Wednesday, January 28, 2009

There's No Such Thing as "Free" Growth

You've probably heard of TANSTAAFL? University of Mississippi economics professor William Shughart explains why there's no so such thing as "free" growth (TNSTAFG):

News that Toyota will delay indefinitely construction of its yet-unfinished North American plant in Blue Springs, Miss., provides further proof, if any is needed, that government should not be in the economic development business. It also makes plain that government "investments" in infrastructure, green technology and other public works, as proposed in President Obama's stimulus package, will be little different than other government spending programs, funneling taxpayer money to favored special interests.

There is no such thing as "free" growth. Even in the rare case where public subsidies actually do attract new business, additional public services will be needed to accommodate the business and its employees. New classrooms will have to be built and new teachers hired, highway budgets will have to be increased to maintain more heavily used roads and bridges, more sanitation workers will be needed, and so on. The extra burden on the public sector needs to be factored in. When the new company has been granted relief from state and local taxes, the higher tax bill falls on existing residents and businesses, possibly destroying as many or more jobs as the politicians pompously credit themselves for creating in the first place.

The truth is: It is not government's function to create jobs. Putting people to work is easy, as demonstrated by FDR's Depression-era Works Progress Administration, more accurately known as "WPA: We Piddle Around." The bigger challenge is to create wealth. Toyota failed to foresee the economic events that caused its expansion plans to unravel.

Keep this in mind when Congress and the White House are selecting economic stimulus projects to fund this year. If highly successful private firms like Toyota - with their extraordinary market research and years of savvy and experience - sometimes embark on projects that turn sour, how can we expect politicians, most of whom have no such business know-how, to pick winners? There is a difference, however. Companies usually risk their own money. In Washington, the politicians will be risking ours.

8 Comments:

At 1/28/2009 9:05 AM, Blogger The Intellectual Redneck said...

You can dig all you want, but there is no pony hiding under the Democrat's stimulus manure pile. There is no pony hiding in the stimulus "pile of manure"

 
At 1/28/2009 9:26 AM, Blogger MattYoung said...

"The truth is: It is not government's function to create jobs. "

Well, to be fair there is a natural federal share and a natural state share of economic sectors. Obama is going way over the natural share.

 
At 1/28/2009 9:46 AM, Blogger wcw said...

I hope so. That is what government does when we are in a recession and monetary policy is hard against the zero lower bound.

My worry is that current plans look much, much too small. I'd be a lot happier with $2.2T than the current $0.8T.

 
At 1/28/2009 10:05 AM, Anonymous Anonymous said...

"I'd be a lot happier with $2.2T than the current $0.8T."

Why not $8T or $9.2T, as long as you're making up numbers?

You should be posting here

 
At 1/28/2009 10:17 AM, Anonymous poor boomer said...

Question:

Should government be in tghe business of 'blight control"?

 
At 1/28/2009 10:49 AM, Blogger 1 said...

"Well, to be fair there is a natural federal share and a natural state share of economic sectors"...

There is?!?!

What part of the US Constitution mandates that?

I see that wcw still can't figure it out: "I hope so. That is what government does when we are in a recession and monetary policy is hard against the zero lower bound"...

Get Over It: New Deal Didn't Do the Job

"My worry is that current plans look much, much too small. I'd be a lot happier with $2.2T than the current $0.8T."...

O.K. are YOU going to cough up YOUR money you are so willing to see the federal government waste?

Can we as a nation where less than 50% of the population actually pay federal income taxes even afford this socialist nonsese at $646,214 Per Government Job

-------------
Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance.

More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.


"Should government be in tghe business of 'blight control"?"...

What sort of blight?

Housing?

Property?

Agrarian?

Actually no, its not the federal government's job to do that...

Let me repeat the question: What part of the US Constitution mandates that?

 
At 1/28/2009 1:44 PM, Anonymous Ian Random said...

I remember a blurb about how proud Portland was to attract a telecommunications company. But if you looked closer it turns out they gave subsidies to get an existing Oregon company to move inside Portland.

 
At 1/28/2009 9:12 PM, Blogger misterjosh said...

If you get $500 from a stimulus, what are you going to do with it? I think I'd put mine in a money market account so that I'll still have it when the gov't eventually asks for it back

 

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