“The more we reward those things that we can measure, and not reward the things we care about but don’t measure, the more we will distort behavior,” observed Burton Weisbrod, a professor of economics at Northwestern University who was a pioneer in research on the comparative behavior of nonprofit institutions, corporations and government organizations. As Professor Fisman and Mr. Sullivan put it: “If what gets measured is what gets managed, then what gets managed is what gets done.”
Rewarding teachers for how well their students perform on standard math and reading tests will encourage lots of teaching of reading and math, at the expense of other things an education might provide. Private prison operators who bid for government contracts by offering the lowest cost per inmate will most likely focus on cutting costs rather than tightening security. Unsupervised apple pickers who are paid by the apple will probably pick them off the ground.
There are two lessons here. One is to be acutely aware of what you are and are not measuring. The more important, and more subtle point is that it is very important to examine the incentive structure you are creating (the apples analogy above). You will end up with the behavior incentivized by the system you put in place, regardless of how well-intentioned your ideas might have been.
Now consider Social Security and savings rates, subsides for childbirth and the number of poorly planned pregnancies, federal mortgage guarantees and sloppy mortgage practices, or most anything in government for that matter. It's not to say that government is bad, it's just that it requires very thoughtful planning and dynamic responses - two things that aren't very common in a highly polarized society governed by vote counting legislators run by government agencies who do not fear the economic consequences of their actions.
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