: ) it is vital that decisions take into account even disparate connections.