Notable Quote - Andrew Wilson - Granite Grok

Notable Quote – Andrew Wilson

amazon-logo.pgIn part, on the false “multiplier” effect that Govt programs supposedly have:

In any auction, the winning bidder may pay more for something than it is worth. That is especially the case in this kind of auction — in which government entities compete with one another in offering tax breaks to a rent-seeking corporation (i.e., one looking for public assistance for private gain) that is trying to get as much as it possibly can from government.

The fatal flaw here is the deeply ingrained habit of regional economic development agencies and other government entities of assuming (falsely) that a public investment of X dollars will yield about 2X in indirect benefits — in addition to the job creation and economic growth that come from the investment made by the rent-seeking company.

That is the so-called “multiplier effect.” Typically, local development agencies assume a multiplier effect of 1.8 to 2.2 in topping up the politically favored company’s investment with public money. But as Joseph Haslag, chief economist at the Show-Me Institute, points out, such an assumption is “ephemeral, vaporous, an apparition.” There is no economic evidence to support a multiplier of more than 1.0 ($1 of benefit for one dollar spent). In fact, there is considerable evidence that government investments earn well below-average returns. Rather than add to economic growth, government investment all too often subtracts from it — in directing scare resources to sub-optimal uses. The better bet is to leave more money in taxpayers’ pockets — relying on the marketplace to decide (in the words of Ludwig von Mises) “what is to be produced and who is to produce it.”

-Andrew Wilson (HQ2 = PU.E 2 Something Is Rotten With Amazon’s Request for Proposals)

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