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Federal stimulus: Poaching productivity

Posted by Amber Gunn - June 24, 2009

Chalk this one up to another magical mystery of politics. In today's Seattle Times, Senators Jim Kastama and Lisa Brown take the city of Seattle to task for "poaching" Russell Investments from its neighbor Tacoma. Seattle Mayor Greg Nickels is offering the firm a tax break if it will relocate within the city limits. The two Senators expressed outrage at this move.
Although we are confident Tacoma can hold its own in this contest, Nickels' overture demonstrates an economic-development strategy whose time is past — the poaching of businesses from one region to another. Moving a company 35 miles up the freeway is not economic growth.
What the senators are trying to say is that this is a zero sum game. What that means is that money is simply transferred from the right hand to the left hand, but no actual growth occurs. It's like a bunch of people sitting around a poker table. As one person gains, another loses, and the total amount of money on the table remains the same.
 
In fact, Seattle's offer for a tax break is not a zero sum game. A tax break means the company gets to keep more of its own money, which it can then use to hire more people, give raises, invest additional dollars in other companies, and ultimately make the company more profitable. As profitability increases, so does the amount of taxes paid. The pie has grown, so there is more of it to go around.
 
But the real mystery is not why the senators are trying to create a zero sum game where none exists, but why they refuse to recognize the gargantuan zero sum game of federal stimulus dollars coming into our state. The federal government can't spend any money without taking it from taxpayers--current or future. So the $59 million Washington is spending on weatherization projects to fix low-income homes is money that could have been used by the individuals it was taken from (or will be taken from in the future) to start a business, hire additional employees, or buy things that make their lives better. That is called opportunity cost.
 
Transferring dollars from the private sector to the public sector is not economic growth. Beyond that, those "jobs created" by "stimulus" dollars are temporary, and the money to fund them was stolen from other sectors of the economy where the money would have been spent by many different companies and individuals making various choices on the best use of the money.
 
I can't help but think that Senator Brown must have slept through her entire economics career not to recognize these basic principles. No matter how much she and others like her want it to be so, politicians can not repeal the laws of economics. The true poaching happening in our economy is the massive wealth transfer from the private sector to the public sector.

Thoughts?   Add Comment -

Joshua said on Jun 24 2009 at 7:54pm
Wouldn't the poach be cemented by a tax break? Therefore the tax breaks that you're advocating would happen in this case as well.
Good blog though, it always bothers me that tax breaks occur for the corporations large enough to gain legislative attention. This makes business taxes most crippling for small owners, who don't have the lobbying power large corporations do.

Amber Gunn said on Jun 25 2009 at 10:42am
Joshua,

I'm not sure I understand what you're asking in the first part of your comment.

As for tax breaks for large corporations, I agree with you that they are a very bad idea. It comes down to whether you believe politicians should choose winners and losers or whether the people that they serve should. When politician deal out special privileges to certain businesses only, they are giving them a leg up. If Seattle had levied low, flat rates across the board for its businesses, Mayor Nickels wouldn't have to offer Russell Investments a special deal because it would already be in their interests to move. But the pick and choose method gives politicians a lot more power over an economy, and it gives big corporations the opportunity to throw their weight around and collude with government to obtain an advantage. I don't see most of them willingly giving that up anytime soon.