How Free Things Can Destroy Incentives

When food aid was sent to Haiti after it suffered a devastating earthquake in January 2010, it destroyed the local farmers.  They couldn’t compete with free food.

Today, Haiti has one of the highest levels of food insecurity in the world. According to a new Integrated Food Security Phase Classification (IPC) analysis, more than one in three people need urgent food assistance, that is nearly 3.7 million people. Over 1 million people are in a situation classified as emergency. New areas could be in emergency situations in 2020. In short, Haiti has been permanently disabled by the free food sent to it ten years ago.

In the United States, we had a similar situation…. As a result of the U.S. government and states’ reaction to the corona virus pandemic, the CARES Act gave out “free” money. All Unemployment Insurance recipients were eligible for an additional $600 per week, on top of regular benefits, for 39 weeks. This was more than many people earned at their regular jobs. In short, many employers couldn’t compete with the “free” money workers could receive for doing nothing. While some businesses were shut down, others couldn’t find enough help. Shouldn’t we be putting an incentive on “working” rather than “not working?” Wouldn’t the USA be more productive if people worked rather than not working?

This same principle applies elsewhere. Everyplace the U.S. government gives “free” aid, it destroys the incentive and maybe the ability to produce things. Who can compete with free? I never thought I would see the USA destroyed by its own government handouts, but it’s right around the corner….

More handouts are on their way. What else will be destroyed by the “free” money the U.S. government will be passing out? And we didn’t even have an earthquake.

Robert F. Sennholz

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