Government Subsidy Machine

Editor, The News:

In an April 24 editorial (“Don’t repeat Willow Run”), The Saginaw News made its case for retaining the Michigan Economic Development Corporation, calling it “smart business.” Economists aren’t so sure.

The MEDC cannot give any economic advantage in the form of subsidies to any business that it doesn’t first take from rival businesses. When it gives out targeted tax breaks, it just makes it harder to cut taxes for everyone. Shifting resources from one business to another only robs Peter to pay Paul. And someone gets paid to do the robbing. Employees of the MEDC don’t work for free. The money used to pay them would be put to better use by entrepreneurs if we would just let them keep more of what they earn.

What exactly is it that enables MEDC employees to predict what the most savvy mavens of Wall Street must risk their own money to fathom: Which business are future “winners” and which are not? The assumption seems to be that government central planners know more about how to foster wealth and job creation than business owners, consumers, workers, bankers, investors and managers. This is the same disastrous reasoning that led the former Soviet Union and Eastern Europe to economic ruin.

The MEDC doles out huge subsidies and tax breaks to businesses based on what amounts to guesses that are no better than anyone else’s – only guesses are backed by your tax dollars. Some of their guesses have been embarrassingly off the mark. Anybody heard of Kmart?

The agency’s oft-cited reports of “job creations” are often merely jobs that have been shifted from one Michigan business and to another, with no net gain for the state and its citizens. In fact, the MEDC may actually destroy jobs rather than create them.

Discriminatory tax cuts and subsidies may seem like smart politics. It is definitely not smart business.

Michael LaFaive is the director of fiscal policy at the Mackinac Center for Public Policy in Midland.