How Gov’t Twists Incentives, Forces People to Adapt

Italian houses

By Judge Jim Gray

May 24, 2016—While people must have liberty to make decisions freely, it is also a universal truth that people respond to incentives. For example, when we were traveling in Egypt, we noticed that many people were living on the first and second floors of four-story houses, where the third and fourth floors were still only outlined in rebar. And the reason? Owners are not required to pay property taxes on unfinished houses. So there is an incentive never to finish construction.

Similarly, when we were recently traveling in Italy we noticed that, instead of having real windows, many houses simply had windows painted on the outside of them. And what was the reason for that? Property taxes are computed by the number of actual windows on a house. So painted windows maintain the outside symmetry of the house, but taxes are reduced.

All of this means that government—and everybody else—should always be aware of the incentives they are creating. If we reward laziness and victimization, there will be more of that. And if we penalize success and hard work, we will have less of that.

That is why we libertarians advocate so strongly for keeping the government out of the marketplace. Honest competition and customer choice with computers, cell phones, automobiles and toothpaste have resulted in higher quality and lower-priced products. The same would be true with schools, medicine and even highway maintenance. So the “default setting” on most laws, taxes, regulations and programs should be upon less influence by government in the choices to be made. Why? Because people are much more flexible than governments, and if there is a way to beat the system, most often they will find it.

In other words, incentives matter.

Have you ever changed your mind on a project because of the artificial incentives promoted by government? Share your stories with us!

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