Provo Daily Herald: an example of economic illiteracy
Economic illiteracy continues to plague policy debate in Utah as evidenced by a recent editorial in the Provo Daily Herald.
Last week, the Daily Herald sang the praises of Orem’s recreation and arts tax, claiming that increasing taxes to support arts and entertainment promotes economic growth. The following quote from the Herald editorial board is a perfect illustration of the economic illiteracy the Utah Taxpayers Association has been fighting against over the years.
“Cultural programs do more than just enrich lives. Many outsiders coming to a concert or a play will go out to dinner or go shopping while they're in town. Such activities bolster the economy and, fittingly, boost CARE tax revenues.”
The many “outsiders” that the Herald is talking about are not from New York City, Chicago, or Vienna. They are almost entirely from other communities within Utah. Raising taxes to subsidize entertainment and arts venue so that Utahns can spend money at these venues does not promote economic growth. This is just shuffling existing and future economic activity around within the local economy. As long as people have money in their pockets, locally-driven entertainment and recreation expenditures will occur even if government does not subsidize venues. People are not going to spend more money than they otherwise would just because government has created some entertainment and recreation venues.
If demand for recreation and entertainment venues increases, the private sector will respond by expanding capacity.
If the goal is to increase consumption, the Herald should be advocating tax cuts, which would give consumers more money to spend.Too many mayors and city councilmembers equate subsidizing locally-driven retail, recreation, and entertainment with economic development. As a result, one Utah city offers subsidies to incentivize a retail, recreation, or entertainment development to locate in the city in order to divert locally-driven economic activity from neighboring cities, and the neighboring cities respond by doing the same thing.
It's really not much different than desert tribes stealing camels from each other. At the end of the day, the number of camels in the desert isn't any greater than it otherwise would be. They've just been shuffled around.
What is real economic development?
Long-term economic growth is more dependent on production and increases in productivity than it is on consumption.
Once government establishes the basics for economic growth – rule of law, property rights, etc -- real economic development is driven by two factors: increasing business and worker productivity and exporting goods and services.
Productivity increases when output increases per unit of input. This is driven by investments in technology, education, machinery, telecommunications, transportation and other areas.
Export-oriented businesses such as IT, manufacturing, and natural resources pay high wages and import wealth into our state.
Fortunately, most state legislators understand this, but too many local government leaders and small town newspaper editors do not.