When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants (4 page)

It would be even better if the government was required to pay fair wages to soldiers during wartime—i.e., if combat pay was market-determined and soldiers could opt to leave whenever they wanted, like most jobs. If that were the case, the cost to the government would skyrocket and more accurately reflect the true costs of war, leading to a truer assessment of whether the benefits of military action outweigh the costs.

Critics also argue that if there were more affluent Caucasians in the military, we wouldn’t be in Iraq. That is probably true, but it doesn’t automatically mean that a draft is a good idea. A draft would make fighting wars much less efficient, which should mean fewer wars. But it may be the case that, if you can fight a war efficiently, it is worth fighting—even if it’s not worth fighting inefficiently. To be clear, I am not saying this particular war is necessarily worth fighting—just that, in theory, this could be true.

As a side point, the current system of relying on reservists doesn’t seem like a good one either. Essentially, it involves the government overpaying reservists when they aren’t needed, and underpaying them when they are needed. This setup shifts all the risk from the government to the reservists. From an economic perspective, such a result doesn’t make any sense, because individuals shouldn’t/don’t like risk. Ideally, you would want a system in which the payment to reservists is extremely low in peacetime, and high enough in wartime that they would be indifferent to being called up or not.

In the first chapter of our book
Think Like a Freak
, we recount an ill-fated interaction that Dubner and I had with David Cameron shortly before he was elected prime minister of the U.K. (In a nutshell, we joked with Cameron about applying the same principles he espoused for health care to automobiles; it turns out you don’t joke with prime ministers!)

That story has riled up some people, including an economics blogger named Noah Smith,
who rails on us
and defends the NHS.

I should start by saying I have nothing in particular against the NHS, and I also would be the last one to ever defend the U.S. system. Anyone who has ever heard me talk about Obamacare knows I am no fan of it, and I never have been.

But it doesn’t take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don’t charge people for things (including health care), they will consume too much of it. I guarantee you that if Americans had to pay out of their own pockets the crazy prices that hospitals charge for services, a much smaller share of U.S. GDP would go to health care. And, of course, the same would be true in the U.K.

Smith ends his critique by writing:

But I don’t think Levitt has a model. What he has is a simple message (“all markets are the same”), and a strong prior belief in that message.

Smith could not have known, based on what’s in
Think Like a Freak,
that we actually do have a model for the NHS. And, indeed, I proposed the model to Cameron’s team after he left the meeting.

If nothing else, the model is admirably simple.

On January 1 of each year, the British government would mail a check for £1,000 to every British resident. They can do whatever they want with that money, but if they are being prudent, they might want to set it aside to cover out-of-pocket health care costs. In my system, individuals are now required to pay out of pocket for 100 percent of their health care costs up to £2,000, and 50 percent of the costs between £2,000 and £8,000. The government pays for all expenses over £8,000 in a year.

From a citizen’s perspective, the best-case scenario is that they use no health care, so they end up £1,000 to the positive. Well over half of U.K. residents will end up spending less than £1,000 on health care in a given year. The worst case for an individual is that he/she ends up consuming more than £8,000 of health care, so that he/she ends up £4,000 in the red (he/she spends £5,000 on health care, but this is offset by the £1,000 gift at the beginning of the year).

If it turns out that consumers are sensitive to prices (i.e., that the most basic principle of economics holds, and
demand curves slope downward), total spending on health care will decrease. In simulations we’ve run at the Greatest Good, we estimate that total health care costs might decline by roughly 15 percent. That is a decrease in spending of nearly twenty billion pounds. This decrease comes because a) competition will likely lead to increased efficiency; and b) consumers will cut out the low-value health care services they are currently using only because the services come for free.

Everyone remains protected against catastrophic illness.

Like any government program, there are winners and losers. The majority of Brits will be better off in the scenario I laid out, but those who need to spend a lot on health care in a particular year will be worse off. That is because the system I propose provides only partial insurance—which retains incentives for consumers to make prudent choices. The health care system would then mimic the rest of life. When my TV breaks, I have to buy a new one. I’m worse off than the guy whose TV did not break. When my roof needs to be replaced, it’s expensive, and I’m worse off than if the roof didn’t need replacement. There’s nothing immoral about this; it is just the way the world usually works.

There are, no doubt, many improvements that could be made to this simple proposal. For instance, maybe the cash payment to the elderly at the beginning of the year should be larger than that to those who are younger. Maybe the cash payment is bigger to those who have chronic illnesses, etc.

I have no idea whether this sort of plan could be politically viable, but I have done some informal polling of the British electorate. Every time I take a cab in London, I ask my driver whether he would be in favor of my proposal. Probably the cabbies are just being polite, but roughly 75 percent of them say they would prefer my plan to the current system.

Perhaps, then, it is time for another audience with the prime minister . . .

With the U.S. presidential election nearly here, everyone seems to have politics on their mind. Unlike most people, economists
tend to have an indifference toward voting
. The way economists see it, the chances of an individual’s vote influencing an election outcome is vanishingly small, so unless it is fun to vote, it doesn’t make much sense to do so. On top of that, there are a number of theoretical results, most famously
Arrow’s Impossibility Theorem
, which highlight how difficult it is to design political systems/voting mechanisms that reliably aggregate the preferences of the electorate.

Mostly, these theoretical explorations into the virtues and vices of democracy leave me yawning.

Last spring, however, my colleague
Glen Weyl
mentioned an idea along these lines that was so simple and elegant that I was amazed no one had ever thought of it before. In
Glen’s voting mechanism
, every voter can vote as many times as he or she likes. The catch, however, is that you have to pay each time you vote, and the amount you have to pay is a function of the square of the number of votes you cast. As a consequence, each extra vote you cast costs more than the previous vote. Just for the sake of argument, let’s say the first vote costs you $1. Then to vote a second time would cost $4. The third vote would be $9, the fourth $16, and so on. One hundred votes would cost you $10,000. So eventually, no matter how much you like a candidate, you choose to vote a finite number of times.

What is so special about this voting scheme? People end up voting in proportion to how much they care about the election outcome. The system captures not just which candidate you prefer, but how strong your preferences are. Given Glen’s assumptions, this turns out to be
Pareto efficient
—i.e., no person in society can be made better off without making someone else worse off.

The first criticism you’ll likely make against this sort of scheme is that it favors the rich. At one level that is true relative to our current system. It might not be a popular argument, but one thing an economist might say is that the rich consume more of everything—why shouldn’t they consume more political influence? In our existing system of campaign contributions, there can be little doubt that the rich already
have far more influence than the poor. So restricting campaign spending, in conjunction with this voting scheme, might be more democratic than our current system.

Another possible criticism of Glen’s idea is that it leads to very strong incentives for cheating through vote buying. It is much cheaper to buy the first votes of a lot of uninterested citizens than it is to pay the price for my one-hundredth vote. Once we put dollar values on votes, it is more likely that people will view votes through the lens of a financial transaction and be willing to buy and sell them.

Given we’ve been doing “one person, one vote” for so long, I think it is highly unlikely that we will ever see Glen’s idea put into practice in major political elections. Two other economists, Jacob Goeree and Jingjing Zhang, have been exploring a similar idea to Glen’s and
testing it in a laboratory environment
. Not only does it work well, but when given a choice between standard voting and this bid system, the participants usually choose the bid system.

This voting scheme can work in any situation where there are multiple people trying to choose between two alternatives—e.g., a group of people trying to decide which movie or restaurant to go to, housemates trying to decide which of two TVs to buy, etc. In settings like those, the pool of money that is collected from people voting would be divided equally and then redistributed to the participants.

My hope is that a few of you might be inspired to give this sort of voting scheme a try. If you do, I definitely want to hear about how it works out!

Whenever you look at a political system and find it wanting, one tempting thought is this: maybe we have subpar politicians because the job simply isn’t attracting the right people. And, therefore, if we were to significantly raise politicians’ salaries, we would attract a better class of politician.

This is an unpopular argument for various reasons, one of them being that it would be the politicians themselves who have to lobby for higher salaries, and that isn’t politically feasible (especially in a poor economy). Can you imagine the headlines?

But the idea remains attractive, doesn’t it? The idea is that by raising the salaries of elected and other government officials, you would a) signal the true importance of the job; b) attract a kind of competent person who might otherwise enter a more remunerative field; c) allow politicians to focus more on the task at hand rather than worry about their income; and d) make politicians less susceptible to the influence of moneyed interests.

Some countries already pay their government officials a lot of money—Singapore, for instance. From
Wikipedia
:

Ministers in Singapore are the highest paid politicians in the world, receiving a 60% salary raise in 2007 and as a result Prime Minister Lee Hsien Loong’s pay jumped
to S$3.1 million, five times the US$400,000 earned by President Barack Obama. Although there was a brief public outcry regarding the high salary in comparison to the size of the country governed, the government’s firm stance was that this raise was required to ensure the continued efficiency and corruption-free status of Singapore’s “world-class” government.

Although Singapore recently cut
its politicians’ pay substantially
, the salaries remain relatively very high.

But is there any evidence that paying politicians more actually improves quality? A
research paper
by Claudio Ferraz and Frederico Finan argues that it did for municipal governments in Brazil:

Our main findings show that [paying a] higher wage increases political competition and improves the quality of legislators, as measured by education, type of previous profession, and political experience in office. In addition to this positive selection, we find that wages also affect politicians’ performance, which is consistent with a behavioral response to a higher value of holding office.

Another,
more recent paper
by Finan, Ernesto Dal Bó, and Martín Rossi finds that the quality of civil servants also improves when they are paid more, this time in Mexican cities:

We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity toward public sector work—i.e., we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities.

I am not willing to argue that paying U.S. government officials more would necessarily improve our political system. But, just as it seems a bad idea to pay a schoolteacher less than a commensurately talented person can make in other fields, it is probably a bad idea to expect that enough good politicians and civil servants will fill those jobs even though they can make a lot more money doing something else.

There’s an even more radical idea I’ve been thinking about for a while: What if we incentivized politicians with big cash payouts if the work they do in office actually turns out to be good for society?

One big problem with politics is that politicians’ incentives are generally not aligned well with the incentives of the electorate. Voters want politicians to help solve hard problems that have long-term time frames: transportation,
health care, education, economic development, geopolitical affairs, and so on. The politicians, meanwhile, have strong incentives to act in their own interests (getting elected, raising money, consolidating power, etc.), most of which have short-term payouts. So as much as we may dislike how many politicians act, they’re simply responding to the incentives the system puts before them.