Wednesday, December 22, 2010

Incentives matter

Michael Barone on what the 2010 Census reveals:
The great engine of growth in America is not the Northeast Megalopolis, which was growing faster than average in the mid-20th century, or California, which grew lustily in the succeeding half-century. It is Texas.

Its population grew 21 percent in the past decade, from nearly 21 million to more than 25 million. That was more rapid growth than in any states except for four much smaller ones (Nevada, Arizona, Utah and Idaho).

Texas' diversified economy, business-friendly regulations and low taxes have attracted not only immigrants but substantial inflow from the other 49 states. As a result, the 2010 reapportionment gives Texas four additional House seats. In contrast, California gets no new House seats, for the first time since it was admitted to the Union in 1850.

There's a similar lesson in the fact that Florida gains two seats in the reapportionment and New York loses two.

This leads to a second point, which is that growth tends to be stronger where taxes are lower. Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England.

Altogether, 35 percent of the nation's total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade.
Say it with me: Incentives, incentives, incentives. By far the most important concept I've learned over the past few years of trying to become economically literate is that

Incentives, Not Intentions, Are What Matter.

I really can't stress enough how important this is. Whether it's economics, parenting, crime, or anything else, if you flat out ignore the intentions of a policy, action, or behavior and simply ask What incentives are being created?, you'll begin to understand things in ways you never imagined.

If you reward something, you get more of it; if you penalize something, you get less of it. This is the physics of people. It's like gravity, and it always wins.

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