One had stolen a rabbit, another one had felled a tree that belonged to somebody else, and hundreds of them had committed minor acts of larceny. What awaited these desperate people if they were caught in 18th century Britain? Death by hanging, following the national tradition. A national tradition that initially had been alien, since hanging was introduced by illegal immigrants – Angles and Saxons – in the 5th century.
Ten thousand men and women were hanged in Britain in 165 years until 1900. But if murderers and rapists were hanged with no qualms, hanging small-time thieves or political agitators was something judges were increasingly unhappy about: throughout the nineteenth century the number of convicts executed by hanging was half the number of those hanged in 65 years of the 18th century.
On the other hand, giving them shelter and food for some time and then releasing them was viewed as a bad solution, like a vacation following which they would get back to business as usual. How did they solve their problem? With something like “well, since we export tea to Boston, why not export convicts?” It was a doubly felicitous solution in view of labor shortages in the colonies.
Fifty thousand convicts were sent to the colonies in North America. Samuel Johnson, a man in his sixties, said of the Americans: “They are a race of convicts and ought to be content with anything we may allow them short of hanging.”
Until one day, the American settlers had the revolutionary idea of not paying so dearly for their tea. What were they to do with the prisoners now? The British government must have said something like, “What else is the Endeavour good for?”
One hundred and sixty thousand convicts were sent to Australia in the eighty years from 1788 to 1868. But in the first voyages, up to half the convicts were thrown overboard. The hardened captains hired for the voyages, who were paid for each prisoner shipped, justified themselves by saying that if the prisoners arrived ill, there was little they could do to avoid the deadly contagion of typhoid fever and smallpox.
But conditions were subhuman. Once, a sailor said, “Let them die and be damned. The owners have been paid for the passage and if we deliver 150 or 200 of them it will be enough; if we deliver some and don’t go empty handed.”
Now, imagine it’s a job interview and they ask you what you would have done. What would you say? I’ll give you a tip. In 1776, Adam Smith wrote: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”
The British government applied this economic principle and began to hire for results: shippers would be paid for every convict who disembarked in Australia, instead of being paid for every convict who embarked in Great Britain. This opened the eyes of shippers to the benefits of the health and hygiene sciences, and mortality fell to 1.5 percent.
Warren Buffett said: “I could end the deficit in five minutes. You just pass a law that says that any time there’s a deficit of more than three percent of GDP, all sitting members of Congress are ineligible for re-election. Yeah, yeah, now you’ve got the incentives in the right place, right?”
There are ten great ideas we should understand, according to Tyler Cowen. Number 1 is: incentives matter. Remember it when someone asks you why some things in the system do not work as they should.