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)

　

Notes:

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

http://www.amazon.com/invisible-economics-politics-Inaugural-Singapore/dp/9971902222/ref=sr_1_1?s=books&ie=UTF8&qid=1417894534&sr=1-1&keywords=The+Invisible+Hand+in+Economics+and+Politics%2C+Milton+Friedman


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

http://politicalinfographic.blogspot.com/2012/12/the-four-ways-money-can-be-spent-by.html


(3) The Tyranny of Experts, William Easterly, 2013, pages 175-190.
http://www.amazon.com/Tyranny-Experts-Economists-Dictators-Forgotten/dp/0465031250/ref=sr_1_1?s=books&ie=UTF8&qid=1417894686&sr=1-1&keywords=the+tyranny+of+experts+economists+dictators+and+the+forgotten+rights+of+the+poor



　


　

Branding the City State

One might consider that branding a city state, such as Greensboro, NC, by advertising the same city state brand locally, at the price of $35,000, year after year, to the same residents of said city state, is quite ridiculous. That observation would be the “seen”. What about the “unseen”?

Branding the city state is an extension of a zero sum game. A zero sum game, known to power purveyors within the city state and advertised to the same residents of the city state as: “Economic development”.

Economic development, as deployed by directing politicos, through local and state economic development authorities, ends as a zero sum game as locality X merely wins while locality Z loses. The economic pie does not grow, rather one locale gains at the expense of another locale with the economic pie, the size thereof, remaining the same. For instance, building airplanes doesn’t occur in Seattle, Washington, it merely occurs in South Carolina. The same airplane is built, merely in a different locale. Seattle loses and South Carolina wins. But in the aggregate, the economic pie does not grow, rather one locale gains at the expense of another locale.

Moreover, the political exercise of “economic development” is an exercise of picking winners and losers as the exercise favors firm A over firms B - Z within, say, the widget industry. Hence firm A receives special treatment within the universe of widget producers, putting the remaining widget producers at a competitive disadvantage as they did not receive such special benefit. Firms B - Z, the losers, now at a competitive disadvantage to firm A may have to reduce output and consequently reduce inputs such as labor and capital. Firm A, the winner, now at a competitive advantage increases output and consequently inputs such as labor and capital due to their new artificially competitive position, with such increases, occurring at the expense of firms B - Z within the widget industry. Once again the economic pie does not grow, rather, winners gain at the expense of losers.

“Economic” incentives directed by politicos through their quazi-political branch known as economic development authorities must have resources to bestow upon the winners. Since government creates nothing, the resources bestowed must come from the private sector in the form of taxes. Therefore an incremental tax is levied against existing firms and households within locale L, that in turn, after bureaucratic overhead expense, is bestowed upon the winner.

The entire political process of this zero sum game of picking winners and losers through taxpayer funded prizes is framed as a cost/benefit winner. Enter political dupery and nitwitery. The sponsoring politicos through their quazi-political branch known as economic development authorities fashion an economic impact study. An economic impact study, the results thereof, better known to James and Jane Goodfellow as: A wild guess.

The wild guess aka economic impact study is based upon predictive economics which makes many, many assumptions about trends and patterns, none of which may occur. The predictive economics is then dipped in normative economics (the way things ought to be), then a miracle occurs, and the wild guess becomes framed as fact. Positive economics (if this, then these possible outcomes) is thrown out the window as the vast majority of economic impact studies fail to present the counterfactual. The counterfactual being: If the incremental tax levied, which represents the prize bestowed, never occurred, would the now non-taxed firms and households with additional resources available have created as much or more “economic impact”?

Returning to the proposition of branding the city state as an extension of a zero sum game: Is the branding merely an attempt to brand the city state’s economic development activity as a positive game? Stated alternatively, one takes a zero sum game, paints a smiley face on such, in a grand attempt to present the zero sum game as a happy little positive exploit. Hence the “brand” is no more than the city state’s particular brand of zero sum. One’s happy face “brand” might be that of aviation, internet service providers, biotech, green energy and so on. But in the end corporate welfare is not a happy face.