Government and Incentives
There’s a lot of noise out here in 2025. The signal is still coming through, but the distortion and noise is pretty gnarly. Almost everyone’s got something to say about the direction of society and the means to say it (even wildlings like me).
We theorize and strategize how to optimize and aggrandize our beautiful little world. We’ve got enough ideas about what to do to clog up the entire New York City sewer system for a month (and most of the ideas are juuuust perfect for that job).
Political office holders and candidates are right here with us throwing out claims and promises as fast as their mouths can open and close, and for some that’s awfully fast. I believe some have a real shot at being the next Pacman if they apply themselves.
Many of the ideas that we push to see implemented eventually do get implemented when our favorite candidates rise from the primordial ooze to claim the power of office. Health care reforms, wage laws, union reforms, tax policy changes, welfare policies, drug wars, real wars, cold wars, fake wars, and bills that are 50% understood by 10% of the politicians – they all get their time in the sunshine.
In the face of the implementation of many grand ideas, we continually and progressively get surprised by the outcomes. The outcomes are different than what we intended and expected! Someone call a detective!
S.H: Sherlock Holmes, at your disposal, sir.
Me: Holmesy, you couldn’t have come at a better time. Read the paragraphs above, I’ll wait.
S.H: Done. Did you have to make the shit ideas joke? I do say, that seems a bit low.
Me: Well, plenty of them are mine, so I think it’s fair. So, what’s the deal? Are we missing something important here or what?
S.H: Hold on, let me get out my extra-large microscope, bit of a macroscope really… Ah, yes, there we go. My good man, you need to look more closely at the incentive structure in your society!
Primer on Incentives
Thanks to Sherlock, we’ve got a path to follow in our quest for deeper understanding. We’re going to look at incentives. Incentive is an easy concept to understand. The dictionary definition of the word is this: “a thing that motivates or encourages one to do something.” Can’t get much more straightforward than that.
Human existence is filled with a multitude of natural incentives baked right into our daily lives. Hunger is an incentive that drives us to find food.
Imagine you’re in the jungle with your friends building a shelter to live in. You believe the jungle is full of relatively benign creatures, until your scout returns warning you that a pack of sabretooth tigers is roaming the area. Think you’ll build that shelter a little faster? Another example of an incentive.
The mystery and enormity of reality is an incentive to expand our knowledge and continue exploring the world we live in.
Believe it or not, we also have a natural incentive to cooperate. The power of the division of labor to increase our material abundance is undeniable.
While the natural incentives are a good place to start and interesting to consider, what will be most interesting for us is a consideration of the incentive structures of our society.
Societies and Incentives
The development rubber meets the incentive road as societies emerge and grow through time. As a society forms, customs, norms, laws, and institutions spring up within it.
These norms, customs, laws, and institutions become a new set of incentive structures influencing the behavior of the citizens. Though they can best be seen as a superstructure built on top of the more fundamental reality of human nature, they exert a very powerful motivating force. Most people obey the laws, follow the customs/norms, and respect the institutions. The longer a society exists, the more powerful this superstructure becomes.
Perhaps the most influential part of the incentive structure in any society is its government.
This is because the government has a legal monopoly on the use of physical force, and has the greatest concentration of physical power in a society. In simple terms – the government makes the laws, and enforces them. What it says, goes, and you disobey at great peril.
Government and Incentives
In America in 2025, we’ve got a large government system which we oscillate between calling a representative democracy, a constitutional republic, an oligarchy, and a soap opera. It depends on the day and who you ask. One thing we all know for sure is that it’s a big and powerful part of our society.
Such a big government is a great case study for government and incentives. We’ve got literally endless examples to draw from. If I can’t draw out some useful insights here, well that’s my fault!
Let’s look at a specific example, and then we’ll go broader and more fundamental from there.
What happens when we pass a farming subsidy into law? The idea behind any farming subsidy is that farming is of great importance to the society (it is, of course), and that by giving farmers more resources to expend, they will become more productive, employ better methods, provide better products, etc.
But what actually happens? First, citizens must be taxed in order to provide the subsidy to farming operations. The money taken from them can be seen as a choice taken away – instead of whatever they would have used the money for, they will now have subsidized farming. Maybe some of that money would have found its way to the farmers on its own anyway, maybe not. Keep in mind that the farmers are among the people taxed in the first place.
In the normal old marketplace with no government intervention, the farmers who understand what people want and need the most and meet those needs with the most creativity and effectiveness, would gain the most resources anyway.
As soon as the law is passed, any farmers that are able to will immediately move to meet the requirements to get the subsidy. If you can get that free money, you’re going to go for it. How can you possibly compete otherwise, if everyone else is getting it?
The greater the government subsidy, the greater the government regulation over the enterprise/industry. More government money = more government requirements. He who pays the piper calls the tune.
It quickly becomes more important to meet the arbitrarily defined requirements of the subsidy than to be creative and analyze the market. The massive, unquantifiable intelligence of all humanity, represented by market forces, is replaced by the arbitrary rules of a tiny group of bureaucrats as the driver of action.
Once the subsidy starts, the farmers will do all they can to make sure it never stops. They’ll lobby, they’ll make it a ballot issue, they’ll justify its existence any way they can. They get used to it, and come to depend on it and account for it in their way of life and work.
Now that this subsidy is up and running, the justification can be made for subsidies in just about any area.
What we thought we would get: Better farming methods and farm products for everyone.
What we incentivized and got: An industry dependent on money forcefully expropriated from citizens, no longer answering to the market at large but to the rules of a small group, and a road paved for any other industry to become the same way. Additionally, we have a government that has increased its importance and power dramatically, and 0 real improvement in farming because the free market is already an optimized incentive structure.
Generalizing and Expanding the Principle
The government expends enormous amounts of resources on what it calls welfare programs, and the wealth gap rises every year. The government focuses more and more on education, and education gets worse and worse.
Government intervention and measures are at an all-time high in healthcare, and healthcare has never been more of a dumpster fire. The government subsidizes essentially any important industry you can think of, and these industries become less productive as a result, springing up all sorts of unforeseen problems.
Are these government office holders just morons or what? Why does everything they touch turn into dog diarrhea (you know, the kind you can smell from 25 feet away and you wish someone else would pick up)?
Well, whether they’re or not they’re morons, that’s beside the point. No matter how smart they are, it hardly makes a difference at all. The system is what is important; the faces come and go from the stage, leaving little personal trace behind.
Having our government work on our big problems seems to be a viable solution on the surface. Violence is a sort of meta-incentive. Jail, fines, and a criminal record don’t leave people much of a choice. Using the law seems to be the most powerful and expedient way to drive change and progress.
Add to that the wonderful stories told by our politicians about how much they will help if we just give them the power to do it. They offer to take responsibility for our big challenges, so we don’t have to. They package their proposals in high morals, ideals, and strong emotions, and never allude to the fact that their ideas are to be implemented by violence.
The problem is that government actions are violent actions, and violence creates a bad incentive structure. Here’s how:
As our government moves into an industry with positive action, that action becomes a new unavoidable factor that must be accounted for by everyone in the industry. If it’s a subsidy, everyone is going to try and get the subsidy. If it’s a regulation, everyone must follow the regulation. The more heavily involved the government gets, the more the force of the government and the rules of bureaucrats replace the natural creative and competitive processes.
At a certain point, the rules of the government become the most important thing in the industry. The rules, being arbitrary, imperfect, and made by humans like yourself and myself, will favor some people in the industry more than others. Thus begins the story of pressure group politics.
The top companies in every industry hire lobbyists to persuade politicians to make policies that favor them the most. Politicians acquire an endless source of campaign issues to bring out and preach to their loyal sheep (errr, I mean, voters).
The politicians are incentivized by their rising importance to do more and more – to implement more violence across the board. People who enjoy power over others quickly become the most incentivized to government positions.
As politicians do more and more and the government grows more powerful, people are more incentivized to influence it. In this way, the process turns from a tiny snowball into a roaring avalanche.
Every issue becomes a political issue. The story becomes about power and control. More and more money and energy are absorbed into the hands of fewer and fewer decision makers. People are incentivized to form around dividing lines and battle for the ability to be those decision makers, or feel that they are represented by those decision makers.
Before we even realize what has happened, entire political ideologies have been formed, and people go as far as to dislike another person based on his or her political affiliation. Political discussions devolve from (the already awful) battles to control government policy into (utterly pointless) battles to win moral trophies and prove other people wrong.
Do you ever wonder why American politics has been essentially a theatre play, a soap opera, for 100 years strong? It’s not because we have foolish politicians or idiots in office. This is the natural consequence of using violence to try and achieve the good.
Again, the degree to which the centralized unit of force (government) leeches the resources from its people and controls who gets what through all its various machinations is the degree to which people will seek to influence it.
When it becomes powerful enough, this is an unavoidable choice for people. That is why over $4 billion dollars was tracked as being spent on lobbying in 2024. Of course, it’s guaranteed that far more than that was given in subtle ways by whoever could afford it to influence policies in their favor.
Those with the most money and biggest networks (those most able to affect influence) will end up controlling the government. Once the government becomes powerful enough, it’s more important to control it than to be creative or productive. When they’re taking 50% of your money (like the American government right now), that is a hell of a pressing concern. if you can do something about, you will. People aren’t stupid. They respond to the incentives before them.
Rich people will pay to control the government. It’s how it has to be. A big government bends to the wishes of the rich and powerful. The only way to keep it uncorrupted is to keep it small. Government cannot be large and intrusive without being influenced by society’s richest people. Don’t waste time wondering why the rich and connected live above the law in America.
Clearly, using violence to try and achieve progress has been a losing move. The incentive structure it creates takes us off-purpose. We forget that we are on a journey to use our creativity to produce the most abundance for everyone, each of us making our own unique contribution.
Instead of applying the maximum amount of our physical, monetary, mental, emotional, and spiritual resources on this goal, we get lost in power struggles and chasing useless moral trophies.
Changing our Perspective
We often get caught up in the rhetoric and emotional proselytizing of our group, our ideology, our favorite political actors. We have a tendency to draw boundaries around people and pretend that they’re static, stuck the way they are. We say things like “that’s just the kind of person he is.” We assign people labels such as good, evil, intelligent, stupid. I know that you never do this, but I’m sure you know some people that do : -)
Of course, the complexity of human nature defies these relatively simplistic labels and viewpoints, rendering them unhelpful. A view closer to the reality is that each individual exhibits a variety of traits across every domain of life and exists in a dynamic state of constant learning, always being influenced by the world around them.
A person is likely to be relatively intelligent in some domains and in some ways, and relatively unintelligent in others. He or she will exhibit a high degree of integrity (consistency between beliefs/commitments/actions) in some areas, and less integrity in others. No person is totally good. No person is totally evil (no, not even your worst enemy). Every person has light and darkness inside of them.
Focusing on incentives is a way to gain a much deeper understanding of what’s going on around us in our society.
If you’ve never heard the “Story of the Two Wolves,” commonly attributed to Don Miguel Ruiz, it’s a poetic illustration of the conflict between different parts of our nature struggling to be embodied.
In the story, two battling wolves reside within a person. One is characterized by love, compassion, and kindness, while the other is characterized by fear, egocentricity, and hate. The person wants to know which wolf will win and be embodied in their actions. The answer he is given is simple – “the one you feed.” It simply means the part of our nature we focus on and cultivate will come to prevail in our way of life.
The incentive structures in our society feed a wolf.
Organized violence feeds the wrong wolf.
We can’t see the total market force of humanity and the greater telos that pushes us forward, so most people don’t trust it. We see our neighbors and that guy on social media that makes us vomit every time he vomits up a post – not exactly inspiring. We’ll take the smooth-talking politician who seems like he has what it takes to get it done.
However, the free market, though sometimes ugly and painfully slower than we want it to be, is the best incentive structure for the growth and abundance we want and need. That smooth-talking politician just gets in the way.
In the final analysis, it’s not a government’s job to set up the incentive structure. It’s a society’s job to calibrate its incentive structure and see that government finds the appropriate place within it.
The best thing we can do is limit the government to its proper role of restraining violence and let the natural incentives take us to peaceful cooperation and abundance.