Aligning incentives.

Warren Buffett, before his Alzheimer’s set in, before his willful ignorance became so unbearably pronounced, and before he became a USG pawn,i was one of the great minds in American business.

His track record at the helm of investment firm Berkshire Hathaway was no accident. A poker hand can be a fluke, but not continued success, that’s talent. His ability to discern strong people running strong businesses, particularly in ‘unsexy’ markets and within a swamp of USians, has made him something of a living legend. Even if this status is now used and abused by the fucktarded mainstream media, his legacy of letters to his shareholders, particularly the 20th century notes, are worth a glance for both the investor and the student of anthropology.

All of which brings us to the matter of incentives : that which determines all that you do as a human, that which makes you choose seppuku over losing face, earning your firm a larger profit over slacking off, and dating a girl before letting her bear your children. Without incentives, society, much less economics, cannot function, much less thrive. Just ask the Soviets.ii Just ask their descendents in the “first world.” Living wage be damned. “No one should starve” idem. There can be nothing good in this world without a fiery hunger in the bellies of all. That’s what motivates, that’s what incentivises.

Incentives, in essence, are the conventions and structures that two or more parties agree upon with the intention of encouraging a range of behaviours that benefit all parties. Broadly speaking, incentives fall into two categorical types that you’ll already be familiar with : carrots and sticks. These need little more explanation, but their application to both business and statecraft is what interests here today and what’s worth exploring with a few quotes.

First, Buffett on incentives in business, from his 1991 shareholder letter :

A distinguishing characteristic of H. H. Brown is one of the most unusual compensation systems I’ve encountered – but one that warms my heart: A number of key managers are paid an annual salary of $7,800,iii to which is added a designated percentage of the profits of the company after these are reduced by a charge for capital employed. These managers therefore truly stand in the shoes of owners. In contrast, most managers talk the talk but don’t walk the walk, choosing instead to employ compensation systems that are long on carrots but short on sticks (and that almost invariably treat equity capital as if it were cost-free). The arrangement at Brown, in any case, has served both the company and its managers exceptionally well, which should be no surprise: Managers eager to bet heavily on their abilities usually have plenty of ability to bet on.

Talk about skin in the game, talk about putting your money where your mouth is, talk about aligning incentives with performance ! This, incidentally, is also what I find so elegant about Bitcoin, so sonorous a sound that I have to be tied to my ship’s mast lest I steer her ashore.

Not only do a brilliant concatenation of incentives ensure that mining Bitcoin is more +EV than mining any pretender, but the incentives also ensure that La Serenissima, Bitcoin’s sovereign, can run deficits that would make a fiat budget office cry with money-coloured envy. How so ?

From MP and his recent treatise on incentives in political organisations, The definitive sovereign :

La Serenissima runs a budget. Exactly like some extant pretenders to sovereignity (notably, countries in Africa and the United States of America) it does not actually publish a budget. Exactly like all pretenders ever known, La Serenissima runs a deficit. Unlike all those pretenders, its deficit is monstrous, and especially so on a percentile basis – most recently estimated by people familiar with the matter at a whopping 5`798`796`857`967`496`834% (that’s five quintillion seven hundred and ninety-eight quadrillion seven hundred and ninety-six trillion eight hundred and fifty-seven billion nine hundred and sixty-seven million four hundred and ninety-six thousand eight hundred thirty-four percent). This fabulous deficit greatly exceeds the deficits of any currently seen or historically attested sovereign pretenders, but experts concur it is in no sense unsustainable. In fact, while even minute percentual increases in other pretenders’ deficits can sink the pretender in question, La Serenissima could readily double its deficit, or for that matter increase it twenty billion fold without ill effect.

This difference – like every other – lies in the problems coercion induces in economy. To wit : a state which attempts to build itself on the unwilling work of slaves has to maintain order and put down slave rebellions. This will necessarily shape institutions in certain ways, and model everyday life accordingly – for instance, the uneasy feeling one gets among people unlike himself is a direct result of the historical tendency to run states on the (consensus-supported, by the way) slave model. If one’s going to try and force those who don’t look like him into slavery, and then try to build a state on unwilling slave labour, that someone’d better make damned sure he’s never alone in a large enough group of different-looking people.

A state built on coercitive taxation will have to satisfy fundamentally very similar constraints – nobody works for it willingly, and consequently its ability to get things done is strictly limited by its ability to beg, embezzle and steal. As its ability to beg dwindles, it moves to embezzlement, but should there be a shortfall it has to steal. It has to, its “power” such as it is and the entirety of its pretense rely on being backed by theft, much like a bully’s pretense to relevance in the schoolyard is backed by violence. A bully unwilling to escalate violence is exactly like a USG unwilling to steal : they dissolve overnight.

And how is this vast difference between organisations possible ? How is it that the USG, what with its infinite printing presses of first! best! biggest! nation in all of history, can’t dangle a sufficiently large carrot to buy the loyalty of competent people ? How is it that they end up with the dregs, the sewer slime, the USGavins of the world ? Because,  as MP points out in a complementary piece, money can buy hookers and blow, but it can’t buy a competent man’s soul :

But it’s not money, now is it. Not all the money in the world could compensate for proper training, for that proper placement of heart and mind that wins battles. Battles, plural, with a view towards “any”. No abundance of materiel can make a bunch of ADD-addled transvestite videogamers win a war, because wars are won by actual men, as wars always have been won by men. War never changes, and ADD, transvestitism and escapism are each individually great negative predictors of manhood. (And speaking of which…)

So no, the current USG can never pay the people that are any good enough. Ever. No matter how much it borrows and spends, never could it have enough.

And now, ask yourself : how much does your enemy have to pay you to convince you to work for him ?

It can be done, right ? It’s not that hard, really. Ah, but how much does your enemy have to pay you to be able to rely on you in his hour of need ? That one time when you can just drive a length of steel through his heart and walk away, how much ? How much would it have to pay you today so that when judgement finally comes, and it is sent to hell for being outright evil, how much would you take to go down with it then, for fellowship ? How much does your enemy have to pay you for you to love him ?

Different questions altogether. Evil can never be loved, and for this reason patriotism is such a sore word in the modern festering pustule occupying what was once the civilised world. Consequently, most people with any self awareness and self respect wouldn’t work for the USG any more than they’d want two cocks probing their rectum, and when they do work for it they feel thus used. The minority without either self awareness or self respect isn’t going to be very competent by the very implication of what these things mean : one can’t ever get all that good at anything absent self awareness or self respect.

That’s what incentives are and that’s what they do : they’re the thermodynamic conditions along which people act. Whether you like the thermodynamics or not, whether you agree with them or not, to the extent that they exist, you must choose the path of least resistance.iv

For people of ability and self-awareness, this means La Serenissima. For the rest… well, what rest ?

___ ___ ___

  1. Why the fuck else would he dump so much money into car dealerships ? Really, of all the non-stamp, non-boring, and increasingly obsolete businesses… []
  2. “You pretend to pay me, I pretend to work.” []
  3. For perspective, keep in mind that H. H. Brown’s key managers were being paid less than half the median wage for US men with less than 9th grade education, the lowest paid group for which statistics are available ! []
  4. Even if it feels like it’s the path of most resistance, your feelings aren’t to be trusted. []

5 thoughts on “Aligning incentives.

  1. […] This is, of course, utter and patent nonsense. Lives are at best worth a bitcent, pain can be very motivating, and large nation states as we know them today are Godzillas who wreck everything they touch. This […]

  2. […] and expose it for the contrived perversion that it is. Isn’t it incredible what can happen when incentives are aligned […]

  3. […] not always, not for most people extant – do something productive. Being productive, however, requires that there be incentive to do so. This entails reward, which is then offset by risk in those little olde social experiments called […]

  4. […] To the extent that a republic of one might be a bit too serene, it makes sense to use “bot slots”ii as a lasso with which to retain the best of the best, much in the way MPEx uses share issuances or stock warrants as a financial reward bound by contractual agreement, and similarly in the way that The Lordship List is used as a social feedback reward bound by honour. […]

  5. […] Of course, behind the scenes, is Proctor & Gamble, which is to say, that senile old limp-dick from Omaha. “Just giving the people what they want.” shinohai: People don’t know “what […]

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