I was watching the news the other night about a big investment from Christopher Kennedy to build some sort of wholesale medical showroom called the Medical Mart. The investment would be quite substantial. The word is that the investment is so substantial it may be necessary to jumpstart or rejuvenate Cleveland’s economy.
I have no problem with a private investment. I think private investments are a great idea. Nor do I have any capability to say why it would or would not be a good investment. I’m not in the business of evaluating investments.
But I wonder about the idea of an “injection” or “infusion” of cash necessary to jumpstart or rejuvenate an economy. This is essentially the mindset associated with the World Bank. As nearly anyone who recently visited a third world country will tell you, World Bank financing hasn’t exactly eliminated poverty. Confiscated property? Yes. But eliminated poverty? Not yet, and probably never. It simply goes against economic history.
Wealth is not generated from some big infusion of cash. This is a Keynesian idea that a big glob of liquidity (cash) somehow gets the economy going. And so some people justify NASA as a big boon to the economy, rather than money diverted from where individuals would otherwise spend it.
The same goes for nearly any big government program these days. Farm subsidies, for instance, or putting hundreds of billions of taxpayer dollars into alternative energy research (as Mitt Romney and Rudy Guiliani would discuss with great enthusiasm when they were running). Whether you believe in the morality and importance of these government programs or not, it is simply bad economics to suppose that money diverted from where it would be voluntarily invested to another location arbitrarily selected is more effective for overall economic growth.
This idea is, unfortunately, everywhere. Many analysts believe Mitt Romney won Michigan when he promised $20 billion in federal money to help the struggling auto industry.
When either political party talks about “creating jobs,” or equivalent terminology, they usually mean taking money from taxpayers and putting it towards something else, essentially subisidizing an industry. This is, essentially, the economic policy of either political party. The Democrats seem to think the Republicans need to be spending more taxpayer dollars to this end, but the principles are nearly identical.
We see this same philosophy in the recent “economic stimulus” package. A one-time infusion of cash will somehow help offset the looming recession, or so the reasoning goes. Don’t get me wrong: I’m all for a tax rebate. But the reasoning is flawed.
The best way for governments to “stimulate the economy” or “create jobs” is to permanently lower taxes, stop deficit spending, increase liberty, and get out of the way of individuals involved in creative, constructive efforts related to economizing and exchanging. No further taxpayer dollars need be confiscated to strengthen and bolster the economy. Economic history is more than adequte to show that individuals voluntarily investing their money as they see fit leads to economic prosperity for nearly everyone (the free market) whereas the confiscation of wealth and subsequent redistribution (central economic planning) has the opposite effect.