- Dec 26, 2009
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How significant is incentive to an economic system?
Incentive is huge in a capitalistic system. Assuming that most folks want to be materially successful, and given that hard/good/smart work is highly correlated with being materially successful, incentive is key. This in contrast to a Communistic system where it makes little difference in outcome whether you're a hard/good/smart worker or not. (And not just Communism, but even employment segments in the US.)
Is this a trick question?
One of the best incentives for new business creation, and hiring of workers, is to separate health insurance from employment. Startups would flourish if businesses were not expected to provide health benefits. Individuals must be able to purchase affordable health insurance for themselves--that can't be taken away if they change jobs, and can't be refused or astronomically priced if their health, or a family member's health is poor. Some version of a mandatory one-payer system is the cheapest and most efficient way to do this. Virtually every businessman in the country will support an arrangement that frees them from the burden of being health insurance providers.
You seem to have mistaken the absence of a disincentive for an incentive.
I sincerely want to know your opinion on what roll incentive plays in any economic plan.
My point is that it's sensible to remove obstacles first. Imagine a man has to climb a ladder. But he's chained to a 50 lb weight. What's the best way to help him? We can harness him to a block and tackle rig and give him some extra lift. But isn't it more rational just to unchain him from that deadweight?
Do you contend that the absence of dis-incentives is, in an of itself, an incentive?
If so, we are talking past each other as to the meaning of "incentive".
At least on the surface, it seems that most of what are currently called business incentives are structured to eliminate, or mitigate an expense. I'll call these cost reduction incentives. Someone mentioned tax credits for new hires. Any such incentive that lessens a cost of doing business--like paying taxes--in essence is removing a disincentive. Accelerated depreciation is an example. All of what Republicans have proposed to help business--regulatory relief, tort reform, fair international currency valuation, etc.--are really the same.
Offhand, I can think of 2 incentives that bring more money into a business. I'll call these revenue generation incentives. Direct subsidies are one. The other is patent and copyright protection. There are likely more I can't think of.
Both cost reduction and revenue generation incentives are helpful for individual businesses, but there's an important difference. Theoretically, cost reduction measures should lower prices for consumers. Whereas revenue generation can lead to increased prices. Government subsidies to certain industries also are much more of a distortion of the free market.
So, in a nutshell, I'd say that removing a disincentive (by cost reduction) is an incentive. And generally, that is more beneficial to consumers than incentives which directly increase business revenue.
Edited to add: just remembered another type of incentive that helps business generate revenue--import tariffs. Which also increases prices.