Antiquated regulations can nudge workers in wrong direction

You win some, you lose some.

This week, the men of the United States national soccer team failed to qualify for the 2018 World Cup. They had one job: Don’t lose their final qualifying match. But they did, to Trinidad and Tobago, a country with a population approximately equal to the state of Maine.

So while American soccer fans hang their heads, the rest of us can take solace in the announcement of the 2017 Nobel Prize winners. Eleven individuals were chosen; 7 of them are from the United States. Regardless of your feelings on the flag or “football,” it is accomplishment around which we can all share some patriotic pride.

The winner of the Nobel Memorial Prize in Economics was Professor Richard Thaler from the University of Chicago. His studies focused on how people make economic decisions. The big takeaway?

Sometimes, we all just need a nudge in the right direction to make a good decision. And sometimes a nudge comes from just making things simple.

University of Chicago Professor Richard Thaler was awarded this year’s Nobel Prize for economics. (Antonio Perez/ Chicago Tribune/TNS)

Every day when we wake up, we are confronted with choices. Do we start the day with high-fiber oatmeal or a greasy breakfast burrito? Go work out or sit on the couch watching television? Put part of our paycheck in a savings account or go buy that next new thing?

In each of those scenarios, we probably can all identify the responsible choice and recognize the temptation poised by the other. But they are choices; the freedom to make our own decisions — even if they aren’t particularly good for us and provided they do not harm others — is one of the greatest attributes of our society.

Yet we recognize some choices are better than others. So, the question arises, how do we incentivize good decisions while ensuring people are free to choose … poorly?

It is a significant challenge, even more so when antiquated government policies start getting involved. For example, is the “right” choice working for yourself or working as an employee? After all, employees have minimum wage laws, the Affordable Care Act’s health care requirements, Social Security and unemployment insurance. The safety net for the self-employed is a bit more threadbare.

The basic model underlying our employment laws — wage and hour rules, employer-sponsored insurance, traditional vacations — is predicated on an outdated definition of what constitutes a “job.” We live in a world where the largest transportation company — Uber — and largest hotel company — Airbnb — own neither cars nor buildings. Meanwhile, government programs seem designed to serve an economy of the 1950s, with large-scale manufacturing making ships, paper, and shoes.

It is time for reform. That’s where Thaler’s insights come into play.

Growing the future economy will require risk taking and nontraditional approaches. Forty years and a gold watch, while wonderful and commendable where it exists, is now the exception rather than the rule. We need to encourage individuals and groups to try new things, be it starting a business, working in the “gig economy,” or transitioning between various types of work throughout the course of a career.

“Nudging” them in that direction will require simplifying our tax, insurance, and welfare systems. Today, a student waiting tables pays 7.65 percent of their income in employment taxes, while they have to pay 15.3 percent if they are doing graphic design for hire. The former counts for unemployment, while the latter doesn’t; they both count for Social Security. But if that student graduates and works as an art teacher? Those years educating children may not be credited towards their Social Security eligibility.

Similar challenges occur on the other side of the economic spectrum. An incoherent safety net “nudges” people back down into poverty. Democrats and Republicans alike recognize a “welfare cliff” exists. If someone dares earn more than some byzantine rule permits, they lose a benefit and end up worse off overall. Exactly the opposite of what anyone would want to see.

Simplicity empowers choice. And with choice, we can unleash individuals to find their own path. That freedom has enabled American creativity to create the largest economy in the world, develop incredible advances in technology and standards of living, and produce over 370 Nobel laureates. It can continue to do so.

But we still lost to Trinidad and Tobago. Maybe we should’ve nudged the ball into the goal once more?

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.