State-Level Economic Policy

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(cc photo by Ken Lund)

NC asks:

Today you tweeted about a Cato article about GOP led Ohio industrial policy, basically that was giving away massive tax credits and general subsidies. And I know you’ve come out against state level film credits. So basically, the topic I want to know more about is: what is optimal state policy to encourage economic growth?

I don’t think there’s a real answer to that question. In part that’s because state-level policy is kind of like SimCity, in that it’s clearly possible to lose but the victory conditions are fairly undefined. On top of that, different states are really quite differently situated. The general thing I would say is that state governments ought to think more about people and less about states as such. On the one hand, all the people of the planet earth are free and equal moral agents entitled to consideration in our thinking. On the other hand, if elected officials in Michigan have special Michigan-related responsibilities those are responsibilities to the people of Michigan not to its land area. If the upshot of your policy initiative is to move a factory from State A to State B so that people don’t move from State B to State A then the upshot is that you haven’t actually accomplished anything. Unless you’re creating new opportunities on net, including opportunities for people to move to your state (by reducing the cost of housing) and for people to get the skills needed to leave your state (by providing quality education) then you’re not really accomplishing anything.

I sometimes hear people say that states have incentives to pursue policies that are individually rational but collectively harmful. But the idea that those are the incentives is driven by poor habits of thought. Better journalism and more rational modes of thought can create a dynamic in which this kind of thing isn’t seen as desirable policy.