act 22 puerto rico – an unlikely call to action

I’m seeing more and more sometimes heated discussion around whether Act 20 and 22 are “good” for Puerto Rico or not. There’s little use in me jumping into these debates because I don’t share many of the unquestioned premises underlying these exchanges. Further, trying to explain on a social media platform would likely be futile. This is part of the reason why I have resisted writing this post for so long. Nevertheless, I’ve become convinced it was worth sharing my thoughts because some may find this perspective provides clarity and be incredibly empowering.

One premise I take issue with that’s underlying many of the discussions around these acts, would be the naive assumption that “government passes laws to benefit the people it represents”. I won’t argue whether this should be the case or not. Rather, I question whether this foregone conclusion reliably matches reality.

rational self-interest

Here’s a more realistic and therefore useful way to think about this; every individual and organization is motivated by self-interest. In general, this is perfectly fine. In fact, my antenna goes up whenever I see someone pressuring someone else to do something that goes against their self-interest. I’m unable to come up with a scenario where this would ever be a good thing.

Rational self-interest is moral; it’s the principle that drives a free market economy along with the countless blessings that come with it. Those that solve problems and create products valued by others are financially rewarded for their efforts, making it in their self-interest to continue to look for ways to serve.

Beyond commerce, voluntary benevolence provides donors of time and money a sense of satisfaction for advancing a cause they believe in. This rush of endorphins often prompts additional and perhaps ongoing contributions. In other words, self-interest, free of coercion, gives rise to voluntary win-win exchanges.

the state – a different kind of player

Since government is comprised of human beings, it’s collectively and individually driven by self-interest like the rest of us. Unlike us, however, it has the power to impose win-lose transactions. This is such an important distinction let me state it another way; the government alone can legally use force.

In theory, the reason that government is entrusted with this special privilege is because it acts not for the enrichment of itself, but to champion the best interests of its constituents.

The reality is the power of coercion is corrupting. A prime example is the ability to take money from one group via taxes and hand it to another. With this power, government can pick winners and losers in the market, overriding the preferences of consumers. The more money and power is centralized under their control, the more time and energy is diverted away from productive activities to lobbying and currying their favor. Is it any wonder that, in general, politicians suffer from over-sized self-importance and massive egos! Again, these are human beings, driven by self-interest like the rest of us.

(As an aside, this is why the most effective method for reducing corruption in government is by reducing its role in society, and thereby, the amount of money and power under its control. Petitioning government to “do something” has exactly the opposite effect.)

Given this understanding, we can then critically examine government action through a more realistic lens. Suddenly all the “stupid laws” make a bit more sense and the endless scandals don’t seem so surprising.

how I think about laws

So what is in the self-interest of the average politician or government bureaucrat? Obviously, it’s impossible to know with certainty but we can attempt to piece together some useful generalizations.

For government as a whole, it’s absolutely critical to maintain the veneer that the institution exists solely to advance the best interests of the public. This is the only way they can justify the special privileges they enjoy. For politicians specifically, appearing to care and do good is important. Not only will this help maintain overall government legitimacy, but can also enhance their odds of being reelected and securing lucrative book deals and speaking fees after office. For government bureaucrats, my guess is they are most concerned with making sure their job and department budgets don’t get cut.

Obviously, this is not a deep dive into all the many motivations at play, but rather, just a starting place to help you start thinking along these lines. Again, the bottom line is that the primary motivation of the individuals in government is self-interest. Whether you find a law favorable or unfavorable to your situation is pretty much completely beside the point. Realistically, you can’t change this. Therefore, it is completely rational (and moral) to examine this hodgepodge of laws with an eye towards what is best for you and your family.

Contrary to what is often implied in religion and politics, you have no moral obligation to be a martyr; sacrificing yourself to others. Look out for your best interests by pursuing voluntary, win-win exchanges with others. Furthermore, encourage everyone you come into contact with to do the same.

Given this backdrop, you can see that debating the specifics of why Act 20 and 22 were passed is not all that interesting to me. Apparently, enough politicians at the time felt like it was in their self-interest to push these laws through. I’m guessing they must’ve been pretty desperate at the time. Now, it seems that the winds have shifted and it’s in the self-interest of an increasing number of politicians to abolish these acts, so it wouldn’t surprise me if that’s exactly what happens.

act 22 puerto rico – an unlikely call to action

In our case, Act 22 put Puerto Rico on my radar at a time in my life where I felt trapped at a “good” corporate job. I was not a trader. I had no capital gains. Nevertheless, as silly as it sounds in retrospect, Act 22 gave me the courage to strike out on my own. (literally, it turned out!)

I took trading classes online and read everything I could about the markets. Then, I quit my job and moved to Puerto Rico to try day-trading for a living. This little experiment flopped right from the start, but I managed to limp along for little over a year before I was forced to admit defeat. It turns out that 0% tax on capital gains isn’t all that helpful when all you have are losses!

A couple of years on I pay the bills, not with trading profits, but with an Act 20 consultancy, doing pretty much what I was doing at my corporate IT job. The difference now is I start most mornings surfing or paddle-boarding at the beach in front of my condo before settling down at my computer for a day of work.

The comfortable albeit sterile life we lived in the states cannot compare to the vast richness of experience our family is afforded here. We are perhaps living as close to our dream as we ever have, and could never have predicted the crooked path that ultimately led us here.

Act 22 has so far provided me with absolutely no tangible financial benefit. Nevertheless, this law, passed by self-interested politicians, will always have a special place in my story. It provided me with the impetus to take action, which is priceless.

If you are unhappy with where you are in life like I was in my cubicle, take heart. Most likely you have many more options than you realize and the opportunity to create even more for yourself. Whether a class, apprenticeship, job offer, or something as mundane as a tax incentive, look for any excuse you can to take action and make a change!