It's the Politics, Stupid

Writing in the Dec. 13 New Yorker, James Surowiecki ("It Pays to Stay"; no link to the article available) spells out his concerns over local governments competing for (awarding tax breaks to) employers to stay or settle locally. He cites an academic study by Enrico Moretti (UCLA) and Michael Greenstone (MIT) that shows cities that won the compeititve bidding for jobs did experince some tax revenue and property value benefits.

Surowiecki is unhappy, however, "because the tax money spent on corporate welfare could otherwise go to more productive uses, such as education and infrastructure."

Well it could. But we have no reason to think that governments routinely channel expenditures to productive uses. Also, Surowiecki does not offer a comparison of the costs and benefits of the case he describes (Daimler-Chrysler being induced to remain in Toledo). In fact, the very complex incidence of money spent by the City (away from "productive" or whatever uses) vs the gains in local jobs and tax revenues and land values (with some gains going to Daimler-Chrysler's stockholders, customers, perhaps also some managers) substitutes one redistribution for the one that had been in place in Toledo previously.

In many cases, there are no complete contracts, causing occasional conflicts. Likewise, in many cases, there are no complete cost-benefit studies. This causes more heartburn.

As in yesterday's post, the bottom line is that with a wider scope for politics, we get more such conflicts. A narrower scope for politics and politicians is the only alternative. Some people will forever be chasing the chimera of better government. This shields them from the idea that the only option is less government.