When government picks winners and losers, it's often a losing proposition for everyone.
Take the excitement over biotechnology exemplified by Phoenix mayor Phil Gordon's recent State of the City address.
Only a curmudgeon can't get excited about the mayor's vision of an "Opportunity Corridor" in downtown Phoenix, where new businesses bearing such names as "Surgical Robotics" and "Molecular Diagnostics" could spring up.
However, betting that a particular industry, like biotech, will be the "economic engine" for Phoenix is risky business.
First, dozens of other cities are also betting on biotech, making competition to lure that industry to Phoenix particularly costly. Since city officials aren't actually ponying up their money for the enterprise, they don't directly feel the cost. But taxpayers sure do, in the form of targeted tax breaks, subsidies, and city-built facilities and infrastructure.
Second, as University of Toronto professor of geography Pierre Desrochers noted at a Goldwater Institute conference in February, politicians, no matter how well-meaning, are rarely good at actually picking a winning industry. Technology industries in Silicon Valley, northern Virginia, and Boston largely arose through happenstance, as particular events, such as layoffs of highly-skilled workers in one industry, caused new technology entrepreneurs to set up shop.
Given how difficult economic forecasting is for the most experienced venture capitalists, it's little wonder that politicians fare so badly. The city would be better served by avoiding the messy, complicated, and unfair game of picking winners and losers, in favor of an approach that rewards entrepreneurs through a lower taxes and fewer regulations.
The U.S. House of Representatives passed a $284 billion federal highway bill last week by an overwhelming vote. The bill includes almost 4,000 earmarks, which are special projects included in the bill for the benefit of individual members of Congress. The earmarks include funding for numerous local projects that have nothing to do with interstate travel and are prime examples of pork.
Funding for the highway bill comes from the federal gas tax, which amounts to an extra 18.4 cents per gallon. The tax was enacted in 1956 to support construction of the interstate highway system. That system is now complete, and the tax has outlived its usefulness.
Only about 90 cents of every dollar Arizona consumers pay in gas taxes ends up back in this state, making Arizona a donor state. Considering that the tax is no longer necessary, and that it has a negative economic impact, President Bush should follow the example of President Reagan and veto the highway bill. It may be good for the congressional piggies, but it's bad for Arizona taxpayers.
This year marks the 50th anniversary of Nobel Laureate Milton Friedman's education voucher proposal. Here's some gold-standard research to commemorate the birth of an idea?
School choice is perhaps the most widely researched education issue. Yet remarkably little research finds its way to the pages of your morning paper. For example, in an analysis of 30 years of school choice studies, Columbia University researchers found "A sizeable majority of these studies report beneficial effects of competition across all outcomes," including higher student test scores, graduation rates, and teacher salaries.
In five cites with vouchers programs, scholars find vouchers are linked to higher student performance "in virtually every case."
Harvard University economist Caroline M. Hoxby finds school choice is a tide that lifts all boats. For example, in Milwaukee public schools facing competition from private schools accepting vouchers, student achievement rose as much as 4.7 national percentile points faster per year than in similar schools not facing competition. Writing on these findings for the National Bureau of Economic Research Digest, Linda Gorman notes, "Such gains are virtually unprecedented for an American school reform."
Andrew J. Coulson, senior fellow in education policy for the Mackinac Center, concludes, "The consensus of the valid empirical research is clear: Competitive markets of minimally regulated non-government schools regularly outperform state school monopolies. They do this, moreover, both at the level of individual student effects and broader social outcomes." Competition and freedom-ideas that never get old.
All together now: an increase in the minimum wage will reduce the number of jobs.
As much as we might not like it, there are certain realities that simply cannot be reversed. The laws of supply and demand are an example. For all the chest-thumping about the indignity and lack of compassion in current minimum wage laws, they're for all the wrong reasons.
At both the federal and state level, legislators are considering raising the minimum wage with the honorable goal of increasing wages for America's poorest laborers. A federal proposal would raise the minimum 40 percent to $7.25 an hour from $5.15. A state proposal would raise it from the current federal minimum to $7.10.
These proposals gain steam because of the attractive sentiment that they will do something for those working for the minimum, giving a little more of a chance to gain independence and save for the future. The cruelty in our current laws, however, stem not from the low wage floor, but rather from the existence of one. Because of the immutable laws of supply and demand, a minimum wage actually reduces job. And as much as we would like to see hard-working minimum wage earners earn more, the alternative is no job at all.
Steve Chapman, in his column for the Chicago Tribune, briefly outlines some significant research on the subject, including the much heralded Card-Krueger study (which purported to find a net increase in jobs after a minimum wage hike). Chapman concludes, as have numerous economists, that the study was flawed.
At best, an increase in the wage floor can be neutral (harming some and helping others in equal proportion), but most likely is a net loss for the labor market.
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