Incentives Count

[ACCT]

Private business is a smart organization. The owner/manager has the authority to change the incentives and disincentives. He can change the corporate culture.

The government is a “stupid organization (e.g. IRS).” The people in the organization may be smart (e.g. state university), but the organization will be forever stupid. Why? Top management does not have the flexibility or the authority to change the incentives and disincentives. In short, government is a “stupid organization” because there are no incentives to improve the organization.

I made up the words, “stupid organization.” I make observations and then I make up words to describe my observations. Guess I will need to explain my thinking.

You may remember the prisoner’s dilemma from economics. How do you get people to work for the good of the organization instead for their own best self-interest? Force is one way (e.g. Mafia). Another way is to appeal to a higher interest (e.g. religion).

Neither of those ways worked in my business. Therefore, I appealed to my employees’ best self-interest. I had 6 jewelers on a salary. They put out very little work. Therefore, I put my jewelers on commission. The four lazy jewelers quit. The 2 good jewelers stayed. It was a win-win situation. The two jewelers on commission repaired more jewelry than six jewelers did when they were on salary. The wait time for repairs went from three weeks to less than a week!

The next time the common man tells me that a person with a college degree has no common sense, I will agree with him. I will point out that there is a difference between schooling and education. There are many people with little formal schooling who are well educated. On the other hand, there are many people with college degrees who have no education.

Not everyone’s elevator goes to the top floor. I work with some of these people, and I admire them because they give 100%. Public universities are another matter. I classify these institutions of higher learning as stupid organizations. It is my belief that no one can improve a stupid organization if there is no incentive for improvement.

For example, XYZ State University employs a lot of nice, intelligent people. However, XYZ is a stupid organization. XYZ University does not look on the business side of anything. Committees run the university “in the spirit of compromise.” Committees do not follow the KISS principle.

XYZ University gets an A+ for confusion. Online registration is an example. How about online frustration? It took me 50 minutes for me to register online. The first time I got online, the system threw me out because I took too long to look up course numbers. The second time I registered for 6 courses. I only got one course. The college of business cannot do anything because they are locked out of the system until registration ends. I was locked out of 5 courses because I did not have the prerequisites. Do prerequisites matter if I want to audit the courses? I am locked out of one accounting course because I did not take an undergraduate course in statistics. My graduate course in statistics at XYZ University did not count. Oh, I forgot to tell you. The entire system went down after only being up 55 minutes!

I never made these stupid logic errors when I was in business. I tested any new service before I offered it to the public. My take on all of this is that organizations are “smart or stupid” based on incentives or the lack of incentives. Incentives count.

 

[Pfaffenhoffen]

Private business is a smart organization. The owner/manager has the authority to change the incentives and disincentives. He can change the corporate culture.

The government is a “stupid organization (e.g. IRS).” The people in the organization may be smart (e.g. state university), but the organization will be forever stupid. Why? Top management does not have the flexibility or the authority to change the incentives and disincentives. In short, government is a “stupid organization” because there are no incentives to improve the organization.

I made up the words, “stupid organization.” I make observations and then I make up words to describe my observations. Guess I will need to explain my thinking.

You may remember the prisoner’s dilemma from economics. How do you get people to work for the good of the organization instead for their own best self-interest? Force is one way (e.g. Mafia). Another way is to appeal to a higher interest (e.g. religion).

Neither of those ways worked in my business. Therefore, I appealed to my employees’ best self-interest. I had 6 jewelers on a salary. They put out very little work. Therefore, I put my jewelers on commission. The four lazy jewelers quit. The 2 good jewelers stayed. It was a win-win situation. The two jewelers on commission repaired more jewelry than six jewelers did when they were on salary. The wait time for repairs went from three weeks to less than a week!

The next time the common man tells me that a person with a college degree has no common sense, I will agree with him. I will point out that there is a difference between schooling and education. There are many people with little formal schooling who are well educated. On the other hand, there are many people with college degrees who have no education.

Not everyone’s elevator goes to the top floor. I work with some of these people, and I admire them because they give 100%. Public universities are another matter. I classify these institutions of higher learning as stupid organizations. It is my belief that no one can improve a stupid organization if there is no incentive for improvement.

For example, XYZ State University employs a lot of nice, intelligent people. However, XYZ is a stupid organization. XYZ University does not look on the business side of anything. Committees run the university “in the spirit of compromise.” Committees do not follow the KISS principle.

XYZ University gets an A+ for confusion. Online registration is an example. How about online frustration? It took me 50 minutes for me to register online. The first time I got online, the system threw me out because I took too long to look up course numbers. The second time I registered for 6 courses. I only got one course. The college of business cannot do anything because they are locked out of the system until registration ends. I was locked out of 5 courses because I did not have the prerequisites. Do prerequisites matter if I want to audit the courses? I am locked out of one accounting course because I did not take an undergraduate course in statistics. My graduate course in statistics at XYZ University did not count. Oh, I forgot to tell you. The entire system went down after only being up 55 minutes!

I never made these stupid logic errors when I was in business. I tested any new service before I offered it to the public. My take on all of this is that organizations are “smart or stupid” based on incentives or the lack of incentives. Incentives count.

You may put the incentives you want but if the fella does not know about computers, forget the incentives.
You do not go to Mars on incentives, but on knowledge.
You do not discover the vaccine to HIV or cancer on incentives but on knowledge.
You may throw billions in things that are too raw to function, like certain computer appliances that you go nowhere.

Anyhow, there is more than incentives.
Once a billionaire said to the Mother Theresa of Calcutta when she was treating a leper: “I would not do that for a million of dollars!”.
“I would not do it for a million dollars either! I do for Jesus Christ!”.

 

[ACCT]

You may put the incentives you want but if the fella does not know about computers, forget the incentives.
You do not go to Mars on incentives, but on knowledge.
You do not discover the vaccine to HIV or cancer on incentives but on knowledge.
You may throw billions in things that are too raw to function, like certain computer appliances that you go nowhere.

Anyhow, there is more than incentives.
Once a billionaire said to the Mother Theresa of Calcutta when she was treating a leper: “I would not do that for a million of dollars!”.
“I would not do it for a million dollars either! I do for Jesus Christ!”.

Incentives are the basis of economics. Perhaps you are only thinking of monetary incentives.

 

[Pfaffenhoffen]

Incentives are the basis of economics. Perhaps you are only thinking of monetary incentives.

1. Did you read well the OP post? I did not see but monetary incentives.
2. You did not address Mother Theresa of Calcutta. Is she out of the economy?

 

[ACCT]

1. Did you read well the OP post? I did not see but monetary incentives.
2. You did not address Mother Theresa of Calcutta. Is she out of the economy?

Everyone, including Mother Theresa, is part of the economy. Everyone makes economic choices.

Incentive is the key difference between capitalism (private ownership of resources) and socialism (state ownership of resources). Private ownership boosts incentive, while public ownership retards it.

Economics is a social science; it’s all about human economic behavior. **The heart of economics is NOT about money **-- it’s about choices, economic choices people make and how those choices affect businesses and the economy. My economics text defines economics as, “the study of choice under conditions of scarcity.” This condition of scarcity leads to the three problems of resource allocation: 1) which goods and services should be produced, 2) how should they be produced, and 3) who should get these goodies. Deciding on how to accomplish these tasks, is where human behavior (choices) comes into play.

 

[Cristiano]

… **The heart of economics is NOT about money **-- it’s about choices,…

Economy originally was management of the household or stewardship. Look at the extreme case of God’s economy of salvation, money is not going to buy us a spot in heaven.

 

[Pfaffenhoffen]

Everyone, including Mother Theresa, is part of the economy. Everyone makes economic choices.

Incentive is the key difference between capitalism (private ownership of resources) and socialism (state ownership of resources). Private ownership boosts incentive, while public ownership retards it.

Economics is a social science; it’s all about human economic behavior. **The heart of economics is NOT about money **-- it’s about choices, economic choices people make and how those choices affect businesses and the economy. My economics text defines economics as, “the study of choice under conditions of scarcity.” This condition of scarcity leads to the three problems of resource allocation: 1) which goods and services should be produced, 2) how should they be produced, and 3) who should get these goodies. Deciding on how to accomplish these tasks, is where human behavior (choices) comes into play.

So, where Mother Theresa fits in terms of incentives?

 

[ACCT]

So, where Mother Theresa fits in terms of incentives?

Nowhere

 

[Pfaffenhoffen]

Nowhere

So, incentives are not a must.

 

[ACCT]

So, incentives are not a must.

Why this inane assertion? Take a college miro-economics course to find out the truth, if you are interested. Even Mother Theresa had to deal with economic decisions.

Economics 1020 Discussion Questions (20 points)

1. Define economics. In your definition, discuss why economics is a social science and why the terms unlimited wants, limited resources, and scarcity are usually used in a definition of economics.
2. How do economies based on market-capitalism and centrally-planned socialism differ in their solutions to these problems? Discuss the roles of incentive and prices
3. How does your employer solve these resource allocation questions? Which goods and services does your employer produce? How are these goods and services produced? For whom are they produced? How have the answers to these questions changed over time?

 

[ACCT]

I, Pencil
My Family Tree as told by Leonard E. Read
by Leonard E. Read
The Foreman, 1956
Foundation for Economics Education
Irvington On Hudson; NY 10533
Used with permission
Originally published in The Freeman: Ideas on Liberty.:

…Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: Each one acknowledges that he himself doesn’t know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. These assumptions are correct. No individual possesses enough know-how to perform a nation’s mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of a faith in free men–in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity–the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental master-minding…

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these *creative know-hows *freely to flow. Have faith that free men will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

---

 

[Pfaffenhoffen]

Why this inane assertion? Take a college miro-economics course to find out the truth, if you are interested. Even Mother Theresa had to deal with economic decisions.

Economics 1020 Discussion Questions (20 points)

1. Define economics. In your definition, discuss why economics is a social science and why the terms unlimited wants, limited resources, and scarcity are usually used in a definition of economics.
2. How do economies based on market-capitalism and centrally-planned socialism differ in their solutions to these problems? Discuss the roles of incentive and prices
3. How does your employer solve these resource allocation questions? Which goods and services does your employer produce? How are these goods and services produced? For whom are they produced? How have the answers to these questions changed over time?

I guess Mother Theresa would fails this test miserably…

 

[ACCT]

I guess Mother Theresa would fails this test miserably…

How does economics play a role in your life?

 

[Pfaffenhoffen]

How does economics play a role in your life?

If job A gives me 1000 and job B gives me 1 million and if both jobs are appealing to me, I choose job B.

Nevertheless, there are jobs that I do for no money at all. What are my incentives? (I thought that you could come to that!): 1) God gave me than I deserved; 2) the Society gave me more than I expected. So, I must give back, through free work, a small part of what I received.

I do not know whether it was the answer to your question.

 

[ACCT]

If job A gives me 1000 and job B gives me 1 million and if both jobs are appealing to me, I choose job B.

Nevertheless, there are jobs that I do for no money at all. What are my incentives? (I thought that you could come to that!): 1) God gave me than I deserved; 2) the Society gave me more than I expected. So, I must give back, through free work, a small part of what I received.

I do not know whether it was the answer to your question.

Sociology studies the behavior of man in groups. Psychology studies the berhavior of man as an individual. Economics studies the economic behavior of man as an individual (micro-economics) and in a group (macro-economics).

Economics uses terms, like incentives, that have a broader meaning in society than the way economists use the term.

 

[Pfaffenhoffen]

Sociology studies the behavior of man in groups. Psychology studies the berhavior of man as an individual. Economics studies the economic behavior of man as an individual (micro-economics) and in a group (macro-economics).

Economics uses terms, like incentives, that have a broader meaning in society than the way economists use the term.

Your definition of Economics is strange= Psychology+Sociology which is short.

 

[ACCT]

Economics is the allocation of scarce resources to meet insatiable wants. Economics is a social science like sociology and psychology. Economics studies one facet of human behavior, economic behavior. Economics does not give us the answer to all human behavior, however. Surely the terrorists on September 11, 2001 were not motivated by economic behavior!

Scarcity is the key word in the definition of economics. If there were unlimited resources, there would be no economics.

There is no such thing as a free lunch. Someone always pays for “free lunches.” Economics is interesting because economics reads like a detective novel. “Who done it?” Who benefits and who pays?

Adam Smith’s genius was that he recognized the value of voluntary
exchanges. Voluntary exchanges produce a win-win situation. Both
buyers and sellers benefit. The price that they agree upon is the
market price, or the equilibrium price. Adam Smith said that a seller,
seeking only his interests, and through no conscious effort, is led by
an invisible hand to seek the public good.

Milton Friedman postulated his own invisible hand theory. He states
that an individual, seeking only the public good through government
regulation, and through no conscious effort is lead by an invisible hand
to seek the good of the individual. Milton Friedman, in his book, Free to
Choose, states that he has seen the government do little good.

Thomas Jefferson, in his first inaugural address, stated that the role
of government was an umpire, not a participant. Thomas Jefferson’s
political theories and Adam Smith’s economic theories go hand-in-hand.

The market economy means power to the people! Which goods are produced, how they are produced, and whom should get them are determined by you and me.
We vote with our dollars.

Is the market economy fair? Economists cannot define “fair” or “needs.” Give away new cars, and suddenly everyone “needs” a new car!

Incentives matter. Benefits have to exceed costs. Even a thief makes that economic decision.

Employers are constrained by scarce resources just like everyone else. The only way that an employer can get more resources is to bid the resources away from someone else. That is why the supply curve has a positive slope. A manufacturer will only produce more if he can get a higher price.

 

[Pfaffenhoffen]

Economics is the allocation of scarce resources to meet insatiable wants. Economics is a social science like sociology and psychology. Economics studies one facet of human behavior, economic behavior. Economics does not give us the answer to all human behavior, however. Surely the terrorists on September 11, 2001 were not motivated by economic behavior!

Scarcity is the key word in the definition of economics. If there were unlimited resources, there would be no economics.

There is no such thing as a free lunch. Someone always pays for “free lunches.” Economics is interesting because economics reads like a detective novel. “Who done it?” Who benefits and who pays?

Adam Smith’s genius was that he recognized the value of voluntary
exchanges. Voluntary exchanges produce a win-win situation. Both
buyers and sellers benefit. The price that they agree upon is the
market price, or the equilibrium price. Adam Smith said that a seller,
seeking only his interests, and through no conscious effort, is led by
an invisible hand to seek the public good.

Milton Friedman postulated his own invisible hand theory. He states
that an individual, seeking only the public good through government
regulation, and through no conscious effort is lead by an invisible hand
to seek the good of the individual. Milton Friedman, in his book, Free to
Choose, states that he has seen the government do little good.

Thomas Jefferson, in his first inaugural address, stated that the role
of government was an umpire, not a participant. Thomas Jefferson’s
political theories and Adam Smith’s economic theories go hand-in-hand.

The market economy means power to the people! Which goods are produced, how they are produced, and whom should get them are determined by you and me.
We vote with our dollars.

Is the market economy fair? Economists cannot define “fair” or “needs.” Give away new cars, and suddenly everyone “needs” a new car!

Incentives matter. Benefits have to exceed costs. Even a thief makes that economic decision.

Employers are constrained by scarce resources just like everyone else. The only way that an employer can get more resources is to bid the resources away from someone else. That is why the supply curve has a positive slope. A manufacturer will only produce more if he can get a higher price.

Sorry: I cannot read more than 10 lines !

 

[ACCT]

One of the functions of prices is the transmission of information. ** Prices coordinate the activities between buyers and sellers. ** Prices that provide information also provide an incentive to act on that information. If goods are not excludable, there is a break in the linkage between costs and benefits. Prices will not provide accurate information and incentives.

An example that comes to mind is the health care industry. We all buy health insurance. Our medical insurance pays for most of our health costs. Once I pay for my medical insurance and deductible (excludable good), the insurance pays for the balance of my medical care (non-excludable good). We no longer pay the doctor directly. Do I care what the Doctor charges as long as my insurance pays? I have no incentive to shop for the lowest price. Additionally, the doctor has no incentive to lower his fees.

 

[Pfaffenhoffen]

One of the functions of prices is the transmission of information. ** Prices coordinate the activities between buyers and sellers. ** Prices that provide information also provide an incentive to act on that information. If goods are not excludable, there is a break in the linkage between costs and benefits. Prices will not provide accurate information and incentives.

An example that comes to mind is the health care industry. We all buy health insurance. Our medical insurance pays for most of our health costs. Once I pay for my medical insurance and deductible (excludable good), the insurance pays for the balance of my medical care (non-excludable good). We no longer pay the doctor directly. Do I care what the Doctor charges as long as my insurance pays? I have no incentive to shop for the lowest price. Additionally, the doctor has no incentive to lower his fees.

You talk about money only.
What about voluntary non-paid work?