Always eager to strut their importance to the public, politicians like to involve themselves in economic development by “investing” in businesses that will, supposedly, bring prosperity to places that lack it.
Maybe there are some politicians somewhere who decline to play this game, but they’re few and far between. It’s such a no-brainer to take credit for whatever benefits might come about and ignore the costs.
In this AIER article, Duke professor Michael Munger analyzes the matter and concludes that we’d be much better off if the politicians would avoid this temptation.
Writing in response to a plan in North Carolina to create an investment fund, Munger observes, “Any government spending of those funds, then, has hidden costs. To bureaucrats, all government spending is a benefit. But that’s just the ‘Broken Window Fallacy,’ which looks only to the people or organizations who receive the ‘new’ money, not to those from whom the wealth was taken. In this case, the budget ‘surplus’ simply means that North Carolina is taking in far more money in taxes than it is spending on programs.”
Of course it’s true that there are parts of N.C. where there has been relatively less economic growth than in others, but that’s no reason for politicians to risk the money they’ve taken from taxpayers on schemes to boost the areas lagging behind.
North Carolina is not lacking for examples of government-sponsored waste. Munger continues, “Politics inverts that calculation: Nearly everything that private investors count as a ‘cost’ goes on the ‘benefit’ side of the ledger. Hire a bunch of construction workers to build a project out in the middle of nowhere, unconnected to infrastructure or markets? Clearly very costly, and a poor investment economically. But such ‘public projects’ are a huge benefit to the politicians who are able to buy votes from those rural areas using the money of taxpayers from other parts of the state. If my rural district benefits, I get reelected, regardless of the fact that such pork barrel spending is a net waste of resources. (I’m looking at you, Global Trans Park, home of gigantic spending for rural ‘development’ in North Carolina.)”
We need a separation of investment and state every bit as much as we need a separation of church and state.