Citizens, Investors and Legislative Circus Poodles

Last year, a legislator that the authors have known for many years asked for our opinion on a new state "incentives" program targeted at a specific industry. His response to an expression of skepticism was slightly shocking:

"So you don't think we should use the tax system to get people to do what we want them to do?"

This got us thinking about the relationship between government "economic development" programs and personal liberty, and on that issue we will close out our 2009 contributions to the Mackinac Center blog.

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In one important sense, government can't help using the tax system to "get people to do what it wants them to do," even if it tries.

For example, should the state seek more of its revenue by taxing consumption (sales taxes, excise taxes and residential property taxes) or by taxing work and investment (business taxes, income taxes, capital gains taxes and property taxes on business tools and equipment)? The authors believe that the former is the more economically efficient choice, because reducing the disincentives to work and invest generates greater prosperity, allowing people to both consume and invest more in the future. But we can't deny that this is seeking to "get people to do what we want them to do."

However, that's not what this particular lawmaker had in mind. He was talking about economic micromanagement by government central planners — specifically by legislators, who were willing to replace the "invisible hand" of a free market's allocation of scarce human and material resources with their own "finger on the scale" judgment of specific enterprises they think are worthy of greater allocations than would otherwise occur.

On what basis do legislators and "economic development" agency bureaucrats claim an ability to allocate scarce resources in way more optimal than unfettered market processes? What history or systematic research can they point to that would cause any of us to believe for an instant that they can do so?

Here's the answer to that last question: None. Just the opposite, in fact: History and the consensus of economic research demonstrates that government central planning always and everywhere generates less optimal allocations than market processes, with the result that prosperity and opportunities for the affected population are less than they would have been in the absence of such efforts.

We all pay a price when government treats investors, entrepreneurs and households as circus poodles made to jump through hoops in order to collect selective tax-break or subsidy "biscuits" handed out at the whim and discretion of bureaucrats and legislators.

For one thing, those "biscuits" aren't free — government has nothing to give one person that it hasn't first taken from somebody else. For another, the inevitably sub-optimal allocation of resources resulting from such activities makes us all less prosperous, not more.

More fundamentally, the exercise makes us all less free. Ours is supposed to be a free society comprised of sovereign citizens who consent to delegate certain limited powers to government. Seeking to micromanage the investment, work and consumption choices of the people are not among those delegated powers.