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My state allows prisoners to reduce their sentence by a certain amount for earning various degrees or taking certain educational programs, so the idea is not completely radical. It's also not like they're being overly generous with the credit time; 48 days/year is enough to be an incentive, but they're not giving away the store.
And while I don't particularly think that reading books makes you a better person, a perhaps unstated goal of this scheme is to help with prisoner management: a prison in which all of the prisoners are quietly reading in their cells is an easy prison to run.
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