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.