Why have “good people” failed to fix India’s problems?
Why have “good people” failed to fix India’s problems?

Policies must be judged by their outcomes rather than the intentions of its advocates.

Most “good” people avoid economic analysis and arrogate to themselves the “solutions” for society. They believe in exhortations and demanding performance. They centralise decisions. And so they always fail.

The basic message of public policy is that well intended actions can have unintended consequences. Human nature and reality are complex. Good intentions alone do not necessarily translate into good results.

Good people tend to think that just because their goals are good, they can demand that everyone behave so that good results are achieved.

This is their fundamental mistake. We need to understand the actions of humans in cause-and-effect terms, as we do in any science. This means examining the logic of the incentives involved, rather than simply focusing on the goals being sought.

Public policy is a combination of three things: direction, incentive mechanism and machine.
“Good” people merely focus on the direction and do not have the depth of knowledge to design a good incentive mechanism or a good machine.

Unless the incentives that we create are aligned with the goals we wish to achieve, the results will invariably go wrong. This requires studying economics, which is concerned with what emerges, not what anyone intended.

For example, few things are more simple than the fact that people tend to buy more at lower prices and buy less at higher prices. Similarly, producers tend to supply more at higher prices and less at lower prices. This information is enough to predict all sorts of complex behaviour. But “good” people shun economic analysis.

Incentives matter because most people will usually do more for their own benefit than for the benefit of others. Incentives link the two concerns together.

Therefore, also, “good” people fail to understand why a free market is often best and we should support such freedom, instead of dabbling with markets. One of the biggest advantages of an economy coordinated by prices and operating under the incentives created by profit and loss is that it can tap scarce knowledge and insights, even when most of the people-or even their political and intellectual elites-do not have such knowledge or insight.

This knowledge – of incentives and markets – is not intuitive. Most “good” people don’t want to understand such knowledge. They will always fail.



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