applies to them. beyond that kind of unavoidable focus on narrow compliance, however, management and line employees are more likely to adopt a mere compliance mentality where regulations appear to them to have been poorly drafted or implemented. sometimes this too is unavoidable, since regulators may simply conclude that the public interest requires a form of regulation opposed by the firm and most of its employees. sometimes regulated firms are really complaining about the type or purpose of regulation, even when they say they are only criticizing its specifics. but in cases where those inside a firm would stipulate the stated objective of the regulation and still find a regulation badly conceived or implemented, there will be less possibility of internalization or integration into a broader set of firm norms and expectations. this is an outcome that regulators can avoid, and something with which the regulated firms themselves can assist by pointing out what they would regard as more sensible methods for achieving stated regulatory purposes. rewards and punishments an important determinant of behavior in any organization is the system of rewards and punishments applicable to its employees. assuming that they are able to discern factors that generally explain patterns of hiring, raises, promotions, demotions, and dismissals, employees receive very strong signals as to what those running the organization actually value. this set of signals has, i suspect, considerably more influence on employee behavior than a corporate statement of values or purposes, particularly if the system of rewards and punishments appears at odds with that statement. indeed, the significance of reward and punishment signals is probably magnified by their role in shaping the composition of the firm ’ s workforce – by influencing which people are attracted to work at the firm in the first place, which acquire more authority over time, and which are asked to leave. to take one example : if a financial firm ’ s recruitment of young professionals is driven almost entirely by promises of the large amounts of money they can make and the speed with which they can make it, then the firm should not be too surprised when those same young professionals give short shrift to values such as respect for customers, or skirt risk - management guidelines, or perhaps even ignore regulatory and legal compliance requirements. one topic within this broader area of reward and punishment that has received considerable attention is incentive compensation. the deleterious effects of many incentive compensation arrangements were recognized by firms well before regulators began to focus on them in earnest following the financial crisis, as reflected in a survey conducted early in 2009 on behalf of the institute of international finance,

costs. collecting revenues through a more efficient, better - designed tax system could improve economic growth and make achieving sustainable fiscal policies at least somewhat easier. likewise, many federal spending programs doubtless could be reformed to achieve their stated objectives more effectively and at lower cost. certainly, continued efforts to reduce health - care costs and government health spending, while continuing to ensure appropriate care for those who need it, should be a top priority. failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks. in the short run, as i have noted, concerns and uncertainty about exploding future deficits could make households, businesses, and investors more cautious about spending, capital investment, and hiring. in the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth. larger government deficits increase our reliance on foreign lenders, all else being equal, implying that the share of u. s. national income devoted to paying interest to foreign investors will increase over time. income paid to foreign investors is not available for domestic consumption or investment. and an increasingly large cost of servicing a growing national debt means that the adjustments, see international monetary fund ( 2010 ), navigating the fiscal challenges ahead, imf fiscal monitor series ( washington : imf, may ). for example, see neil howe and richard jackson ( 2003 ), the 2003 aging vulnerability index ( washington : center for strategic and international studies and watson wyatt worldwide, march ). see herbert stein ( 1997 ), “ herb stein ’ s unfamiliar quotations, ” slate, may 16, www. slate. com / id / 2561. when they come, could be sharp and disruptive. for example, large tax increases that might be imposed to cover the rising interest on the debt would slow potential growth by reducing incentives to work, save, hire, and invest. finally, a large federal debt decreases the flexibility of policymakers to temporarily increase spending as needed to address future emergencies, such as recessions, wars, or natural disasters. it would be difficult to identify a specific threshold at which federal debt begins to pose more substantial costs and risks to the nation ’ s economy. perhaps no bright line exists ; the costs and risks may grow more or less continuously as the federal debt rises. what we do know, however, is that the threat to our economy is real and growing, which should be sufficient