From Chapter 13

The Power of Incentives

Let’s face it … economics is boring, confusing, frustrating, and intimidating in the hands of an amateur. It is even worse in the hands of a professional. I came across a four-word definition for economics that is perfect—people respond to incentives.

Free enterprise and capitalism are not perfect—but they are the best systems in the world. You have an incentive in a free enterprise economy to work hard, to work smart, to work late if necessary, to save and invest wisely, to help your kids get a good education.

Everything we do in a free enterprise economy is incentive and reward based—that is why it works.

Communism—socialism—these offer very few incentives. Think about it. Fifty years ago, half the world was under communistic control in its purest form. Now that number is mere handfuls.

Winston Churchill said it best, “The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries.”

People respond to incentives.