Anti-Cronyism Termed “ill-Thought-Out”


“So it’s an investment in the people of Buncombe County. It’s an investment in the tax base. And it’s a good plan, because we compete in the market, just like everyone else. Counties are out there trying to take away what we’ve got, and keep us from getting it.

“Also, above and beyond all the so-called political ideologies and principles are the people of Buncombe County, who live here and who need jobs. And in some cases, as would have been with GE, those jobs would have left, and they would have been without a job. This commission, I’m proud of the work it has done in putting forth economic incentives to keep Buncombe County a viable place to live.”

Thus spoke Buncombe County Commissioner David King on the subject of awarding Linamar $9 million in tax dollars payable in equal annual installments over a period of six years. The award is a revision of a second economic development agreement entered into a couple years ago. That agreement was scrapped due to grander plans. It followed an initial grant of $6.8 million, promised in 2011. These county grants were supplemented by generous contributions from the City of Asheville and the State of North Carolina.

In exchange, Linamar offered to create 400 jobs with the 2011 incentive and another 400 jobs, paying at least $39,000/year plus benefits, with the latest award. It also promised to invest in $125 million, and then another $190 million, in capital improvements.

Pulling out the colorful graphs, County Attorney Mike Frue shared the new 400 jobs would have an “indirect effect” of 316.6 jobs and and “induced effect” of 263.9 jobs. The “ROI”for the $5 million expended was tallied to over $90 million by 2021, and it would come from $190 million in qualified expenditures, $25 million from the “direct effect,” 23 million from the “indirect effect,” 7 million from the “induced effect,” plus $22 million from local taxes.

King added that the local Chamber of Commerce had informed him that for every 100 jobs created, $10 million spins off into the county’s economy. If the function were linear, then every job created would spin off $100,000 into the economy. And that is just absurd.

Ill-thinking ideologues would disagree simply because they still subtract. For example, while recipients of government subsidy will claim credit for “induce-effecting” jobs, it will be private-sector employers who cut the payroll checks.

Tax revenues should surely increase, but fair tax rates do not set up government bodies to run at a profit. If citizens pay taxes to cover costs of services, then more citizens and more businesses demanding more infrastructure should come with a decent amount of consumption of government services as well. If rates are fair, per capita collections and expenditures should not increase with an influx of population.

Ecological models used to invoke the concept of “closing all loops” for systems modeling. It was based on the assumption that spontaneous generation did not exist. Each animal existed by virtue of other organisms that it ate to survive.

Applied to economics, consider the corporation that creates a new job. It can fill the job by bringing in somebody from another county, or it can fill it with local talent. Chances are, that local talent will be pirated from another local firm, which will be left in the position of figuring out who will lose an employee to fill the vacancy. Somewhere, an unemployed person could fill a vacancy.

Multinationals also get money from the county, but the county gets its money from the people. The logic, described as concentrated benefits and diffuse cost, was elaborated in a recent paper by Cato scholar Donald Boudreaux. Government grows because it gives special interests big favors paid by a penny or two from each taxpayer. Politicians know no self-respecting citizen will raise a stink about losing 1.5 cents, but with enough favors, pennies add to dollars.

Two years ago, when John Szoka was running for state house, he said he had crunched the numbers, and the amount of money the state was giving out in economic development incentives was equal to the amount it was collecting through its business taxes. That the state continues the redistribution game is evidence that those elected to office presume they know what businesses and products consumers need more than those who would part with their hard-earned cash to buy stuff.

But startup businesses have long relied on loans and angel investors. The difference is when government replaces conventional lenders, lenders lose potential interest income and have to recover losses with fees. This, in turn, only makes the public angrier at banks who are already making decisions that are bad for business in order to keep the regulators happy.

More perniciously, corporate welfare promotes cronyism and perpetuates the illusion that business must be dependent on government. Cozy relationships between government and big business come with chains, and, like it or not, study after study shows that prosperity is positively correlated with economic liberty.

In another public hearing, the commissioners awarded $25,000 to PolyLinks. This time, Assistant County Manager Jon Creighton flipped through the colorful graphs showing the direct, indirect, and induced “effects.” The one-time $25,000 investment, he said, would have an annual $800,000 return with 19.5 direct, indirect, and induced job effects.

But don’t take this ill-thought-out article’s word for it. Get a copy of IMPLAN and analyze the code line by line. Then, get an economics grad student on the phone and talk to him about the assumptions built into the analysis. When all is said and done, the question remains: Is it the role of government to infuse favorite sons with trickle-down cash, or to intervene in the business world only when fraudsters cheat consumers and cripple competitors?

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