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

by Steven D. Levitt

  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 . . .

  An Alternative to Democracy?

  (SDL)

  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!

  Would Paying Politicians More Attract Better Politicians?

  (SJD)

  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.

  But what if, instead of paying politicians a flat rate for their work, thereby encouraging them to exploit their office for personal gains that may go against the collective good, we incentivized them to work hard for the collective good?

  How would I go about doing this? By offering politicians the equivalent of stock options in the legislation they produce. If an elected or appointed official works for years on a project that yields good outcomes in public health or education or transportation, let’s write them a big check five or ten years down the road, once those outcomes have been verified. What would you rather do: pay a U.S. secretary of education the standard $200,000 salary whether or not he does anything worthwhile—or write him a check for $5 million in ten years if his efforts actually manage to raise U.S. test scores by 10 percent?

  I have run this idea by a number of elected politicians. They do not think it is entirely crazy, or at least they are polite enough to pretend they don’t. I recently had the chance to talk through the idea with Senator John McCain. He listened carefully—nodding, smiling, the whole bit. I couldn’t believe how engaged he was. This only encouraged me to go on and on, in great detail. Finally, he reached to shake my hand. “That’s a neat idea, Steve,” he said, “and good luck to hell with that!”

  He turned and walked away, still smiling. I have never felt so good about being so fully rejected. I guess that’s what it takes to be a great politician.

  CHAPTER 2

  Limberhand the Masturbator and the Perils of Wayne

  ©iStock.com/bubaone

  One great thing about starting a blog after you’ve written a book is that you can continue the conversation that the book began. A book, once it’s published, is pretty much set in stone. But the blog can be updated every day, every hour. Even better: you now have an army of book readers scouring the universe for stories that confirm (or refute) what you wrote in the book. Such was the case with a Freakonomics chapter called “Would a Roshanda by Any Other Name Smell as Sweet?” in which we explored the impact that a person’s name has on his or her life outcomes. No reader was more diligent in the pursuit of this idea than the woman who inspired the first post in this chapter.

  The Next Time Your Daughter Brings Home a New Boyfriend, Be Sure to Ask His Middle Name

  (SDL)

  I got an interesting a package in the mail recently. It came from a Texas woman named M. R. Stewart, who says she is a proud mother and a grandmother to four pit bulls.

  Ms. Stewart has an unusual hobby: clipping newspaper articles of a particular ilk. She sent me photocopies of her most recent finds, all from her local newspaper, over the past few years. The articles had two things in common:

  1. They were all reports of alleged crime.

  2. In each case, the alleged perpetrator’s middle name was Wayne.

  I have to say I was stunned by the number of examples; in order to protect the potentially innocent, I will obscure their last names:

  ERIC WAYNE XXXXXX: sex charges

  NATHAN WAYNE XXXXXX: kidnapping and beating, homicide

  RONALD WAYNE XXXXXX: triple homicide

  DAVID WAYNE XXXXXX: ten years for practicing nursing without a license

  LARRY WAYNE XXXXXX: homicide

  PAUL WAYNE XXXXXX: theft

  MICHAEL WAYNE XXXXXX: theft

  JEREMY WAYNE XXXXXX: homicide

  GARRY WAYNE XXXXXX: knowingly having unprotected sex when HIV positive

  BRUCE WAYNE XXXXXX: homicide

  JOSHUA WAYNE XXXXXX: assault of officer

  BILLY WAYNE XXXXXX: homicide

  BILLY WAYNE XXXXXX: assault

  BILLY WAYNE XXXXXX: attempted murder and robbery

  KENNETH WAYNE XXXXXX: sex assault

  JERRY WAYNE XXXXXX: attempted homicide

  TONY WAYNE XXXXXX: aggravated assault of grandmother in front of her grandchildren, robbery

  LARRY WAYNE XXXXXX: home invasion

  RICHARD WAYNE XXXXXX: police standoff

  CHARLES WAYNE XXXXXX: homicide

  Maybe you could assemble a list this impressive for some other middle name, but I doubt it. And of course anyone with the middle name of Wayne has a scary role model in the notorious Chicago serial killer John Wayne Gacy Jr.

  Ms. Stewart also collects clippings with middle names that rhyme with Wayne: there were four DeWaynes, four Duanes, and two Dwaynes.

  After going through the package, I pulled my two oldest daughters aside (they are six) and told them they were not allowed to ever have a boyfriend with the middle name Wayne. Olivia, who is obsessed with a boy named Thomas in her class, is going to check on his middle name tomorrow.

  Yourhighness Morgan

  (SJD)

  Thanks to our Freakonomics section about unusual first names—like Temptress, Shithead (pronounced shuh-TEED), and Lemonjello and Orangejello—we regularly get e-mails from reader
s with similar examples.

  I don’t think there’s been a better submission than this one, courtesy of David Tinker of Pittsburgh. He sent an Orlando Sentinel article about a sixteen-year-old student athlete in Bushnell, Florida, named Yourhighness Morgan. He has a younger brother named Handsome, and cousins named Prince and Gorgeous. (FWIW, I grew up as a farm kid and we had a pig named Handsome.)

  Yourhighness often goes by YH for short, and also sometimes Hiney—which, to the friends and family who call him this, apparently doesn’t mean “tush” or “derriere,” which it did in my house.

  I like Yourhighness so much that I am going to try to get my kids to call me that for a while.

  In other strange-name news, there’s a sad San Diego Tribune article (sent to us by one James Werner of Charlottesville, Virginia) about a gang murder. The victim’s name was Dom Perignon Champagne; his mother’s name is Perfect Engelberger.

  What a Heavenly Name

  (SJD)

  What child hasn’t played around with the spelling of his or her name—wondering, for instance, how it would sound if it were spelled backward? (I admit that I signed some school papers “Evets Renbud” when I was a kid.) Well, now it seems that at least 4,457 parents last year did the work for their children, giving them the name “Nevaeh,” which is “Heaven” spelled backward. Jennifer 8. Lee (who is herself nomenclaturally blessed) has the story in The New York Times, showing an absolutely remarkable spike in popularity in a new name—from 8 instances in 1999 to 4,457 in 2005.

  “Of the last couple of generations, Nevaeh is certainly the most remarkable phenomenon in baby names,” said Cleveland Kent Evans, president of the American Name Society and a professor of psychology at Bellevue University in Nebraska. . . . The surge of Nevaeh can be traced to a single event: the appearance of a Christian rock star, Sonny Sandoval of P.O.D., on MTV in 2000 with his baby daughter, Nevaeh. “Heaven spelled backwards,” he said.