Rob Kall Interview with Barry Schwartz - February 25, 2009
Transcribed by: Jay Farrington, Carla Gilby; Edited by: Jay Farrington
Link to recording of radio interview.
Kall: I have with me Barry Schwartz, who recently gave an incredible talk at the TED Conference. [Barry Schwartz, Darwin P. Cartwright Professor of Social Theory and Social Action - http://www.swarthmore.edu/x1099.xml] If you haven't seen TED, it's at ted.com, where you're going to find amazing lectures and presentations. I found out about you from Twitter. You were all over Twitter, I tell you.
Schwartz: Yes, this was my introduction to Twitter. I'm a little bit behind the curve when it comes to technology.
Kall: Well, what you're not behind the curve on is a lot of wisdom. What you had to say really touched a lot of people. You spoke about wisdom, you spoke about the loss of wisdom, and you talked about it in terms of where we are currently. I was thinking last night, watching Bobby Jindal talk; did you hear what he had to say?
Schwartz: I only heard a few minutes of what he had to say. I mostly listened to the guy right before him.
Kall: Well, Jindal gave an example of a sheriff who was really frustrated because there were these rules that were keeping boats from going out that weren't insured, to rescue people. And he argued that more government and lots of government is bad because it creates dumb rules. It reminded me of your 'Mike's Lemonade Story.' Your 'Mike's Lemonade Story' is basically about a father... Should I tell it or do you want to tell it real briefly? Go ahead, tell it, tell it.
Schwartz: It's a true story, it happened in Detroit. A dad was at a baseball game with his 11-year-old, and the 11-year-old wanted some lemonade. His dad went to the concession stand and the only lemonade they had was Mike's Hard Lemonade. The dad didn't realize that meant it had alcohol in it, so he brought it back to their seats. A security guard saw a kid drinking this alcoholic beverage and called the police, who called an ambulance. The kid was rushed to the ER. It was ascertained that he was okay, he didn't have any alcohol in his blood, and they were all set to let him go. But then the Child Welfare Services intervened and the child was put in a foster home for several days, then allowed to go home only if his father left the house and checked into a hotel. So they were protecting the child from potential abuse by the parent. After a couple weeks, this all got fixed and the family was reunited.
At every step in the process, people said the same thing: I hate to do this, but I have to follow procedure. And you can see why, the reason these procedures were put in place, is that, no doubt in the past, welfare workers have been negligent, neglectful, and what have you. So these rigid procedures were designed to protect against disaster. And my point was that they work to protect against disaster, but, at the same time, they assure mediocrity. Mediocrity is the best you'll get when you expect people to adhere to a rigid set of rules. It is certainly true that when you rely on rules, usually promulgated by government agencies, terrible things will sometimes happen, preposterous things will sometimes happen. But the idea that you can simply eliminate these rules and trust that people will routinely want to do the right thing and know how to do the right thing is just self-deception. It takes a certain kind of person to want to do the right thing and know what that is, and part of the point of my talk is that our reliance on rules and, even worse, on incentives, has virtually guaranteed that we won't find such people.
Kall: Your talk was about incentives in Wall Street in particular, I think.
Schwartz: But it's true in general, I think. If you start giving teachers bonuses if their students exceed some score on these standardized tests, teachers will find a way to teach to the test. Test scores will go up, but education won't.
Kall: And with Wall Street, the incentives led people to take us down a disastrous economic path.
Schwartz: That's true, but people have short memories. These same incentives were hailed 15 years ago as a revolution in the running of our financial industry. You were creating incentives that made the compensation of the CEO compatible with the success of the company, right? Small salaries and huge bonuses meant that you wouldn't get fat, lazy CEO's with three-martini lunches, because the better the company did, the better they would do. Isn't that fabulous? You could just turn them loose, knowing that what's in their interest is also in our interest and we'll all end up better off. So this was a revolution in compensation. A smart revolution, engineered by brilliant economists, and, indeed, look what it got us.
So the reaction to the current crisis is, 'Well, the problem is that we had dumb incentives; let's get smarter ones.' Well, we thought we had done that. The point I tried to make in the talk is that there is no set of incentives that you can create that is smart enough to substitute for people wanting to do the right thing because it's the right thing. By relying on incentives the way we have, we essentially create an addiction to incentives on the part of people so that they'll only act in a particular way if it's in their interest to do that. The moral dimension of your work as a banker, or teacher, or pretty much anything else simply gets eroded. That was the point of my talk.
Kall: And you talked about the alternative being to celebrate moral exemplars.
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