Manipulating people

My mother often advised me to remember that you catch more flies with honey than with vinegar. Whenever my brother and I get together, we exchange stories about how that works in practice.

My alltime favorite from Tom:

An auto assembly plant had 4% no-starts: One car in 25 came off the end of the assembly line but wouldn't run. A large shop existed to diagnose the problems and correct them.

A new manager called in his engineers and announced that in the future, there would be 0 no-starts. The engineers nodded, said they could do that, and what budget was he allocating for it?

Nothing, said the manager. Rebellion: Look, we can correct this but we need an appropriation.

Instead, the new manager had the correction shop moved to the other side of the storage parking lot, meaning somebody had to push the no-starts 100 yards to be fixed.

No-starts dropped to 0.

Today at Bloomberg News, Cass Sunstein has a column on that theme, "How Changing a Form Can Change People's Lives." I recommend reading the whole thing. A sample:

In 2009, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act.  . . .

The CARD Act contains a series of seemingly modest provisions designed to limit credit-card fees. For example, companies are forbidden to impose fees on cardholders who go over their credit limit unless the cardholders agree to “opt in” to authorize that practice. . . .

What is the effect of these provisions? The answer is that they have produced substantial decreases in both over-limit fees and late fees -- thus saving U.S. credit-card users no less than $20.8 billion annually. Notably, cardholders with low credit scores appear to be the biggest beneficiaries.

At this point, every economist will emphasize that there is no such thing as a free lunch. We might speculate that while some consumers are benefiting from the fee limits, others are picking up the tab, perhaps through increases in interest rates, or perhaps by decreases in the availability of credit cards.

But Agarwal and his co-authors are unable to find any such effects.

This should come as no surprise to RtO readers, who may remember my favorite example of free lunch: the opening of the Black Ball Line packet service between Liverpool and North America in 1817, which without spending a farthing released an immense capital that was used to build the Erie Canal which opened the Northwest Territories.

What Sunstein does not address, except by implication, is the undesirable behavior induced by ill-conceived (or sometimes evilly-conceived) design. Oscar Newman and his students at the New York University conducted remarkable experiments showing how crime can be reduced dramatically at no cost (and without arming anybody). His book, "Defensible Space," is on RtO's short list of books that everyone should read, along with "Eyewitness Testimony" by Elizabeth Loftus.

I expect that Obamacare will pay for itself manyfold by the same mechanism, by multiplying the value of America's human capital. It won't be free lunch, but it will be cheap.