Wednesday, June 18, 2008

Can Arizona lawmakers spend their way to good times?

The Arizona Republic reports that state lawmakers, including House Speaker Jim Weiers and Rep. Michele Reagan, chairwoman of the House Commerce Committee, have cooked up a "stimulus" scheme aimed at spending massive amounts of taxpayer money on selected projects (and benefiting connected businesses), all in the name of creating jobs and bringing back good economic times.
Reagan, with Weiers' backing, corralled several projects that have been floating around Capitol corridors this year. She believes that, taken together, they can revive the state's moribund economy.

Skeptics, however, question the wisdom of viewing construction jobs as an economic life preserver.

The elements of the still-shifting package are:

• Financing for an entertainment district that developer Dale Jensen would like to create south of downtown Phoenix's baseball stadium and basketball arena. The Legislature would be asked to return to the developer the sales tax paid on the construction expenditures for the district.

• Permission for Pima County officials to seek voter approval for a tourism and sports authority, with taxing power. If approved, the authority would build a new baseball stadium to shore up Tucson's ability to retain spring-training teams from Major League Baseball.

• Expansion of tax credits for research and development, aimed at start-up firms. The amount of credit would be pegged to the level of investment in R&D. Reagan, a longtime proponent of such plans, said such activity is what spurs new jobs and industries.

• Creation of tax credits for companies that manufacture solar components or for solar companies that locate their headquarters in Arizona. Backers, such as the Greater Phoenix Economic Council, say the state lacks the incentives needed to compete with other states that are trying to attract solar companies.

Initial discussions included a university-construction plan in the package, but supporters now say that would be better addressed through budget negotiations.

The university plan would include the completion of the downtown Phoenix medical campus, repair of aging campus buildings statewide and construction of new buildings. The money would come by bonding against state lottery dollars.

It's hard to believe that politicians still believe -- or think that we believe -- that diverting money to well-connected political cronies can actually stimulate the economy. On the assumption that Reagan, Weiers and company are sincere, let's review what Donald J. Boudreaux, chairman of the economics department at George Mason University, wrote in the Christian Science Monitor back in January in criticism of federal stimulus plans.

[S]timulus, however, is futile. Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is newly created.

If it comes from taxes, the value of Jones's stimulus check is offset by the greater taxes paid by Smith, who will then have fewer dollars to spend or invest. If Uncle Sam borrows to pay for the stimulus checks, this borrowing takes money out of the private sector. Any dollars borrowed – whether from foreigners or fellow Americans – for purposes of stimulus would have been spent or invested in other ways were they not loaned to the government.

To put it another way: Robbing Peter to subsidize Paul doesn't actually create more jobs, it just shifts them from where they would have been naturally to where politicians divert the cash -- while padding the pockets of targeted beneficiaries.

There are positive steps that legislators can take, if they're so inclined. Prof. Boudreaux's advice was intended for federal officials, but Arizona lawmakers will find helpful words of wisdom too.

Cutting taxes is, of course, a good thing, but it's important to know why. The goal would not be to increase consumer spending. Instead, it would be to raise the returns on investment and work.

By letting investors and workers keep more of the fruits of their risk-taking, creativity, and efforts, the economy will enjoy more risk-taking, creativity, and effort. Businesses that would otherwise not be started would be created. Likewise with machinery and training that increases worker productivity. Investors worldwide would flock to take advantage of these lower tax rates, further increasing productive investments.

Cutting government spending would result in more of the economy's resources being used by wealth-creating businesses rather than being siphoned away to special-interest groups and boondoggles such as bridges-to-nowhere and Woodstock museums.

"Boondoggles." That's what you call big-dollar projects funded by politicians with taxpayer money that the market would never have produced on its own. There's a reason these schemes get financed by governments instead of politicians -- they're not productive, profitable investments. That points out the reality that projects funded by stimulus plans aren't just diversions of funds from Point A to Point B, they're an inferior use of the money and a net loss to the economy.

The "stimulus" bill won't just fail to help Arizona's economy; it could actually hurt.



Anonymous Anonymous said...

^^ nice blog!! ^@^

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March 19, 2009 1:01 AM  

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