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 society.  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. 

Society 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 a free market, the farmers who understand best what people want and need and meet those needs with the most creativity and effectiveness would gain the largest market share and the most resources.

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 political decision-makers 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 wouldget:  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 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, yet costs continue to increase relative to quantity and quality. The government subsidizes essentially any important industry you can think of, and these industries generally become less productive as a result, springing up all sorts of unforeseen problems.

What dynamic is playing out here? Are government officials being unwise in their decisions? Is it smarter officials that we need?

Actually, I suggest that it makes relatively little difference how smart our officials are. 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 conventional narrative about how much the government will help if we just give it the power to do so. Our present government has expanded into managing many of our big social challenges. Political officials 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 tends to warp the 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 drive engagement.

Politicians have become incentivized by the rising importance of their role to do more and more—to implement more violence across the board. As politicians implement more laws 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 in office.  This is an inevitable consequence of using violence as a tool of progress.

Again, the degree to which the centralized unit of force (government) confiscates 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 almost unavoidable choice for people.  That is why over $4 billion dollars was tracked as being spent on lobbying in 2024.  Of course, this is only the visible surface of a much larger system of political influence.

Those with the most money and biggest networks (those most able to affect influence) end up having a significant influence in politics. Once the government becomes powerful enough, it’s more important to influence it than to be creative or productive.  When the political system is confiscating something like 50% of your money (like the American government right now), that is a heck of a powerful incentive. If you can do something about it, you will. People respond to the incentives before them.

The incentive structure that grows when we use violence to shape outcomes in society takes us off-purpose. We forget that there is another path, a more optimal one—where we focus on producing 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 : -)

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 used as a tool of managing society feeds the wrong wolf.

We can’t see a force that drives decentralized human action toward progress, so most people don’t trust in 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 often take the smooth-talking politician who seems like he has what it takes to get it done.

However, the free market, an environment of decentralized individual action, 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 tends to get in the way.

In the final analysis, it is not a government’s job to set up the incentive structure. It is a society’s job to calibrate its incentive structure and see that its government finds the appropriate place within it.