Is this massive undertaking needed? Can the free market not guide the expansion of EVs itself?

A mere 8% of Tesla owners and 18% of other EV owners said charging stations being too far away was a major difficulty, and an even lower 8% and 14% respectively said there were not enough charging ports at each charging station. Despite these statistics, the federal government is attempting to control the charging station market throughout the country instead of allowing the free market to operate. The government claims to be farsighted when protecting future generations on climate change policy, but their policies are routinely shortsighted. If we truly want to be more environmentally friendly, central planning is not the answer; instead, we ought to trust in the responsiveness of the free market to consumer desires.

Lucid Motors is an example of market innovation occurring naturally without central planning. Recently, Lucid gained traction in the stock market due to having the longest-lasting car battery in the market. In response, competitors started creating longer-lasting batteries in order to win over consumers who prioritize battery life.

With the free market spurring innovation for battery life in EVs, why would we need a massive expansion of charging stations? The already high levels of satisfaction with charging station availability will only increase as battery life further improves. As the demand for EVs continues to grow, electric chargers and EV infrastructure will likely grow proportionately. There’s simply no reason for the federal government to interfere in an industry where the free market is already spurring plenty of innovation.

The post Federal Overreach on EVs appeared first on Show-Me Institute.

For a better understanding of these issues, we can look to Friedrich August von Hayek, the great twentieth-century Austrian economist. In 1945 Hayek published his essay, “The Use of Knowledge in Society,” in which he challenged the idea of central planning.

First, Hayek pointed out that the issue is not whether there should be a plan or no plan. The issue is whether there should be one plan by a single central authority, or millions of plans by the millions of people coordinating in the open market.

But having millions of plans by millions of different people seems chaotic. In order for all those plans to be effective, they would have to take into consideration all the relevant knowledge about the availability and possible uses of different resources. In a decentralized system, how is the relevant knowledge being coordinated? The answer, according to Hayek, is the price system.

Prices convey important information. Higher prices tell us that a good is relatively scarce; lower prices tell us it’s relatively abundant. This information then shapes the way people plan for the future and how they allocate their own resources. For example, say steel suddenly becomes scarcer. This will cause the price of steel to rise, telling everyone else in the economy that their use of steel needs to be economized.

Some businesses that use steel might reduce production or find cheaper alternative methods of production. Consumers of products that use steel might reduce their consumption. Other producers of steel, seeing higher revenue potential, might try to find ways to expand output and bring more steel to the market. The actions of all of these different people and companies are coordinated because of the information they gained from prices.

There’s no need for a central authority to gather all the relevant information to create a single plan. In fact, much of the relevant knowledge cannot be conveyed to a central authority at all.

Characteristics such as quality and an employee’s ability to learn cannot be precisely measured. Therefore, any datasheet given to the central authority will not give a full picture of the economy. Furthermore, all of this information is constantly changing, so that even the information that is quantifiable becomes obsolete by the time it reaches the central planner. Prices solve both of these problems. People’s implicit, unquantifiable knowledge can be reflected in constantly changing prices.

Hayek’s insight is significant when we think about modern policy issues. The government cannot know how best to set up a healthcare system, how to regulate production, or what wage employees should be paid.

Missourians should keep this in mind when the government pretends to have these answers. While it may be reasonable for the government to make adjustments when the market can’t provide—such as public goods and addressing negative externalities like pollution—more often than not, the best policy is to leave it to the market.

The post What Hayek Can Teach Us About Government Planning appeared first on Show-Me Institute.

We have written many times before that using tax incentives to lure development either generally diverts development from other areas or, worse, provides tax breaks to development that would have occurred anyway. These abatements put the pressure of funding local services on businesses or areas of the city that are not so favored by the city council. This type of central planning by tax policy creates an uneven playing field that is unfair and ultimately economically damaging. Allowing a luxury property developer and future residents to pay lower property tax rates, when rates were just increased for the rest of Clayton, is questionable policy.

The argument that this development will boost transit ridership is also flawed. While changing zoning restrictions to allow less parking for a downtown building is not objectionable, using possible transit ridership to justify tax favoritism is bad policy. The relative affluence of Clayton has meant that local MetroLink ridership is far below what planners hoped for before the station opened in 2006. Original projections would have had the Clayton station serve 3,000 riders each weekday shortly after opening. Today, total ridership is 880 per weekday, and only 213 Clayton residents use the MetroLink to get to work. Four times that number walk.

The idea that luxury apartment dwellers will greatly boost this ridership is unlikely, because the affluent typically own vehicles and are much less likely to use transit than those with lower income. Even if all the residents of The Crossing did use public transportation, is it not enough that city, county, and federal government spent hundreds of millions building a light rail line to Clayton, and they continue to provide subsidized tickets that cover less than a third of that rail’s operating costs? Do we need to subsidize their luxury apartments next to the station as well?

Chances are some of the new residents will use transit, more will walk, and most will drive to their destinations. As for the local economy, the effects of diverting development and rearranging tax burdens will go unseen. But the good news is (for those with the means), new luxury apartments are coming on the market! And just wait until you see the location …

The post Luxury-Oriented Development in Clayton appeared first on Show-Me Institute.

Government does a terrible job planning the economy, whether it is a Soviet five-year plan or retail TIFs (tax increment financing) in Saint Louis County. Municipal government can improve the local economy by doing the things it needs to do well: police, fire, local roads, etc. It does not need to “develop” our economy, especially because “economic development” in Missouri is synonymous with taxpayer subsidies and corporate welfare.

Clayton, the Saint Louis County seat and the region’s other downtown, is considering an economic development sales tax, along with three other tax increases, on the April ballot. Doing four tax increases at once (four!) is crazy, but the point of this post is just the economic development sales tax.

Clayton has been careful in its use of tax incentives and other economic development tools in comparison to other Saint Louis County municipalities, which admittedly is a very low bar. Clayton deserves credit for that. So I can’t understand why it would propose raising a tax to do more of something it should not do in the first place: government planning of the local economy.

Clayton officials likely would claim that the intention for the new tax funds is not more use of subsidies or more local planning, but a continued focus on business recruitment, retention, etc. I believe them, and in the short run, I am sure that would be true. But, in my opinion, the increased use of, and funding for, government economic development activities will almost certainly be followed by heavier use of various subsidies and tax incentives. Cities such as Clayton should be moving in the opposite direction with less or zero use of these types of programs, not increasing taxes to do things they should skip from the start.

More to come on these four tax increase proposals next week.

The post Bloodletting In Clayton appeared first on Show-Me Institute.

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Last night was obviously Snowmaggedon, and I hope everyone is staying safe out there as some of the roads are still nasty. The previous night, Wednesday, we hosted the second Show-Me Institute Saint Louis Book Club meeting of the year. We discussed the classic The Road to Serfdom, by Friedrich Hayek. The central theme of the book is that fascism is a natural outgrowth of socialist central planning. Hayek’s desperate wish was to warn the western nations, especially England and the U.S., not to pursue the path of central planning. Hayek believed that a descent into fascism was more likely than it seemed to his audience: the citizens of non-fascist western nations in 1944.

But all that just makes the book sound like a dated warning against something no one really advocates anymore, right? Well, the book has staying power because of two timeless features which are perhaps separate sides of the same coin: Hayek explains why the price system not only works, but is the best system possible for maximizing individual welfare while also making a strong case for individual liberty and limited government, which Hayek calls (using the connotation of his time), liberalism.

It was a wonderful meeting and a rousing discussion. Book club meetings start at 7 p.m. and usually wrap up about 8:30 or 9 p.m. But Wednesday’s meeting did not end until shortly after 9:30 p.m. — we all had so much to discuss. Here are some of the topics and ideas we discussed:

• Whether a person’s concept of what is possible constrains their action.
• The important distinction between freedom and power: what it is and why it is important that they not be confused.
• This wonderful quote from Adam Smith (introduced roughly by Hayek): “[the regimentation of economic life puts governments in a position where] to support themselves they are obliged to be oppressive and tyrannical.”
• Where Hayek drew the line on the proper role of government and how that might undermine his overall message of liberty.
• Whether market competition is inherently violent (hint: it is not).
• Whether a legal system is necessary for competition, and David Friedman’s “the discipline of constant dealings.”
• The contradiction and ugliness of “competitive socialism.”
• An extended interlude about “Little House on the Prairie.”

The reading for next month is The Machinery of Freedom, by David Friedman, another classic. Friedman is an economics and law professor with a Ph.D. in physics, and the son of free-market titan Milton Friedman. From the Amazon description: “This book argues the case for a society organized by private property, individual rights, and voluntary co-operation, with little or no government.” I am looking forward to some excellent discussion on this one at our March meeting, so please join us if you can (date of meeting to be announced, check here).

The post February Book Club Recap – The Road to Serfdom appeared first on Show-Me Institute.

So it is not surprising that Aerotropolis supporters are coming back to the state for more moolah in 2013. On Saturday, the St. Louis Post-Dispatch reported that Lambert would now be gunning for a new $60 million cargo tax credit from the legislature this session.

Gone this time are $300 million in credits to fund real estate development around Lambert. Gone, too, is the lofty name; this version is dubbed the bureaucratic Missouri Export Incentive Act. What remains is an eight-year, $60 million tax credit strictly for air cargo flights from St. Louis.

“We want to keep it simple, and focused,” said Dan Mehan, chairman of the Midwest Hub Commission. “It’s very much slimmed down from what you’ve seen in the past.”

I’ll say it is slimmed down. Back in 2011, Aerotropolis supporters told the legislature that they needed nearly a half-billion dollars in state support for the project to work. When that failed, supporters came back and said $360 million in state funding would be enough to get the project off the ground. (Pun intended.) When that proposal failed in the face of fierce opposition, supporters revised their figures again and concluded that $60 million would do the trick. They received nothing.

The only reason the Midwest Hub Commission has resigned itself to delivering a “slimmed-down version” of Aerotropolis is because no one in Jefferson City has an appetite to fight another long battle for this handout. Audrey Spalding and I were deeply critical of the Aerotropolis plan two years ago because its economic arguments were highly flawed and its marketing was highly questionable. Case in point: some legislators who supported Aerotropolis were talking up Missouri beef exports to China as an Aerotropolis selling point — despite the fact that American beef is banned in China. Indeed, the organization Mehan leads, the “Midwest Hub Commission,” was formerly called the “Midwest China Hub Commission.”

New bill name, new organization name . . . same stuff.

Supporters can call Aerotropolis whatever they want, but it is still Aerotropolis. Now on its third time before the legislature, and after an utterly failed dry run for Saint Louis County to fund it, it is time for Missouri to close the book on Aerotropolis. Instead of centrally planning Missouri’s economy, the legislature should focus on broad-based tax reforms that reduce taxes for all businesses, not just the chosen few. Enough is enough.

The post Part 1: It Is Time To Close The Book On Aerotropolis appeared first on Show-Me Institute.

They range from large programs, such as the historic preservation tax credit and the Quality Jobs program, to the small, such as the state’s film tax credit. There are at least half a dozen more state-authorized local tax incentive programs, such as Tax Increment Financing (TIF). Missouri, like many states, aggressively uses these programs to encourage investments the government deems desirable.

But do these programs work? Do they accomplish their various goals, which have many different angles but all fall eventually into the categories of economic growth and job creation? These programs may not be as intense as a Soviet Five-Year Plan, but they are centralized economic planning nonetheless. Any time the government takes tax dollars and directs them to other areas of a market economy, it is engaged in central planning. Some planning is essential, but has this type of economic planning benefitted our state or our local communities?

This study relates closely to the current debate over Enhanced Enterprise Zones (EEZs) in Missouri.

Note: The data source for Personal Income, Per-Capita Income, and Total Employment is the U.S. Bureau of Economic Analysis. The source for Labor Force is the Economic & Policy Analysis Research Center at the University of Missouri-Columbia. The source for Assessed Valuation is the Missouri State Tax Commission.

Related Links

Commentary: Why Enhanced Enterprise Zones Are A Bad Deal For Missouri Cities

Commentary: EEZs Are An EZ Path To Corporate Welfare

Commentary: Callaway County Does Not Need An EEZ

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1. To the business people on the panel, I would ask: Why, as supposed believers in capitalism and free markets, are you supporting proposals that will increase the use of centralized economic planning in Columbia? Do you believe that central economic planning by governments is desirable, because that is exactly what TIF is? Do you think it is the proper role of government to pick which companies and projects get special tax breaks, while others do not?

2. To the city officials on the panel, I would ask: Why, when Columbia is doing better than most other areas in Missouri, are you attempting to implement policies that are very expensive, have a terrible track record of creating jobs, and have a record of failure throughout the state? Although, frankly, it is probably a waste of time to ask those officials anything. TIF increases the power and involvement of government. If you are a city manager, what is not to like?

3. There are many questions to ask of former Saint Louis Mayor Vince Schoemehl. I would ask about the abject failure of Saint Louis Marketplace as a failure of TIF. I would ask about the failure of Saint Louis Center as a failure of central economic planning. I would ask, who came up with the idea for the disappearing police car? – not for any specific reason but it was a famous ad in Saint Louis political history so I would ask about it. Mostly though, I would ask why he thinks taking money and property from other people to fund things he likes can possibly be good public policy that should be imitated around the state.

TIF has been a total failure in our state, particularly in Saint Louis. Columbia should avoid expanding its use. And, yes, the panel should have included at least one person who is skeptical of the benefits of TIF and local economic planning. Finally, TIF absolutely and regularly involves the abuse of eminent domain. Unlike Enhanced Enterprise Zones, there is a track record of eminent domain abuse associated with TIF usage in Missouri.

The post If I Was On The Columbia TIF Panel Tonight . . . appeared first on Show-Me Institute.

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I will admit that CIDs are a little less noxious than TIFs. But, no matter what grading scale, tax subsidies are not needed in Chesterfield. The market for retail shopping is plenty strong that the city does not need to turn over the taxing authority to private developers. The real issue, however, is that with projects like this, we must acknowledge that we long ago passed the tipping point where basically every major development in Saint Louis and Kansas City is subsidized by the taxpayers. When you are going forward with subsidies for things like outlet malls in one of the nicest parts of the region, the idea of a free market is basically defeated. Once you subsidize outlet malls in wealthy areas, at what possible good or service do you draw the line?

The obvious answer is that there is no line and the use of tax dollars for subsidized, politically-connected developers is just a fact of life now in much of Missouri. That is repulsive.

The post If You Need A Subsidy In Chesterfield, Where Don’t You Need One? appeared first on Show-Me Institute.

Dick Fleming, the group’s longtime head, is stepping down from the organization he has helmed since 1994, and his replacement will come from a city just a short drive east on I-64: Louisville, Ky., also known as the “Gateway to the South.” Joe Reagan moves to Saint Louis from Louisville’s equivalent of the RCGA, the Greater Louisville Inc., or GLI. Marketed during Reagan’s tenure as “Possibility City,” Louisville will have to find a new chamber head for the first time since 2005. Louisville is already writing the postscript to Reagan’s legacy.

But the fact of the matter is that no man, or government, or organization, or even coalition of organizations, can plan an economy, or at least plan it well. That is an incredibly important point to highlight and probably the fairest thing that can be said as Reagan joins the Saint Louis community; it also is probably one of the most damaging points one can raise about how the RCGA and organizations like it behave.

Our local chamber loves to get the pat on the back for positive economic news and to pump “public-private partnerships,” oftentimes fueled with tax credits, that fail to substantively move the economic needle in the region’s favor. Meddling in the economy, local or national, destroys wealth more often than it creates it, leaving taxpayers with the promise of prosperity but little else. And it is no secret that Saint Louis city has languished for decades under one failed economic plan after another, compounded by the exodus of residents into nearby counties and driven by the continued intransigence of the city’s political class to step away from its cronyistic tendencies. In short, the economic development status quo is not a blueprint for a prosperous future for this region, and has not been for some time.

Which is why I hope that Reagan’s arrival in Saint Louis is not just more of the same. More precisely, I hope that Saint Louis — and Kansas City, and the state of Missouri — at least return to some sense of regional economic normalcy, if not runaway growth in the coming year. That is a Christmas wish of sorts, I suppose, but a wish that the RCGA, GLI, or any similar organization has limited or no power to bring to fruition.

Maybe a New Year’s resolution for the state and the city is in order instead: To simply let the market work. It does not matter if it is Saint Louis’ chamber hawking Aerotropolis, or Moberly’s chamber hawking Mamtek, or a political class increasingly disconnected from the electorate hawking Solyndra. There are no easy, centralized solutions to our economic woes. Acting like there is in Saint Louis only prolongs the municipal pain. Like all taxpayers, Saint Louisans cannot depend on a small group of decision-makers to make their lives better.

Free markets make genuine and sustainable economic growth possible, and if there is going to be a “Possibility City” in this region, let it be more than just another marketing slogan with another cartridge of development silver bullets as its driving force. Reduce taxes and regulation, get out of the way, and let the free market flourish. May RCGA’s new administration regain its faith in that formulation.

The post The Gateway City, The ‘Possibility City,’ And Hope For The Future appeared first on Show-Me Institute.

By contrast, the modern State of the Union address is carefully orchestrated both by politicians and the media to instill a feeling of awe in viewers. Like a well-rehearsed religious ceremony, participants rise and show their approval at predetermined breaks in the speech as the president releases a steady stream of policy proposals, like mystic prayers that he is confident will elevate his people. This spectacle places government — especially the president — at the center of our lives, but this is as backward as the medieval idea that the sun revolved around the earth.

Last night, Obama briefly acknowledged that America’s free-market system “sparks the creativity and imagination of our people,” but quickly moved on to extol government subsidies for, among other things, high-speed rail, broadband Internet access, and renewable energy sources. All these projects stifle individual creativity and imagination by attempting to direct innovation and economic growth from on high — they are a kinder, gentler central planning and reflect what Nobel Prize–winning economist F.A. Hayek called “the fatal conceit” that politicians know better than the dispersed knowledge of the people they rule.

In fact, it is everyday people using bits of knowledge in their particular areas of expertise who keep the economy functioning and drive it forward. Not only does the president not possess the knowledge necessary to understand and successfully redirect that multitude of choices to his preferred ends, it is impossible for him to possess it. Only an entrepreneur facing the discipline of profit and loss can discover which new energy source will prove popular. Only a rural resident weighing the costs and benefits of faster Internet access can decide whether it makes sense for him. Only a commuter running late for work can decide whether high-speed rail is more efficient than driving. The economy, Hayek explained, is the product of human action but not human design, so it must be steered by the choices of individuals free from government influence and coercion.

In The Theory of Moral Sentiments, Adam Smith wrote about the arrogance of the “man of system,” who “seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.” But, as Smith points out, we are not chess pieces; each of us has different hopes, goals, and dreams — and different ideas about how to achieve them. We naturally resist the hand of the man of system when it tries to move us away from our chosen paths and ruin all the grand designs of politicians and their planners. People will flourish most when an equitable set of rules is enforced, but they are otherwise left to move about life’s board as they see fit.

Political rhetoric like last night’s speech may sound exquisite and offer hope for great improvements in the human condition, but, almost without exception, the improvements we know of came about not from a government plan but from individuals going about their lives and pursuing their own goals. Presidents may flatter themselves with the idea that they are the center of the universe, but as King Solomon, who knew something about the arrogance of public officials, wrote in Ecclesiastes, “vanity of vanities; all is vanity.”

The post A State of Arrogance appeared first on Show-Me Institute.

I could probably have done something similar – depicting the awesome regimentation and brutality of our society – with a series of paintings on a canvas, or through hideous architectural models. But it wouldn’t be the same as doing it in the game, for the reason that I wanted to magnify the unbelievably sick ambitions of egotistical political dictators, ruling elites and downright insane architects, urban planners and social engineers.
[…]
Technically, no one is leaving or coming into the city. Population growth is stagnant. Sims don’t need to travel long distances, because their workplace is just within walking distance. In fact they do not even need to leave their own block. Wherever they go it’s like going to the same place.

The game, of course, is not exactly like real life. Even if we turned over our lives completely to some all-powerful — even benevolent — central planner, he would have insufficient information to properly run a city. The Sims are pure algorithms that operate by observable, static rules, but actual people’s preferences are constantly in flux and often ineffable until the actual moment of choice.

Nevertheless, it’s a stark reminder that city planners often forget that cities do not have overarching goals like maximizing population or density. The goals of a city are as diverse as the individuals that people it, and to the extent that city planning is necessary, it should facilitate people’s individual goals, not impose a preconceived notion of how urban life should be structured.

If you are interested to see the inner workings of Magnasanti, see the video here.

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No country in the modern world has managed persistent economic growth without considerable reliance on private enterprise and decentralized private markets. All centrally planned economies failed to achieve sustained development, including the Soviet Union before its collapse, China before market reforms began in the late 1970s, and Cuba since Castro’s revolution in the late 1950s.

This is advice that the state government in Missouri should take to heart. Through the use of programs like targeted tax credits, TIF, and the LRA’s land holding policy, the government in Missouri attempts to plan the economy and consequently stunts its growth.

Missourians and the Chinese alike would experience more economic growth if the government allowed private enterprise and the decentralized market to function.

The post “Speaking Words of Wisdom, [Gary Becker Says] Let It Be” appeared first on Show-Me Institute.

Unlike the ongoing tax credit review commission, which is stacked with supporters of tax credits, I don’t have any animus toward this initiative. It seems to me that the people involved probably believe they have good ideas for Missouri, and that they are not participating in this project for personal gain. The politicians and the other participants involved just buy into the notion that if a number of smart and dedicated people work together to come up with a plan for Missouri’s economy, they can do great things for our state. That belief is neither malevolent nor corrupt. It is just wrong.

The governor laid it out plainly in Kirksville (emphasis added):

“We can’t go down every road,” Nixon said. “We need to act, not react, and in order to do that we need a plan.”

No, we don’t need a plan. Missouri’s economy of the future will be shaped by individual people taking risks and seizing opportunity. The government has absolutely no idea what the economy of the future will — or, more importantly, should — look like. Committees like this (as common as they have been in our history) buy into the idea (intentionally or not) that the government should be involved in crafting the elements of our economy. That is a frightening notion, and one filled with enough examples of failures using public dollars that I would have thought the idea would have been disposed of by now.

My favorite example is the 1947 St. Louis plan that called for the destruction of Soulard often mentioned by Bill McClellan. (You can read about Bill’s column from a blog post by someone who considers himself a libertarian but supports Paul McKee’s grand plans for the north side of St. Louis. Crazy, eh?)

Here’s a realistic plan for actual growth: Perform the core functions of government as efficiently as you can, and reduce the tax and regulatory system as much as you can within the constraints of democracy (i.e., I recognize that other people want the government to do more things than I want it to do). Then sit back and let individuals and companies succeed or fail based on market interactions and their own efforts. That is the only plan we need for our economy.

The post Planners Save Missouri! appeared first on Show-Me Institute.

The project, cast as a “self-sustaining venture,” has had trouble occupying its 511,000 square feet of retail space. City planners blame the vacancy on the downturn of the economy. Without a fully occupied site, the project is having trouble recapturing the tax dollars originally allocated to finance the project.

This is not to say that the project was a failure, but rather to point out the difficulty in predicting its success. Of the original $295 million, $212 million was used to rebuild infrastructure around the project area (which could more readily be considered a legitimate expense). Many of my friends love the Power and Light District as a weekend hangout, but rosy projections and rationalization won’t save taxpayers any money.

A perfect example of the inherent fallacy of utilizing a centralized plan is found in Nassim Nicholas Taleb’s book The Black Swan. He writes:

The inability to predict outliers implies the inability to predict the course of history, given the share of these events in the dynamics of events.

Governments who believe they have a better chance than individuals of predicting future events have the tendency to be vastly irresponsible, and the bill almost always lands at the feet of the taxpaying public.

As plans like Kansas City’s Power and Light District come together, they are sold to the public in the most favorable light with the most favorable projections. Unfortunately, those projections almost never translate in the real world. Public projects usually cost more than expected and produce less.

The fact remains that the project has been undertaken, and I believe City Manager Troy Schulte put it best:

“20-20 hindsight is always good, but I’d tell taxpayers to come down and enjoy downtown, because you’re paying for it,” he said.

The post Central Planners Get It Wrong, Again appeared first on Show-Me Institute.

On July 9, after awarding a multi-million-dollar tax credit package to a company that produces a sugar substitute, Gov. Jay Nixon’s office issued a press release claiming that 612 new jobs will be created in Missouri. The governor said:

These jobs will be a significant boost to Missouri’s economy and our manufacturing sector, and they’re another positive sign that our economy is beginning to move forward. I am pleased that my administration was able to provide a competitive package of strategic economic incentives to help bring these jobs to Missouri.

Statements from proponents of the tax credit for the Ford plant in Claycomo, despite the political finagling being done to push it through, sound reasonable. Sen. Victor Callan (D-Independence) told the Kansas City Business Journal that up to 3,700 jobs could be lost if the state doesn’t award Ford a large amount of state tax money.

But, although the claims can sound reasonable, they are only claims.

The problems of using tax credits to encourage economic development have been discussed at length: Tax credits often don’t create economic activity, but instead merely shift it to another location; tax credits are a form of centralized economic planning, which has a bad track record of encouraging economic growth, whereas lower tax rates do a better job of stimulating the economy; government officials have no special ability to predict future economic growth or success; and, of course, tax credits allow elected officials to play favorites.

In addition to the list above, casual readers should be skeptical of the future job claims made when state tax credits are doled out, because they are merely promises and forecasts. Studies have shown that job claims are often very different than what is ultimately accomplished with taxpayer money. A study by the Mackinac Center for Public Policy compared job promises made in press releases issued by Michigan’s economic development agency as it awarded tax credits to the actual outcomes of those programs. During a 10-year period, Mackinac found that of 127 projects that promised fully produced facilities, only 10 projects were completed on time and produced the number of jobs promised.

A report recently published by the Columbus Dispatch showed that Ohio is still waiting on some jobs and investment promised. In fact, as reporter Mark Niquette found, of the $1.6 billion in tax credits initially awarded in Ohio, only about 40 percent were ultimately redeemed. This disparity, as explained to me by Niquette over the phone, can be attributed to two factors: First, many tax credits awarded are never redeemed at all by the company, and second, some of the outstanding tax credits awarded may be redeemed in the future.

Of the companies that did manage to redeem Ohio state tax credits, roughly 1 in 10 jobs promised were not created.

Interestingly, one company that’s also dominating Missouri tax credit news failed to deliver on promised job creation in Ohio. Niquette writes:

Still, there are more than 100 projects that fell 50 jobs or more short with no action reported. At the top of the list is Ford, which received more than $1 million in tax breaks for a 2002 project to create 800 jobs for production of the Escape and Mariner in Avon Lake.

The data show “zero” jobs actually created because Ford moved the production to Missouri, officials said. The state said Ford stopped getting the tax breaks when the production left Ohio.

Only additional research can show whether Missouri’s Department of Economic Development has a tax credit track record better or worse than that found in Michigan, or that found in Ohio. But we all have to keep in mind that promises made in press releases about job creation and about the investment that will take place as a result of tax credits are only promises. In other states, those promises have a tendency not to bear out.

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