Incentives In Greensboro: Part 33: How We Spend Money

This is part of my ongoing series, Incentives In Greensboro, where I delve into the history, the problems and the solutions to using economic incentives to

I recently wrote the following about a well known Keynesian economist who has long had a very big hand in Greensboro's economic development:

"It's not the fact that's he's a Keynesian disciple that bothers me insomuch as it is he appears to be a Keynesian disciple on the take. Which, by the way, is completely contrary to true Keynesian Economic Theory but apparently central to Keynesian Economic Practice."

And no, I wasn't talking about Dr Andrew Brod of the Bryan School of Business & Economics at UNCG. I had to write that lest someone accuse me of taking shots at Dr Brod, which, by the way, I have been known to do on occasion and him, me.

The fact is there are probably some good things we can take away from Keynesian economic theory just as we can the theory of Keynesian critic, Milton Friedman who is credited with the following 4 Ways Money Is Spent:

"The first and most common way in the private sector is people spending their own money on themselves. In this case, the buyer is interested in both quality (the best product or service that he can afford) and value (getting it at the best price) because he is both the producer of the wealth being spent and the consumer of the good or service being procured.

The second way is when people spend their own money on others (such as gifts). Here they are still concerned about value (it's their money), but less concerned about service quality as they are not the consumer.

The third way is spending other people's money on yourself. Think of the rich man's girlfriend who buys herself the nicest dresses in the store on his credit card without even looking at the tag. She wants quality, but value is irrelevant since she sacrifices nothing.

The fourth way is when people spend other people's money on other people. In this case, the buyer has no rational interest in either value or quality. Government always and necessarily spends money in this fourth way. This guarantees inefficient public spending because the spenders have no vested interest in efficiently allocating those funds."

Given enough time I've little doubt I could find something to criticize about the economic theory of John Maynard Keynes or Milton Friedman but there's little doubt that Mr Friedman's forth way of spending money, when it comes to governments, is absolutely correct. History has proven this to be true. So, in effect, less public spending leads to more efficient government.

The problem lies in the fact that some public spending is of absolute necessity. We cannot get around it. Otherwise, why have government at all? Governments have to fund infrastructure and unless you want to live in a monarchy or a communist dictatorship where government owns everything then sometimes, like it or not,  government must offer incentives to business so that business will provide infrastructure government cannot do efficiently.

But allow me to be clear, what I'm talking about isn't the same thing as the so-called public-private partnerships where government perpetually funds non profits like Downtown Greensboro Incorporated. That my friends, is thinly veiled crony capitalism, government give-a-way, corporate welfare if there ever was. The difference between Greensboro's funding model for DGI and a true incentive package is that incentive packages eventually end. That is, unless you happen to be running a railroad as I spoke of in Incentives In Greensboro Part 24: Setting The Record Straight, in which case the Federal government will probably be paying you incentives forever.

Most folks think I'm crazy to take on a city alone but even I'm not crazy enough to take on the railroads. Besides, no one in Greensboro is running any railroads.

In that same post I mentioned a public Information request I made to the City of Greensboro:

"There are times when it is necessary to give incentives to private companies to provide the necessary infrastructure to grow the economy and provide services necessary to society that private industry might not have the capital to provide. Building a bigger tax base is not one of those necessities. As a matter of fact, the City of Greensboro is unable to provide any evidence that building a bigger tax base actually benefits the community overall. I challenge the Greensboro City Council and City Staff to show us proof that increasing Greensboro's tax base actually benefits the community overall."

This past Thursday I met with members of the City's economic development staff. Roch Smith Jr was correct when he told me it was unfair to demand that City Staff justify the actions of Council. I wish I had saved the e-mail where Roch told me so because it was unfair and I knew it all along. I also knew it couldn't be done. But dammit I was going to prove a point and prove it I did. While city staff did an excellent job of explaining many things to me they were in the end unable to meet my challenge just as any city in America would be unable if asked to do the same.

After decades of doing economic development in exactly the same way in cities all over the nation, economic development "gurus" and politicians nationwide-- not just in Greensboro-- are coming face to face with blue collar working class citizens who have figured out that what they've been sold for all these years be it under Keynesian or Friedman banners just isn't working. Articles like New Jersey’s Economic Development Incentives Face Scrutiny with Christie Administration can be found every single day.

And this isn't a Liberal vs Conservative issue either-- both sides are up in arms, both sides agree, "A coalition of progressive economic groups are demanding increased accountability in the state’s business subsidy programs..."  and from Conservative Read, The Bitter Pill of Failed State Tax Incentives.

You see, I could have just as easily wrote Friedman everywhere I wrote Keynesian and the meaning still wouldn't change.

"It's not the fact that's he's a Keynesian Friedman disciple that bothers me insomuch as it is he appears to be a Keynesian Friedman disciple on the take. Which, by the way, is completely contrary to true Keynesian Friedman Economic Theory but apparently central to Keynesian Friedman Economic Practice."

It really is time to put Greensboro in a different light:

"What Greensboro needs most of all is a local jobs program that focuses on the long term unemployed, builds small, locally owned businesses and supports existing locally owned small businesses-- an infrastructure designed to jump start the local economy from the bottom up instead of from the top down."

I'm happy to announce there are some on Greensboro City Council who have already told me they want to do just that. Let's find out how many are ready for a change for the better and see if they have the courage and political will to make it happen.

And if they don't I plan to invest heavily in pitch forks and pitch (grease) for torches. Don't tell me I don't know how to profit from political upheaval. 

 Please continue reading Incentives In Greensboro: Part 34: Laying Down New Rules.