"Incentives" as bigotry

Amber Rudd says she’s stopping child refugees entering the country because “we do not want to incentivise perilous journeys to Europe particularly by the most vulnerable children.” This should remind us of an old trick of the Tory party – the ideological misuse of the language of incentives to justify their own prejudices.

For example, we’ve been told for years that the rich need high pay and low taxes to incentivize effort. This, though, is deeply doubtful. Financial incentives can crowd out intrinsic motivations: bankers’ serial criminality (rigging Libor and FX markets; PPI mis-selling; and so on) suggests that bonuses crowded out professional ethics. They can encourage short-termism or cooking the books. They can discourage creativity (pdf). They can worsen performance by over-motivating people. And they can create inefficiencies by encouraging (pdf) workers to focus upon jobs that are easily monitored to the detriment of other important tasks – as when teachers teach to the test.

One simple fact should tell us that all these adverse effects can add up: that the UK’s GDP growth rate has been worse in the 28 years since Nigella’s dad cut top tax rates in 1988 than it was in the previous 28 – 1.5% against 2.5%.

At the same time as telling us that the rich need big carrots, the right has long told us that the poor needed sticks in the form of welfare reform to incentivize them to get jobs. This claim too is doubtful. To a large extent, it is job opportunities that get people into work, not benefit reform.

A scientific assessment of incentives requires careful analysis of tricky questions: how do income and substitution effects net out – a matter which differs from worker to worker? What margins of adjustment do people have? What are their information sets: do they know what options they have? And so on.

Tories, however, neglect such issues. They know – regardless of facts – that the rich need carrots and the poor need sticks. As George Carlin said:

Conservatives say if you don’t give the rich more money, they will lose their incentive to invest. As for the poor, they tell us they’ve lost all incentive because we’ve given them too much money.

All we’re seeing in Rudd’s lamentable words is an extension of this mindset to Syrian children. Talk of incentives merely provides a pseudo-scientific justification for small-minded bigotry.

Comments

[Patrick]

This is exactly the rhetoric the Australian government (under both Labor and Coalition) has used to justify setting up offshore processing centres for refugees.

[TowerBridge]

Yes, clearly Amber Rudd is an appalling excuse for a human being. However, your passage beginning "one simple fact..." bothers me a bit as I am not sure what you are saying.

If Nigella's dad cut taxes in the 80s what has that got to do with 1998?

If you are comparing the growth after WW2 until the lawson era, is this fair? Piketty said that growth in this period was unique owing to said war. I think he goes onto argue that a slowdown was inevitable but I cannot actually remember clearly enough.

[e]

@ tower Bridge
Oh come on, Amber Rudd is no more appalling than the next Conservative MP. She's just doing her job; maintaining the notion that immigrants, and not this generation's play of free market economics which is at fault here.

[Britonomist]

I agree there's a lot of nonsense in the claims regarding the rich needing low taxes and poor needing low welfare. Regardless, the overall point of this post seems bizarre:

"I'm worried this might create a perverse incentive..."

"Ha! Well maybe incentives don't matter after all"

Incentives matter: the cornerstone of economics. Is nothing sacred when someone says something you disagree with?

[Steve]

1988

[Keith]

The proper criticism is surely of Cameron, who wanted to pretend the Tory party were no longer the nasty party with eye catching public relations guff. The new policy is morally indefensible but is consistent with Tory reality not the fake news version spun by Cameron. Little england is the Brexit reality, a formula for little minded. Our politics has been moving sadly to the far right for decades to the detriment of millions at home and abroad.

[D]

@towerbridge

Taxes were still cut in 1998...

(I think you're right that Chris needs a bi more to prove the link btw)

[chris]

@towerbridge. Sorry, that was a typo: top taxes were cut in 1988.
@britonomist - yes, incentives matter. But the question is how? The idea that they'll work as we hope (or fear) is far too simplistic. The world is not the same as Econ 101, especially half-understood Econ 101.

[Dave Timoney]

Incentives tend to be a projection. Rich people insist they need the incentive of more riches because they are motivated by wealth. The rhetoric surrounding child refugees has centred on the idea of cheating ("check their teeth!") because those who object often assume everybody else is on the make and will always take advantage. They are projecting their own cynicism and probably their own habitual cheating.

[Gerald Scorse]

"This should remind us of an old trick of the Tory party – the ideological misuse of the language of incentives to justify their own prejudices."

It's also an old trick of the Republican Party. A long-standing example: "right-to-work" laws to justify their anti-union prejudices.

[Patrick Kirk]

Sorry you have this totally wrong. The correct way to have a refugee come to UK is in an airplane after being processed by the UN. Anything else is simply encouraging exploitation like Merkel did in 2015. It enrages me every time I remember that ayman Kurdi's seat on a deathtrap cost €5000 when a ticket to Berlin from Izmir is less than €300.

[W. Peden]

I think that you need to explain why you think that there's a straightforward comparison between a subsidy to those not working and a tax cut on those working/saving. Otherwise, there's no inconsistency: Conservatives think that tax cuts can incentivise things we want and welfare benefits can disincentivise things we don't want. That position might be factually wrong, but it's not logically inconsistent.

If Conservatives were saying, "We need more handouts to the rich" and "Subsidising employment using the universal credit and tax credits won't incentivise employment by removing poverty traps!" then I'd be more inclined to think that this was a "gotcha!" moment.

As it is, Conservatives seem to think that you can motivate people off benefits by providing them with incentives (the in-work benefits mentioned above, plus also cuts to personal allowances) and that tax cuts on the rich can sometimes have net positive effects. For public finance reasons, they have kept the top rate of tax up at 45% (as this is estimated to offer high revenues than either 40% or 50%) and they haven't increased in-work benefits a lot, which arguably makes sense when employment is very high. It depends on how much weight you put on unemployment, not whether you're a "bigot".

It's strange, because you're usually exceptionally good at understanding the other side's position, rather than assuming nefarious motives and putting catchy labels on people who disagree with you.