Friday, April 08, 2011

The Cover Charge (Updated)

Common-sensism, that's the term I use to describe political narratives sold to people based on what appears, on the surface, to make a great deal of sense. It adds a little bit of bandwagoneering to the political narrative landscape, as in "well, everybody knows..."

Like the idea that tax-cuts and subsidies, or "tax relief" in the land of savvy political communicators, will always increase economic growth because people will have more money to spend on things instead of paying taxes. That economic growth then increases tax-revenue, from the expanding economic climate.

That has always sounded to me like something that was too good to be true. And you know what they say about things that are too good to be true.

First of all, you have to look at America's history. If low marginal tax rates increase the economy, and high marginal tax rates destroy the economy, why did the economy collapse in 1929 when taxes were low, but expand continually in the late 1940's and 1950's when taxes were astronomical?

The answer lies in having a dynamic economy. Ford got rich making Model T's, but he wouldn't have made a dime if he couldn't have sold a lot of them. For an economy to work, you have to have markets for your goods and you have to have inexpensive ways to get your goods and customers to markets.

That's why education and infrastructure are more important to an economy than big industries. Education and infrastructure build and support a robust, dynamic middle class. The middle class buys some cheap goods and some luxury goods and opens their own businesses to increase their income. Those businesses need to purchase some cheap goods and some high-dollar goods to make it. All those purchases support the big industries and financial institutions, not the other way around.

So one has to wonder about economic and fiscal sanity if someone's plan to grow the economy is to take the knees out from under the middle class to increase the already favorable climate for big business.

For the past decade, Georgia has been losing the type of high-paying jobs attracted by good infrastructure, quality schools and an attractive quality of life, perhaps because it hasn’t been investing in good infrastructure, quality schools and an attractive quality of life.


At some point, you have to start focusing on your market, and charging businesses for access to that market. Just like the hipsters will pay to get into the club that puts the best band on the stage, businesses will pay to get into the state where they can get returns on their investment for a long time. And if they don't want to, let them go. If there is even one dollar of profit to be made in a place, a different business will show up or start up to compete for it.

And if they want to pass the costs along to the consumer? Well, we live in a free-market economy. Businesses can set their prices based on how much profit they'll make, and that number isn't guaranteed or regulated. As long as the rules are the same for every business, the consumers will regulate that for us.

Update: For another look at just how far reaching the narrative is when it comes to education, be sure to check out the new happenings in New Orleans and Wisconsin.

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4 comments:

Dante said...

I'd agree with you if education and infrastructure were more than a drop in the budget for our current federal spending. We absolutely can lower taxes while maintaining or even increasing our infrastructure and education spending. But in order to do that we'd have to address the other elephant in the room: defense. We spend entirely too much on it. The official government figure is about 30% but they lump Medicare and Social Security into that figure. That means that we're really collecting about half of our income tax dollars to spend on defense which is entirely too high, especially considering our only borders are shared with Canada and Mexico. We should be able to spend less on defense than most European countries who at the very least must worry about a somewhat erratic nation-turned-arms-dealer in Russia.

"For the past decade, Georgia has been losing the type of high-paying jobs attracted by good infrastructure, quality schools and an attractive quality of life, perhaps because it hasn’t been investing in good infrastructure, quality schools and an attractive quality of life."

I can't speak for everyone, but I can say that I left Georgia specifically because of its lack of transportation infrastructure.

I had no qualms with the quality of education in Georgia. The metrics used to measure education are skewed against Georgia largely due to the HOPE scholarship pushing more students to try to go to college and its high poor and minority populations.

But roads were a killer. In my profession I have to work near a large city to make any real money and when I decided to do just that, Atlanta was immediately off the list. The infrastructure improvements over the past two decades lagged far behind their growth. Fort Worth is no transportation mecca but at least their road infrastructure predates the Interstate system. Atlanta's Interstate-or-bust strategy leads to an inordinate amount of busts. I get the feeling that roads here in Texas are always under construction but I also see highways being built and updated in anticipation of growth instead of in response to it.

Cousin Pat from Georgia said...

Only in a sane world would defense budget cuts and increases be tied to taxes. But we can't have Americans making the connection between tax money and wars, can we?

The problem I have is the too-good-to-be-true tax narrative, and how it reaches into the states when they deal with education and infrastructure.

Metro Atlanta is undoubtedly Georgia's economic engine, but the transportation costs - for capital projects, gasoline, developments, and opportunity costs of having such a high percentage of your population stuck in traffic at any given time - is the biggest economic drain on the state.

alli said...

Highways create traffic.
Highways create traffic.
Highways create traffic.

Fort Worth will undoubtedly encounter the same issues that Metro ATL has encountered - which is that without density, without transit, without the ability to walk and bike and get around without a vehicle, without so much of the acreage of your productive economic areas being taken up by parking, you can't have a functioning economy.

The single best thing Atlanta could do is to pour every highway dollar into MARTA expansion, and implement TOD zoning around all MARTA stations.

Dante said...

"Fort Worth will undoubtedly encounter the same issues that Metro ATL has encountered - which is that without density, without transit, without the ability to walk and bike and get around without a vehicle, without so much of the acreage of your productive economic areas being taken up by parking, you can't have a functioning economy."

Bikes are vehicles. Trains are vehicles. So are boats, rickshaws, and just about anything else used to get from point A to point B. Why single out the automobile? In an earlier post on this board, you also told us that rail creates demand. It seems like no matter what form of transit we choose, increased traffic will follow.

As far as Fort Worth getting Atlanta's problems eventually, is their population going to have to shrink for this to happen because last I checked, it's a larger population city in a larger population metropolitan area with higher population density. Yet somehow it avoids being the traffic hellhole Atlanta is despite it being at best equal with Atlanta's mass transit offerings (somewhat comprehensive bus system with incredibly limited heavy rail line).

But not everything is rosy there. Fort Worth does have a significant pocket of abysmal traffic. It's up north on I-35W and US 377 where they built house after house after house but didn't bother with infrastructure upgrades. Your choices to get downtown are down US 377 which gets stopped roughly 30-35 times per day (not an exaggeration) for railroad crossings or I-35W where there are thousands of houses off of the Interstate but there are still 4-way stops at the exit ramps. Because... you know... who needs traffic lights?