Saturday, December 6, 2014

Economic Riddles

“Guilford County will drop from the state's top tier in economic development rankings next year, the N.C. Commerce Department announced last week.

I suppose that's a good thing, because the county will qualify for more economic development assistance from the state for attracting new businesses.” - Doug Clark, Guilford drops in Commerce rankings, Greensboro News and Record, 12/02/2014

Upon further review, “…the county will qualify for more economic development assistance from the state..”, the statement thereof, is incomplete. That is, the state doesn’t have anything to give, be it economic development assistance or otherwise. State can only take from A and give to B. (1)

Therefore, exogenous and local taxpayers, represented by A, will then direct the same or more of their taxes to B. However, B is not a series of all individuals in Guilford County as depicted above by: “the county will qualify”. The many receive zero.

The few, represented by B, receive additional taxpayer dollars. B is actually politicos through the mechanism of government within the political taxing authority known as Guilford County. Hence the more complete statement would be: Guilford County politicos will qualify.

Considering the clarification stated above, one then arrives at: “…for attracting new businesses.” The statement implicitly and explicitly assumes new business is attracted, in the main, by A (taxpayers) giving to B (politicos) that in turn gives to C (new businesses). That somehow, in some way the resources given up by A and the use thereof, creates less economic value than the same resources given to B who then bestows upon C and the use thereof. Surely A must create less than B and C or why else go through the exercise? -Or- is the exercise merely for the benefit of B and C?

Which then leads one to this question: Would A, with tax money in hand, which otherwise would have been taxed for “economic development”, spend such money in a very effective/efficient manner? -Or- does B bestowing to C, by coercively extracting tax from A in the name of “economic development”, spend the same monies in a more effective/efficient manner? Would A create as much or more “economic development” than B and C? (2)

Now coming full circle, if B bestowing to C is in fact the most efficient proposition for “economic development”, and B has been bestowing to C for a very long time, then how did the following come to pass: “Guilford County will drop from the state's top tier in economic development rankings…”??

What if B and C did not exist and merely A was left to its own devices? How about Green Street in Manhattan? Huh?

Green Street was a residential neighborhood in the 1850, became a street with many brothels in the 1870’s, became a garment manufacturing center around 1900 then went into a long demise circa 1920. After World War Two New York City economic development planners wanted to level the area and put in “planned development”. The planners were unsuccessful and around 1990 Green Street rose from the ashes when it became inhabited by artists looking for large square footage work areas (the old garnet manufacturing buildings). The artists then gave way to trendy shops and today “lofts” above the shops sell for several million dollars each. (3)



(1) The Invisible Hand in Economics and Politics, Milton Friedman, Institute of Southeast Asian Studies, 1981, p11.

(2) The Four Ways Money is Spent, Milton Friedman.

(3) The Tyranny of Experts, William Easterly, 2013, pages 175-190.