The Better Letter: Incentives Matter

Getting them to line-up is another matter entirely.

It was a typically steamy August morning in 1978 North Carolina but an utterly atypical day for me. I was sitting in the large lecture room at the Duke University School of Law, which could hold essentially all our 170-member class, waiting for my first session of law school to begin. The subject was Constitutional Law. We had been assigned the famous 1803 case of Marbury v. Madison, wherein the first Chief Justice of the United States, John Marshall, had established the principle of judicial review.

In breezed our professor, Walter Estes Dellinger III, anxiously calling on “Mr. Kelly.” After several calls without response, Bob could avoid the inevitable no longer. “Yes,” he muttered.

“Ahhh, Mis-ter Kelly,” the good professor drawled, and the game was on. Mr. Kelly was then in the dock, being hit with a rat-a-tat of questions probing for weaknesses in his thinking, his understanding, his preparation, and his position. He performed remarkably well. One of our classmates, now a long-time law professor himself, honors him by calling on a Kelly first on the first day his classes whenever one is available.

I remember one question standing out: “Mr. Kelly, what should Marbury have done?”

Shortly before Christmas, I asked Mr. Dellinger about that question and noted that I was, then as now, clueless about the answer. His reply? “As am I!”

Professor Dellinger later engaged in a back and forth with another classmate, now a prominent civil rights attorney. “You are acting as Marbury’s counsel. After reading the decision, what would you tell Mr. Marbury?”

The response: “Well, Bill, we lost.”

We all had a good laugh at that.

On the second day of Con Law, he called on a woman with a difficult last name and butchered it.  She stood up and replied, “Professor Dellinger, I think it’s pronounced ‘P_____.’”  He said, “That’s good, when you know, I’ll call on you again.” 

We all had a hearty laugh at that, too. Yet we were still terrified.

Mr. Dellinger had excellent relationships with students and colleagues, including those with different views. He was friendly with Paul Clement, George W. Bush’s Solicitor General, for example. When Mr. Clement was first in need of Senate approval for a high government appointment, Professor Dellinger called to congratulate him and said, “I will publicly support you or publicly oppose you, whichever will help you more.”

The Dellinger I remember was brilliant, passionate, humble, approachable, generous, and practical. He made the best argument I have seen for why the Constitution should not be colorblind. He was a gifted storyteller and writer, and loved pop culture.

We disagreed on much. In Criminal Law he called on me to get “the reactionary position,” but he did so with a smile and respect – respect I had not earned. Best of all, he was careful to see that all sides were heard and was scrupulously honest, supporting the policy outcome of Roe v. Wade but decidedly open about the many weaknesses of the decision, for example.

Professor Walter Dellinger, former acting solicitor general, constitutional scholar, long-time professor, and powerful Supreme Court advocate, died this week at the age of 80. To those of us touched by him – there are many – his memory is a blessing.

This week’s TBL focuses on incentives. If you like The Better Letter, please subscribe, share it, and forward it widely. It’s free, there are no ads, and I never sell or give away email addresses.

Thanks for reading.

---

Incentives Matter

Point/Counterpoint was once a thing. Through most of the 1970s, 60 Minutes included a segment in which a conservative (James J. Kilpatrick) and a liberal (Nicholas von Hoffman and then Shana Alexander) squared off on an issue of the day.

It was, of course, easy…

…to…

…lampoon.

P.J. O’Rourke, who died this week, was the conservative side of another point-counterpoint segment on 60 Minutes in the mid-1990s, opposite Molly Ivins. The concept was revived again briefly in March 2003, this time featuring Bob Dole and Bill Clinton, former opponents in the 1996 presidential election. It, too, was easy to lampoon…

… but didn’t take because it was too gentlemanly and lacked the antagonism of Crossfire. That reference grants me license to revisit this wonderful clip of Jon Stewart’s appearance on that now long-dead CNN show.

It isn’t hard to see who won.

Truly, though, Jon expected too much. As much as I’d like American journalism to provide information, insight, substantive debate, and accountability from those in power, that’s not the way the incentives line-up. If there is one thing economists agree on, one seminal idea undergirding the study of economics, it’s that incentives matter. They work.

In other words, we may be stupid but we’re not that stupid.

The idea that incentives matter is true in business, among non-profits, and in government. This idea is simple common sense, of course. But it has also been verified empirically. Raising the retirement age, for example, results in people working longer. Seatbelt laws increase the number of seatbelt wearers. When the price of gasoline goes up, people are more likely to walk or take public transportation. Bus drivers paid by the passenger, rather than by the hour, are much more likely to be on time. NBC paid a lot of money to broadcast the Winter Olympics so, of course, the network avoids mentioning diplomatic boycotts, Chinese human-rights abuses, and questions about the host nation as it seeks to build an audience. Such examples abound. Incentives matter.

The problem, now as ever, is getting the incentives to line-up with what you want to accomplish. Or happen. Or not happen.

For example, with respect to complex sales, if you want to sell more, you provide greater consumer value. If you want to sell a lot more, you increase commissions.

Incentives work, but people will try to game the system. Almost every incentive scheme can be beaten. As Thomas Sowell said, incentives matter but intentions don’t. It’s classic unintended consequences. Events leading to the financial crisis of 2008 provide excellent examples of incentive-gaming. Some mortgage brokers were compensated based on loan originations without consideration of whether the loans subsequently defaulted, incentivizing them to lower (and keep lowering) buyer credit requirements. The brokers got paid but banks and homeowners paid heavily for it.

The trial judge announced he would dismiss Sarah Palin’s defamation action against The New York Times this week. That became unnecessary when the jury then found that the Times did not libel Ms. Palin when it published an inaccurate editorial in 2017 drawing a connection between her political rhetoric and the 2011 shooting of Congresswoman Gabby Giffords. 

Both decisions were entirely correct assuming New York Times v. Sullivan remains good law. However, there is no sugarcoating the poor journalism the action exposed, apparently driven by animus against Ms. Palin’s politics. The Times presumed that Ms. Palin was evil and didn’t bother to check. Negligent – sure – but without malice.

The Hanlon’s Razor defense worked, yet the journalism was still bad. That’s largely because the incentives didn’t line-up. Especially in today’s world, where advertising dollars have dried up, media outlets succeed by garnering subscribers, readers, and clicks. They achieve those by telling people what they want to hear, not by providing good journalism.

You can count on Sean Hannity, Rachel Maddow, The New York Times, and The Daily Wire alike to confirm their audience’s priors on a daily basis.

Similarly, because glory, money, and political status points go to winners of gold medals and their countries, the Olympics indirectly (but powerfully) incentivize cheating.

A new book (h/t JVL) by Evan Hughes titled The Hard Sell is about the pharmaceutical start-up, Insys Therapeutics, and its drug, Subsys, which was just fentanyl with a novel delivery system. Subsys was sprayed under the tongue, so that the effects kick-in faster. It was approved by the FDA to treat breakthrough cancer pain, mostly as an end-of-life therapeutic, and was highly addictive, rendering patients essentially incapacitated.

Instead of carefully limiting use to Hospice patients, however, Insys bribed doctors to subscribe Subsys for all sorts of pain relief — even for minor back-pain in otherwise healthy people. 

Because companies make money via sales and stock prices go up due to increased earnings, Insys was incentivized to sell as many doses of its drug as possible and there are only so many people with breakthrough cancer pain. Through bribery and unscrupulous physicians, Insys made a fortune exploiting misplaced incentives, destroying people’s lives and fueling America’s opioid crisis in the process.

To pick one final and easy example, what gets somebody elected (or reelected) doesn’t necessarily – and often doesn’t – line-up with good policy and competent leadership.

Every manager of people recognizes how powerful incentives are and should recognize how difficult it is to uncover the right incentives to get the right result. Every parent uses bribery but doesn’t always get the desired result. Incentives matter but intentions don’t. People don’t like being manipulated, either. It’s all about the results.

---

Totally Worth It

Feel free to contact me via rpseawright [at] gmail [dot] com or on Twitter (@rpseawright) and let me know what you like, what you don’t like, what you’d like to see changed, and what you’d add. Praise, condemnation, and feedback are always welcome.

This is the best thing I saw, read, or heard this week (more here). The oddest. The most expected. The most promising. The most privileged. The most predictable. The most fun. The ickiest. The most infuriating. The most irresponsible. The most interesting. The most inspiring. The most insightful. The most insane. The most tone-deaf. The most absurd. The most obvious. The most sensible. The most surprising. The most helpful. The most terrifying. The most mysterious. The coolest Twitter feed. The best sports news. The best interview. The best advice.

Don’t forget to subscribe and share TBL. Please.

Of course, the easiest way to share TBL is simply to forward it to a few dozen of your closest friends.

Enes Kanter Freedom is right about China (while the NBA is badly wrong), just as he is right about his home country, Turkey. But those sure that his views are why he is no longer playing NBA basketball haven’t watched a lot of basketball.

Please send me your nominees for this space to rpseawright [at] gmail [dot] com or via Twitter (@rpseawright).

The Spotify playlist of TBL music has been divided in two. A Christmas music edition has been split off from the regular version so you needn’t listen to Christmas music in February – not that that’s a bad thing. The regular TBL playlist now includes more than 200 songs and about 14 hours of great music. I urge you to listen in, sing along, and turn the volume up.

---

Benediction

This week’s benediction comes courtesy of Sara Niemietz, Pete Seeger, the Byrds, and Ecclesiastes.

To those of us prone to wander, to those who are broken, to those who flee and fight in fear – which is every last lost one of us – there is a faith that offers grace and hope. And may love have the last word. Now and forever. Amen.

Thanks for reading.

Issue 102 (February 18, 2022)