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Saturday, May 05, 2012

Local Economics

Thinking broadly about local economic policy including local and state leads me to believe that we must being dealing with bribes and incentives.  The idea being that our local government is using bribes and incentives to bring more businesses to Colorado Springs furthermore provoking enterprise zones.  Enterprise zones are run down areas that we target to develop.  The key is that there are tax breaks and low interest rates to entice urban renewal.  A good example of this is when the DIA or state government gives united tax breaks in order to influence businesses to migrate to El Paso County.  Ultimately, when we say local economics I think about trying to get someone or something to Colorado Springs through bribes, tax breaks and incentives.  Side note, it’s funny that it’s not really a decrease in tax/interest rate it’s more of the state government cutting you a check for a certain amount.

When we talk about Economic Development, we need to be more concerned with what type of subsidy there is for it and how they/we are designating an enterprise zone.  I feel that when the local government is trying to get support for their new policy or development/progression that they don’t tell us the whole story; not that they are actually lying to us, but more or less using nice, comforting, understandable words like jobs, employment, access ect…  That being said, it’s important to understand what they are really trying to say. 

From my knowledge I understand a job to be a “labor contract” that is voluntarily created.   A job is an agreement between an employee and employer for a dollar value based on the value they place on your production.  Now that we have clarified the meaning of a Job, we can further explore and analyze exactly the role of local economic government/development plus integration of a policy.

Honestly, the whole idea of jobs and subsidies doesn't’ fully make sense to me and i'm sure to most people; We must keep in mind that we are also exploring for inefficiency and market failures in all scenarios.  Before we can better understand jobs and subsidies, lets clarify what Economic Development is.  Economic Development is an increase in economic activity that provides the ability to make someone better off.  This sounds like they are really looking for a pareto improvement, or that economic development really is a search for continuous pareto improvements.  The key is that we are looking to make pareto improvements so we can reach pareto optimal.

The problem is we need to stay local and not look at the whole state or country.  Remember, the idea is to bring people into your local economic society to entice people and businesses to spend more money in your county in order for us to be better off and more productive.  A good example is the Cheyenne Frontier Days, The locals leave town because of the mass increase in people, noise and congestion; even though the people are paying for it.  Seems to me that it’s more about giving the opportunity to have pareto improvement.  Again the key is that we cannot worry about EVERYONE, stay focused on local economic development otherwise we will never give opportunity to improve or be better off.

Being on the subject of local economics, development, jobs and pareto improvement/optimal I would like to talk about the production possibilities frontier.  Resources and technology are the only two things that can shift this curve out in order for us to be more productive and better off.  It’s our own personal choices of what we can/will do with our resources and technology that shift the PPF.  Even though it may be our personal choices that affect the PPF, Our PPF is a fact of life.    It is what it is but we do still have our own personal choices to help influence the shift.  A shift outwards of the PPF is Economic Development and now people have the opportunity for pareto improvement. 

So back to our topic of local economic government policy, what do jobs, subsidies and now resources have to do with it. As individuals we can make independent choices to shift our PPF out.  We can ultimately have Economic Development through local increases in resources, capitol and technology.  The key is that if we are inside our PPF then we have a negative externality; Furthermore, leading to inefficiencies that are the foundation to a market failure.  The only way we can make improvements is to force people to grasp the opportunity.  The government can provide opportunity but if we don't exercise it then we are no better off. 

If the government corrects market failures then we will see great expansion in economic development.  Again though, we have to keep in mind that we must think locally and about the pareto improvements we can make locally.  It’s all related to subsidies, all justified in the name of jobs.  Like I mentioned earlier, they like to use nice, comforting and understandable words so we will support them.  It’s important that the government has our support in order to persuade businesses to move here, leading the new business to believe that this is where they can be most productive and profitable.  Businesses settle where they do because they believe the cost are low and they have the greatest possibility to maximize profitability.  They/we must also think about the transportation cost, labor market access, electricity, water and wages when determining where to re-locate.  The hard part about analyzing these cost is that cost are changing in different locations, especially overtime.  I do believe though that businesses can make good location choices; No sources of market failure to make inefficient choices.  I would see it more as a location inefficiency choice.  Furthermore, I don’t really believe the local government can influence their location choice; Government is not really in control.  I think it’s the taxation rate that help influence location choice.  Texas is a good example of low rates and high re-location rates with improved productivity.  The tax rate fluctuation influence location across regions, but has a small impact on location decision.  I believe this because there are small tax differences within the region.

Tax incentives and bribes don’t always help or work because you may have competitors.  To know what type of market failure we are looking for we need to know that businesses with great risk are more likely to take these tax breaks and shift the risk and tax to the community.  That being said, I think we need to be looking at positive externality in the labor market through subsidies.  You hear that you will be better off, and that everyone needs jobs.  Think about subsidizing higher education, it’s the same idea.  They subsidize it thinking its creating a positive externality when in reality we are not better off.  The sad truth is there is no externality and that the market is doing it on it’s own.  If we really believe there is a positive externality or marginal social benefit, then we should be giving every business a subsidy; it’s kind of like Texas. The idea that most people are not grasping is when the government tells us they are creating jobs and bringing them to us locally, we overlook the fact that they are also importing employees.  I idea being that they have you supporting something that really isn’t helping you, maybe making you worse off and not telling you that of the 100 new jobs they created that 85 of them are already taken.

Talking about the increase in labor force within your local county leads me to believe there has to be a negative externality somewhere on someone.  We can take the simple case of the obvious increased pollution they bring with them.  So what we can do to fix the externality is just TAX it!  Maybe treat Colorado Springs like a club good and charge these new people a membership fee, tax them to control negative externalities, utilization fee (highways) and have them help with infustructure fees.

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