Who's greedy enough to want $25 million?

As an economist, I'm a big believer in incentives.  Incentives drive behavior.  If you want someone to do something, give them the incentive.  And yes, in most cases I'm talking about money.  There is only one true driver of innovation and that is the pursuit of money.  Why?  Because people want stuff...and money buys stuff.   In the immortal words of Gordon Gecko: 

Greed, for lack of a better word is good.  Greed is right.  Greed works.  Greed clarifies, cuts through and captures the essence of the evolutionary spirit.

That's why I'm such a big fan of the X-Prize Foundation--y'know, the people who paid $10 million to the team that designed and tested a reusable spacecraft.  And now it looks like the X-Prize Foundation is turning it's incentive gun toward the holy grail of automotive technology:  The 100 MPG car. 

Details are still in the works, but the idea is simple:  Build a marketable 100 mpg car and you win $25 million, fame, glory, wine and wo(men).  The key to success though, is marketability.  This isn't just an academic exercise to see if someone can build an ugly futuristic bubble-car that works on the salt flats of Utah.  It's an incentive to get people off their collective butts and find a viable solution for a problem. 

Here's how the X-Prize Foundation describes the Automotive X-Prize Philosophy:

Goal of the Automotive X PRIZE
To inspire a new generation of viable, super-efficient vehicles that help break our addiction to oil and stem the effects of climate change.

How it will work
The rules are being shaped by our philosophy that the Automotive X PRIZE must:

• Achieve our main goals (above)
• Be simple to understand and easy to communicate
• Benefit the world - this is a global challenge
• Result in real cars available for purchase, not concept cars
• Remain independent, fair, non-partisan, and technology-neutral
• Provide clear technical boundaries (i.e., for fuel-efficiency, emissions, safety, manufacturability, performance, capacity, etc.)
• Offer a "level playing field" that attracts both existing automobile manufacturers and newcomers
• Attract a balanced array of private investment, donors, sponsors, and partners to help competitors succeed (e.g., manufacturing assistance, testing resources, etc.)
• Make heroes out of the competitors and winner(s) through unprecedented exposure, media coverage and a significant cash award
• Educate the public on key issues

The dollar bills are lying on the ground.  Now some greedy SOBs have to go pick them up. Hmmm...if I only knew something about building cars.

Comments

[David Garen]

Tim,

I think you've gone over the edge by equating incentives with greed. Perhaps this is where classical economics has lost its philosophical and ethical basis by making just this equivalence. By emphasizing competition over cooperation and by giving theoretical justification to the pursuit of individual gain without consideration of the common good, classical economics ends up with the ethically heretical idea you quoted -- greed is good, greed is right, greed works. C'mon, Tim ... where's the soul in this?

Incentives, yes. Greed (i.e., excessive acquisitiveness), no.

And a 100 MPG car would be cool ...

David

[Mark C R UK]

I'm a big fan of incentive-based economics...

stake-holders etc.

But Greed? No.

Look at Bill Gates, look at Warren Buffet.

They're doing the correct thing and allowing their money to benefit others. Why?

Because whats the point living with everything - if you have no one to share it with???

[Tim Haab]

David and Mark,

The key words in the quote I used are "for lack of a better word." The quote is meant to be provocative to make a point. Self-intertest is beneficial not only to a single person, but to society as a whole.

Yes, Buffet and Gates are two of the most benevolent people in the history of the world, and I have immense respect for that. But greed, for lack of a better word, got them to that point.

Warren Buffet made his money by investing in companies. Which companies does he invest in? Those likely to make the most money. To paraphrase Adam Smith...It is not for the benovolence of these companies that Buffet invests, but for his own regard to his self-interest. Bill Gates did not found Microsoft with the desire to be charitable. He founded Microsoft to make money.

There is nothing classical economic theory that prohibits benevolence. But self-interest provides the incentives. An economy founded in cooperation may be equitable, but it will be too poor to be benevolent. An economy founded in incentives and self-interest can afford to be benevolent.

[joshua corning]

Greed, for lack of a better word is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit.

I love Gordon Gecko...almost as much as Monty Burns....anyone see the Lil'Lisa Slurry episode...i can't find the monologue on the net but it talks about recycling the oceans fish and dynamiters need dynamite..(incidentally my dad used to be a dynamiter)..friggin classic.

The beauty of these two fictional characters is that they inspire in me the exact opposite feelings that their creators intended.

where's the soul in this?

The soul would be the part about individuals pursuing their own interests produce better outcomes for everyone.

[joshua corning]

Perhaps this is where classical economics has lost its philosophical and ethical basis by making just this equivalence.

god i hope so...nothing could help out classical economics more then for it to shrug of the superstitions of philosophy and ethics and focus, as a science, on discovering how the universe works.

[Mark C R UK]

Tim you're arguing the drive that got them there?

I suspect Bill Gates was as much interested at the development of technology as of making money. Money was just the driving force for the former... then the two became inter-related to his objectives...

I suspect for Warren Buffet it was as much like "gamblers" at a racetrack... seeing if he could predict the good companies from the chaff. The money is just the plus like the "drug"...

"Self-interest is beneficial not only to a single person, but to society as a whole."

I've been watching a documentary here in the UK on this. I'd argue some social problems being suffered in the west have been magified by the (free-market) economic activity detailed above...

I believe there always needs to be "the unseen hand" - free-markets without some limits or some regulation ultimately will lead to some degradation. We're seeing it. (environmental, social etc)...

This is where the real political leadership comes in.

But hey Tim, this is only debate.

Tim did you know economists and psychopaths have a large amount in common????
Since both were found to (generally) only choose rational options in every case...

I found that extremely comical...

[Tim Worstall]

Re the car, available in 2009 I believe:

http://timworstall.typepad.com/timworstall/2006/03/the_loremo.html

[John Whitehead]

Shouldn't it read: (wo)men instead of wo(men)?

[Tim Haab]

THAT's what you're going to choose to pick on?

[Steve]

I concur with Mark C R UK. Buffett lived very modestly for years. Gates was a little more extravagant, but lived spartanly early on. If Gates was really greedy he would have gone for the quick, easy route of finishing at Harvard and grabbing a cush job. Buffett would have stayed on Wall Street.

[Tim Haab]

I'm almost speechless. You're right, anyone who has ever taken a risk, in the hopes of gaining massive rewards was doing it out of benevolence.

The fact that Buffett chose to live modestly is irrelevant. The point is, his own self-interest motivated him to amass one of the largest fortunes ever. That's not wrong...it's a GOOD THING!

And I'm sure all of the Harvard graduates are glad to know they took the easy way out.

[Mark C R UK]

Tim - does the fact you seem to find this point difficult to accept could be a result of the economis-psychopathy issue previously described...

You can't accept it since its irrational to you... and fundamentally creating a bias in your thinking?

Maybe.

[Mark C R UK]

The point is Humans are too complex to be modelled so simply (with Greed/self interest the over riding factor)... this is what Nash was saying in the documentary.

And he is certainly one to know!

[David Garen]

Tim,

Sorry, I just can't let a couple of things you said in your reply to me (and Mark) go without comment.

"Self-intertest is beneficial not only to a single person, but to society as a whole."

It can be, but not necessarily. What about the "Tragedy of the Commons" or, better yet, "Prisoners Dilemma"? Especially in the latter scenario, each person acting in their individual self-interest creates a sub-optimal solution for the two together.

"An economy founded in cooperation may be equitable, but it will be too poor to be benevolent. An economy founded in incentives and self-interest can afford to be benevolent."

Boy, there's ideology if I ever heard it. Who says a cooperative society has to be poorer?

The other things that bother me about all of this ... with the examples of Gates and Buffett ... is that the accumulation of massive wealth in a few hands has some glaring problems in my opinion:

1) Money = power, and concentrations of money and power are potentially dangerous.

2) We are lucky that Gates and Buffett are "good" and are willing to be philanthropic with their fortunes. They just as easily could be selfish and blow it all on frivolities. Why should we as a society want to be at the mercy of the goodwill of a few rich people?

3) So what if a few people get filthy rich so that when you add up all the wealth of the country we have more than under a more equitable system? This just creates an elite and an underclass. I thought a more stable and just society would be created if things were more equitable. And, I have doubts about a "trickle down effect" -- I suspect more wealth leading to more people living lavish lifestyles creates fewer (decent) jobs than if wealth were spread more equitably.

Sorry ... this pursuit of individual wealth thing only goes so far in creating a desirable society (i.e., maximizing overall welfare). I would much rather see a society with a more equitable distribution of wealth than one with a few rich and lots of poor, even if the latter has more total wealth.

David

[David Garen]

Tim,

Another response from your latest post:

"The fact that Buffett chose to live modestly is irrelevant. The point is, his own self-interest motivated him to amass one of the largest fortunes ever. That's not wrong...it's a GOOD THING!"

NOOOOOO ... I completely disagree! I think someone amassing a huge fortune is a BAD thing! Here we get to the core ... our values are different. I think our system that sets as its highest value the accumulation of vast wealth is sick.

Besides, what if Gates or Buffett were neonazis or something bad like that? They would support these causes with their fortunes instead of what most of us would call "good". Where does that leave us in terms of "benevolence"?

David

[Mark C R UK]

Tim, I'm refering to the docmentary detailed herein: summary.
(Ignore the Blair bashing...).

I suggest Tim's viewpoint is being biased by his inherent rationality. (which I joke as being like psychopathy)...

Specifically this point:
"The New discipline of behavioral economics has been studying to see if people really do behave as the simplified model suggests. Their studies show that only two groups in society actually behave in a rational self-interested way in all experimental situations. One is economists themselves, and the other is psychopaths."

[Tim Haab]

I threw in the Gecko quote as a writing trick and opened a much bigger can of worms than I intended (why are cans of worms so bad?).

David--I think we can agree that self-interested actors can impose cost on others. In such cases, there is an inefficiency, a misallocation of resources, that can be corrected in some cases through cooperation but in most cases require outside intervention to internalize the cost. But likewise, there are cases where self-interest provides external benefits that go uncaptured and need to be appropriated through either cooperation or outside intervention--that is the role I see the X-Prize playing.

You're also right that I am making an ideological statement when I say "An economy founded in cooperation may be equitable, but it will be too poor to be benevolent. An economy founded in incentives and self-interest can afford to be benevolent." (one of my better quotes if I do say so myself). I simply believe--with history on my side--that any economic system that reduces the individual incentive to pursue their own interests will fail.

As for your Gates/Buffett straw men, you are looking at the outcomes in hindsight and judging them. I prefer to subscribe to social contract type thinking and ask:

If you had no idea where you would be in the final outcome, which of the following economic systems would you prefer?

Economy 1: Each individual in the economy is paid according to their individual productivity.

Economy 2: All individuals will be paid equally, regardless of their productivity.

I prefer option 1, because I then have the incentive to produce. Economy 2 is doomed to failure.

I have no problem with inequitable income distributions. Bill Gates, Warren Buffett, Oprah Winfrey, J.K. Rowling,...don't bother me because I know the system that afforded them the opportunity to prosper is the same system that offers me the incentive to prosper. I also know that I--and most others--am better off being in that system then one that penalizes the productive and rewards the unproductive.

I have no problem with welfare programs, as long as they are designed to provide emergency support in times of need and the incentive to be productive the rest of the time.

[Mark C R UK]

Just to point out and distance myself from some of David's points:

"Who says a cooperative society has to be poorer?"
David you realise: the other extreme is what was was seen in the communist countries. Neo-maxism is an ideology too by the way. Not to my taste - as it's ineffective and unsustainable - I believe from my study of history.

I'd advocate the "unseen hand" within free markets... but with limitations and directions where required by small government. But government that will act to sustain the market.

i.e. For pragamtic purposes.

We're coming close to the real question - what conditions create a truly effective society?

Now thats getting philosophical!!

[John Whitehead]

David,

You said: "Who says a cooperative society has to be poorer?"

I think my answer would be: History says ...

[Mark C R UK]

John said:
"You said: "Who says a cooperative society has to be poorer?"
I think my answer would be: History says ..."

But I'd say Marxism is simply impractical to be really implemented on a state and has usually been corrupted by certain "self interested individuals"... usually at a different cost to nations.

Equally, much of pure-captialism (being espoused here???) has a similar effect - it can be argued - since why are you two involved in ENVIRONMENTAL ECONOMICS???

Getting a pragmatic mixture of the two - maybe like a "social contract" like Tim says is the only way...???

Equally - the situation today is not as clear cut as it was in history....

[Tim Haab]

I apologize to Warren Buffett for repeatedly spelling his name.

[Tim Haab]

I apologize to Warren Buffet for repeatedly MISspelling his name.

I don't think he would care if I just repeatedly spelled his name.

[Tim Haab]

Damn! I did it again:

I apologize to Warren Buffett for repeatedly misspelling his name.

[joshua corning]

Here we get to the core ... our values are different. I think our system that sets as its highest value the accumulation of vast wealth is sick.

I love how Buffet's life style is somehow modest...lets see hot and cold running water in the home, a refrigerator that can preserve meat and produce for days at a time, light that can be turned on and off with the flip of a switch, medical care that has made living past 70 common, the ability to fly anywhere in the world within a day, instantaneous communication with anyone in the world, disposable pens, the ability to listen to Bach at the flip of a switch, home temp moderated by computer chip....how is any of this modest?

anyone with the ability to post on this web page is not only historically a holder of vast wealth but presently one....and they are that wealthy because of one reason; greed.

We benefit spectacularly from the greed of individuals every second of everyday.

[joshua corning]

Who says a cooperative society has to be poorer?

yeah never let a moderate liberal* Democrat defend a libertarian position...the correct answer john is not "I think my answer would be: History says ..."

it is,

Who said a capitalistic society is not a cooperative one?

What sort of cut throat competition mystery that puts a VCR from china to Walmart to the living room bounces around in David's head must be mindboggling.

* the good sort of liberal not the Rush/Kos liberal....the democrat and moderate are the bad kind