Incentives matter

Here’s a nice paragraph from Arthur Laffer’s opinion piece in the Wall Street Journal today:

Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won’t speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don’t work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.

2 thoughts on “Incentives matter

  1. Indeed, that was a great column today. Though I did cringe when Laffer said to eliminate the minimum-wage in select areas. If his logic is sound (it is), he should call for it everywhere. Though I understand his political angle.

    • I was planning a future post on that. In my company, we test market ideas. Laffer’s suggestion made me think that it would be interesting for government to do the same. Set up a test area without a minimum wage and see how things work. If it works (which I think it would), it might dispel fears. A real-world test is more valuable than a well-reasoned argument. And, if it doesn’t work, we might learn something new in the process as well.

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