The Equanimist

Thought on Incentive Misalignment and Currency Mismanagement

Posted in Uncategorized by equanimist on December 4, 2015

Of course, what’s good for companies is not necessarily good for a society. The drug industry provides a perfect example. By introducing drugs that treat (but do not cure) illnesses, while charging exorbitant fees for same, pharmaceutical giants sap productivity from other areas both by permitting chronic illness and by siphoning money off of the economy—money which could be used to other purposes but cannot be used to two purposes simultaneously. This is good for a drug company’s bottom line, and it runs against society’s interests. In the same way, giant cable companies (which somehow offer less than Netflix for multiples of the price,) HMOs, energy monopolies, diamond miners, and so on, wring outsized profits out of average people and hinder expansion by taking money from other projects.

Progress over the last century has been extraordinary compared with prior technological advancement. Still, because we are paying far more for goods and services than can be justified by either ingenuity (value-added) or total labor input, and because money (currency) velocity drives innovation (when total currency reasonably reflects discreet units of actualized-, future-, and value-added potential of some society), one must wonder: how many decades behind are we because we allow greed to divert and keep money from worthy projects?

It is not that some people don’t need “greater” incentives than others. It is not that we should not indulge this need to wring productivity from them. It is that we should act to restrain same wherever we can. Further, it is not that many people are not particularly useful and should not be paid living wages to perform tasks that do not require much skill or training. It is that we should make the best use of them we can. For example, it might be a waste to put so many in charge of micro-managing doctors and denying coverage. It might be better to use same to facilitate productive business activities.

We currently fail to address these kinds of wasted productivity. Among needed changes, incentives should be focused to reward solutions and increased productivity over manipulation and marketing. Further, detrimentally high salaries and bloated administrative costs should be dis-incentivized.

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