The Efficient Market for Spite

So here is a story about how a company decided to optimize its access to institutional knowledge by moving that knowledge 8,000 miles away and then charging it by the hour. It did not go as planned, which is to say it went exactly as planned by the laws of incentives. The original poster, a now-retired manager and programmer, was the sort of person who did useful things: he managed projects, wrote code, and, crucially, answered his staff’s questions. This is a form of productivity so deeply embedded that it is often misclassified as ‘management’ rather than what it actually is: a massive, continuous, and uncompensated reduction in collective friction. The company, in a fit of what we must charitably call ‘restructuring,’ replaced him with two managers in India and a new stateside rule: staff could no longer simply ask him questions. Queries for the retired expert now had to be routed through the new overseas managers, who would bill the US department for their time. This creates a very clean, if perverse, economic model. The retired manager’s knowledge is an asset. The company has now attached a direct monetary cost—the hourly rate of the intermediary managers—to accessing that asset. The staff, being rational actors, began to treat this asset like any other costly good: they demanded less of it. They stopped asking. Work stalled. The company, facing the delayed timelines it had so efficiently purchased, was forced to capitulate and pay the retired manager a consulting fee to answer questions directly, sans intermediaries. They optimized themselves into a more expensive, less efficient version of the status quo ante. One might call this the Principle of Bureaucratic Inefficiency, in which the process of eliminating inefficiency itself generates such spectacular new inefficiencies that you pay a premium to return to the original, inefficient state.[^1] The company’s attempt to commoditize a free resource didn’t destroy the resource; it just made everyone aware of its price. And as any good economist will tell you, when the price of a good goes up, the quantity demanded goes down. In the end, the market corrected. The demand for answers found its supply, and the company learned that some forms of friction are actually lubricant. They are now paying their expert a premium for the privilege of ignoring their own policy, which seems efficient, in a ‘for certain values of efficient’ way. [^1]: Not to be confused with the simpler Chewie Principle, named for the commenter who noted the ‘chef’s kiss’ of getting a raise, which states that the optimal outcome often involves being paid more to do the job you were already doing for free.