Economic Principles: Part 2 – Killing Motivation

In the last few weeks, I’ve had numerous discussions involving economic theory ranging from the complex to the mundane. After having six slight variations of every single conversation, I thought I would start documenting them here. And besides, I figured I should actually put my economics minor to use..

In the US, when we talk about tax policy there are two phrases thrown around regularly: “the rich need to pay their fair share” and “after $X how much more does someone really need?” Without going into what might be a “fair share” or what $X might be, let’s look at the underlying reasoning for the second statement.

The people who say this believe that someone who makes 2*$X should be reduced to $X in order to be “fair”. They look only at the dollars without considering the effort that created them. More importantly, they believe that even after they take $X the first time, the person will still be motivated to earn or create 2*$X next time.

My answer is simply “why bother?”

Why would someone work and push and sweat and sacrifice sleep only to lose half of the results? But the same people as above think my response is absurd.

I was reminded of this discussion over the weekend while reading a New York Times story titled “A 45-Story Walkup Beckons the Desperate” about Caracas, Venezuela. In it, there’s a detailed discussion of an abandoned skyscraper which has become filled with squatters with nowhere else to go. About halfway through the story, I came across these paragraphs with a stunning statement [emphasis mine] .

Once one of Latin America’s most developed cities, Caracas now grapples with an acute housing shortage of about 400,000 units, breeding building invasions. In the area around the Tower of David, squatters have occupied 20 other properties, including the Viasa and Radio Continente towers. White elephants occupying the cityscape, like the Sambil shopping mall close to the Tower of David and seized by the government, now house flood victims.

Private construction of housing here has virtually ground to a halt because of fears of government expropriation. The government, hobbled by inefficiency, has built little housing of its own for the poor. The policies toward squatters are also unclear and in flux, effectively allowing many to stay in once empty properties.


That’s right. When someone sees others’ work – either real property or capital – taken by the government, they get nervous. If they see a pattern, they hesitate the next time. If it happens regularly, they don’t just hesitate.. they stop. At that point, the entire system has changed.

These people spend their time and effort doing something else.. potentially somewhere else:Rise of Chávez Sends Venezuelans to Florida“or “Tax refugees staging escape from New York.”