Wednesday, December 08, 2004

COLUMN -- Some spending hikes need no apologies

Posted by Craig Westover | 11:12 AM |  


This past Sunday, the Pioneer Press Editorial Board virtually apologized for adding another costly item to the "to-do list" for the upcoming legislative session — building more prison space. Earlier, I wrote a column urging the Legislature to put increased funding for public defenders on the "should-do" list. In neither case is apology necessary.

Then there's the state bonding bill.

Last legislative session, various bills included funds for the Minnesota Zoo and numerous regional projects. Transportation projects included the Northstar rail line, Cedar Avenue busway and planning for a central-corridor light-rail project. Much apology is required.

The issue at hand is not the relative merits of prisons and public defenders vs. Madagascar hissing cockroaches, Greater Minnesota civic centers or little engines that "might." The issue is between discretionary government action — however well-intentioned — and government fulfilling its legitimate obligations — like protecting its citizens and the constitutional rights of the accused.

Appropriating human and economic resources for things government could do prevents government from focusing on the things it should do.

Also among should-do functions are constructing and maintaining roads and bridges and necessary government buildings. State security is an essential function. The state has a constitutional obligation for K-12 education and the university system. Like education, protecting the environment is a "public good" in that the benefits apply to all.

Certainly there is plenty of room for debate about how and how much government spends on these activities. But one cannot argue they are not legitimate functions of government. One cannot make that case when our legislators put forth bonding and spending proposals, as they so often do, under the guise of "economic development" and "job creation." That is simply wrong.

Consider the classic economic example of the "broken window fallacy."
A store owner's window is broken. He hires a repairman to fix the window and pays him for his work. Suddenly, there's a visible "boom" in the glass-replacement business (like the construction "boom" in Florida resulting from this season's hurricanes).

What is not visible are the potential ways the store owner might have spent the money he paid to replace the window. He might have bought tickets to a play at the Park Square Theater, a Hardee's "Monster Burger" or paid an employee bonus. But because of the broken window, none of these will come to pass. The store owner loses and society loses even though there is a perceived "boom" in glass replacement.

This same logic applies to government spending and taxing and bonding, which is just future taxation.

To spend money on anything, the government must first "break a window." It must tax money out of the economy or borrow it from capital markets. While "economic development" and "job creation" supporters claim they are "investing in Minnesota," they fail to mention that their actions, like fixing a broken window, necessarily inhibit employment of "nonglaziers."

Light rail was also in the news this weekend, hailed for exceeding ridership "expectations." But as a reader observed to me, increased light-rail traffic means fewer fares for cab drivers. He's right, and that's an example of the broken window fallacy in action.

Proponents of light rail point to happy subsidized riders and say, "See the 'boom' in light-rail ridership." The unseen consequences are the myriad jobs and business expansions that never come into being because tax dollars are riding the train instead of buying things or saving for things individuals value more than light rail.

When a public project creates a benefit that people would willingly pay for even if they were not taxed, there is overall value to society. But when the only justification for a project is "creating jobs" or some vague notion of "economic development," then subsidies result in a net loss to society. Gains subsidized by government spending are always at the expense of others' losses.

Without apology, legitimate functions of government — prisons and public defenders among them — necessarily should be fully funded in the next session of the Legislature. "Job creation" and "economic development" without necessity should not. Let's hope the next legislative session is one for which no one need apologize.