When Bad Social Practices Drive Out Good

Why it’s getting harder to do the right thing — whether hiring legally, waiting for sex, or running for office — as bad social practices take over.

In economics, Gresham’s Law is that “bad money drives out good.”

What this means is that if there are multiple forms of currency with the same nominal value but different actual values, people will hoard the valuable form and spend the less valuable form.

We have actually seen this phenomenon in the United States. Up until 1965, our silver dimes and quarters used to contain actual silver. Since then, they contain no silver. Hence, you almost never see a pre-1965 quarter or dime in circulation. (If you ever get one - save it!)

The same general idea applies to other social concepts as well. We often see situations in which bad social practices starting driving out good.

My wife came across a great example of this recently. She’s still a member of Upper West Side moms social media groups. Recently someone in one of those groups posted asking for help for a problem. She and her husband wanted to hire a nanny, and they wanted to do it right by paying the person on the books, pay taxes, etc. They were willing to pay more to do this right, but even when offering the same net pay as with a cash under the table deal, no prospective nannies were willing to actually work on the books.

Essentially, even for the rare people who want to do the right thing and follow all the rules, it’s difficult to do so because other participants in the market do not want to.

Labor practices are a good example here. Once a critical mass of firms in an industry start hiring illegals at scale, others are almost forced to do so in order to remain competitive. Then legal workers rightly decide to avoid that line of work because the compensation is being set by the marginal illegal worker, which entrenches illegal labor even more.

Another example people like to use is premarital sex. There used to be at least some barriers for men to obtain it. Now that premarital sex is completely legitimized, and out-of-wedlock births fully preventable, it’s more or less expected that people who are dating will have sex relatively soon within the relationship - as early as the first date in many cases.

In this environment, it’s more difficult for women who may not want to have pre-marital sex, or even just to wait a while to ensure they have an actual relationship with the man before having sex with him, to decline to do so. Most men today are simply not willing to date a woman on that basis, so women who refuse to provide sex find their potential dating pool shrinks significantly.

In practice, this might not affect the average woman all that much. That minority of women who do want to avoid pre-marital sex are likely doing so for religious reasons, and thus only want to date men from that smaller pool of other similarly religious people anyway.

But some reports suggest similar things are happing to sexual practices under the influence of pornography. There’s perhaps a greater expectation that younger women will engage in degrading sexual acts that men see in porn. If a large enough pool of women do start performing them, then those who decline to do so will see their dating prospects shrink significantly, putting pressure on them to get into the game.

And of course, given the widespread consumption of pornography today, women don’t have a lot of dating market leverage to insist that men who want to date them don’t watch it.

Another one we see in progress is soaring rates of disability accommodation claims. Substantial percentages - 30% or more in some cases - of students at elite universities are receiving accommodations for a claimed disability. They are getting things like extra time to take tests. You can easily see how this would benefit their competitive standing academically. So people who don’t claim to suffer from anxiety or some such in order to level the playing field are putting themselves at a disadvantage.

It strikes me that in cases of this nature, it’s unlikely there will be that many people who simply refuse to play the game on principle.

Politics and our institutions also suffer from these dynamics. Look at how dysfunctional our political system is, and how shamelessly you have to behave in order to succeed within it. No surprise, most of the high-minded, public-spirited people of good character that we might want in politics take a look at this and decide to stay out of it. This, of course, only makes politics even more of a circus. (Frankly, it’s amazing how many decent people still decide to get involved in politics these days, given the current conditions).

Similarly, we all know that our society would be better if we had functional, trusted institutions. But we are far from that point. Hence the rational move from an individual perspective in many cases is to adopt a strategy of insulation. You exit from institutions and structure your life to buffer yourself against institutional failure. This causes institutional trust and performance to decline further.

We have been seeing this with public schools in many cases. In some places, the primary public school district is in a slow motion collapse, as everyone who can gets out.

Or think about geographic political segregation. Everybody knows we are better off with competitive elections, but people are moving to jurisdictions where others share their politics. This “big sort” phenomenon has led to a number of one party cities, counties, and states, with the bad governance outcomes you’d expect.

It seems to me that there are quite a number of areas in our society where we’ve been caught in this sort of spiral where bad practices are driving out good.

The good news is that it doesn’t have to be this way. Sometimes, good practices drive out bad.

The most famous case here is probably Henry Ford’s $5 a day wage. By paying more than other car makers, he secured a quality labor force and reduced turnover. This also led to workers being able to afford the cars they were producing. Competitors had to level up their labor practices.

Very often, a competitive market will produce this dynamic from a customer perspective, as improvements from one provider pressure others to adopt them in order to stay competitive. That’s why many of our consumer products have gotten better.

We obviously want to have more of this dynamic.

Gresham’s Law is an important concept to keep in mind when assessing the world. We have to recognize when we are dealing with a situation where bad practices are driving out good. If we don’t understand that dynamic at work, and take actions that will fundamentally disrupt it, then our solutions to various negative things we see are likely to fall short of what’s needed because they don’t address the underlying incentive structures at play.