The big news last week was the dismal economy, with zero job
creation in August. As surely as day follows the night, the
president will use this evening’s address to Congress to call for a
“bold” and “innovative” counter-offensive on the jobs front. If I
am wrong about that, I will do more than eat my words. To quote the
late great Arthur Ashe, I will “eat my racquets.”
Here in my home state of Missouri, our lawmakers have
stolen a march on the president. On Tuesday they began a special
session of the legislature to consider a big new job creation
scheme of their own. As you may know, Missouri is supposed to be a
highly conservative state — populated, if you believe the state
motto, by people of a skeptical mindset. Republicans have large
majorities in both houses.
Nevertheless, a good number of legislators who describe
themselves as fiscal conservatives have thrown their support behind
proposed legislation that would provide $360 million in tax credits
for the creation of a “Midwest China hub” or “Aerotropolis” at
Lambert-St. Louis International Airport.
This would be the largest tax credit in Missouri history.
No one denies that the tax credits are anything other than a
subsidy. The tax credits themselves are readily transferable or
saleable to other parties having nothing to do with the proposed
cargo hub.
How realistic is it to suppose that a few hundred million
dollars in tax credits for construction of refrigerated warehouses
and other facilities will lead to the creation of an aerial Silk
Road linking China, the second largest economy in the world, and
the American Midwest? Can under-utilized Lambert-St. Louis hope to
compete with the likes of O’Hare, DFW and other much larger and
well-established airport?
Based on their previous comments, many supporters admit to
having grave doubts about the whole idea, but they still say they
are willing to take a shot at making it happen — given claims of a
huge potential payoff in jobs and increased economic
activity.
In short, supporters have bought into the old
“we’ve-got-to-do-something” argument. To reprise some of President
Obama’s words from the speeches he was making a year ago, a number
of them have decided that they don’t want to be seen to be “sipping
Slurpees” and doing nothing while someone else is down in the mud
spinning his wheels.
But there is nothing in the history of my state or our
nation that suggests government intervention in the marketplace is
an effective tool for job creation. To the contrary, when
governments use taxpayers’ money in trying to pick economic winners
and losers, they almost invariably pick losers and compound
failure. As Milton Friedman noted, free-spending politicians have a
special aptitude for making the wrong choices.
When people buy groceries or go shopping for themselves,
Friedman observed, they have every incentive to economize and get
as much value as they can for every dollar they spend. But when
they are spending someone else’s money for the benefit of some
third party, they are much more likely to be careless and wasteful.
This is the case when you use an expense account to pay for someone
else’s lunch.
It is also the case when politicians or lawmakers channel
a large sum of money to selected businesses or industries on the
theory that these politically favored and politically dependent
enterprises, shielded from the risk of losing their own money, will
do a bang-up job of promoting the public good.
Politicians often argue that even one job created though
tax credits or subsidies is better than none. But this ignores the
opportunity cost of expending large amounts of taxpayers’ money for
little economic benefit. If the government takes a million dollars
to create one job, that’s a million dollars that could have gone to
more efficient and productive use in the private sector — in
creating stronger and better jobs for more people.
If Missouri lawmakers have some $360 million to spare and
want to put it to good use, they should return the money at once to
all citizens in the state through tax cuts or refunds. As
Friedman pointed out, they will have a better idea of how to get
the most bang for the buck.
The federal government should heed the same advice when it
comes to making a choice between expanded public works or reducing
taxes and leaving people free to choose how to spend a greater
share of their own income.
