Stephen Slivinski

In the Economic Horserace, Government is a Terrible Gambler

Posted on May 14, 2013 | Author: Stephen Slivinski
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Recently the very fashionable turned out to bet on their favorites in the Kentucky Derby. But betting on horseraces – economic horseraces – has been all the rage in legislatures across the country for decades. Unfortunately, legislators are more like problem gamblers than successful high-dollar poker stars.

The Arizona House recently approved letting state government play venture capitalist with taxpayer money. At the moment, the measure is languishing in the Senate Rules committee. The bill would authorize the Arizona Commerce Authority to use insurance premium tax revenue to fund high-tech start-ups.

Not surprisingly, all House Democrats voted for it, while nearly 40 percent of the Republican caucus opposed.

The Senate would do well to let this bill die. Studies of all types of government investment programs show that government has a terrible track record of making good bets. The programs that purport to encourage investment and job growth always seem to, at worst, end badly and, at best, have no effect – all at taxpayer expense. One of the most comprehensive surveys of the research on state-based economic development policies appeared in the Journal of the American Planning Association in 2004. The authors concluded that “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence.”

The best formula is instead to maintain a level-playing field and not favor some companies over others. To put it in horse racing terms, state government really needs to be in the business of making sure the starting gates don’t jam and that the track is well-maintained. They shouldn’t be rushing to the betting window.

Learn more:

Goldwater Institute – Government: A lousy venture capitalist

Inside Tucson Business – Tech Council pushes for high tech investment fund

Mackinac Center – Review of literature on economic development incentives

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