“All of economics rests on one simple principle: Changes in incentives influence human behavior in predictable ways”. (Gwartney Page 6) I will bring this topic down to the regular household; savings for example is something families as well as young men and woman often fail to do. We as individuals of a competitive society, are greedy by nature, too often we set short term materialistic goals instead long term ones. We buy when something that attracted us is given at a good price, the savings generated from the purchased will serve as our incentive. Now let’s take a look at starting a saving account, a possible Roth IRA with Bank X, will require the costumer to give a certain portion of his income into a “gambling” opportunity of growth. Even when presented with a possible attractive return on a ten years period the customer might not be as interested as he would be when acquiring a material good, this is simply because there is a present risk of a loss. This risk becomes greater when financial institutions offering services have combined plans involving government policies.
In 2010 several banks in Puerto Rico were closed by the FDIC because the fail to gain the capital given out in loans. The government was offering incentives for house purchases, while simultaneously firing over 30,000 government employees. Multiple construction projects sponsored by the local government took place between 2004 and 2009, offered to be repaid with the returns of the “investment”; hospitals started to expand at the same time, while the government sponsored healthcare system was going on a downfall and the debt towards the hospitals by the government increased. This and multiple other factors led to the crash of the already weak Puerto Rican economy and the loss of millions of dollars of retirement savings accounts. Investors suffer a big blow to their financial stability. In part three it the authors mention: “unless restrained by constitutional rules, legislators will run budget deficits and spend excessively. Because of such actions the economy of Puerto Rico fell; incentive will matter at the time to acquire any type of goods, but the attractiveness of incentives for investors will greatly depend on their ability to predict were or not is feasible to fall for incentives related to government actions at the long term. When the government …“expands excessively and undertakes activities for which it is ill-suited, it undermines economic progress… As a result, expectations are unrealistic and disappointment soon follows”.
This has been the case for the economy in Puerto Rico, a territory of the United States were government involvement is present in almost every aspect, and the incentive of trading and industry is often suppress by the excess of taxation from the government to just initiate a business. The authors mention in page twenty-nine paragraph three that when the government programs destroy goods, squander resources on projects that cost more than the