How can we live together in peace, prosperity, and harmony, while retaining our liberties as autonomous individuals who can, and must, create our own values? -- J.M. Buchanan
Igor Vojnovic has provided an extended response to my criticism of his article:
posted by Ross B. Emmett @ 12/06/2007 02:48:00 PM
Professor and Co-Director of The Michigan Center for Innovation & Economic Prosperity. An historian of both classical and Chicago economics, I also have research interests in constitutional political economy and comparative institutional analysis related to innovation and economic development. I hold an International MBA from the University of South Carolina and a Ph.D. in economics from the University of Manitoba. Before coming to MSU, I held university positions in western Canada for 15 years. I am the editor of The Biographical Dictionary of American Economists, Selected Essays of Frank H. Knight, The Chicago Tradition in Economics, and Great Bubbles, and am an editor of Research in the History of Economic Thought and Methodology. At James Madison I teach Politics & Markets, the core course in the Political Economy specialization, and a senior seminar on Constitutional Political Economy.
2 Comments:
Mr. Vojnovic, who although presents compelling arguments puts the cart before the horse. Vojnovic responds to Emmett's argument from an ideological standpoint. That is, that low taxes, low government regulation, etc. are a normative necessity throughout a State or Cities economic growth cycle. That assertion neglects Emmett's logic argument. Properly interpreted one would rather see Emmett's argument in the context of Michigan and in answering, how can Michigan "best" promote economic growth or rather "best" establish a premise for economic growth to occur.
Vojnovic's argument skips this question and goes right to what should a State or City do once they have something. Cities such as New York or San Francisco inherited a base and used taxation to expand upon that base or grow horizontally from this base. The use of taxation or government intervention in this circumstance is understandable. However, a city such as New York had something to build upon whereas Michigan does not. It could be argued that Michigan has a manufacturing base, but this manufacturing base is dying and there are not enough residual industries from which to build upon. Michigan must begin from scratch.
Furthermore, Silicon Valley is an example of luck. Silicon Valley got lucky that technological advancements were occuring and rightfully took advantage of this by creating friendly governmental regulations and a progressive tax program. Michigan does not have this sort of luck.
Therefore, this brings us back to Vojnovic's argument that if Michigan regulates and puts in place a high tax structure companies will locate here for the infrastructure of schools, transportation etc. However, this argument neglects the question, how does Michigan begin, how does she build a premise. To establish a foundation with high taxes contradicts Vojnovic's own corporate relocation argument. That is he points out that corporations relocate to urban environments with high taxes because they get to be near an already existing infrastructure. Corporations do not relocate to places where there is nothing. They build upon eachother and once they begin to build upon eachother government actors put in place advantageous government policies which include high taxes. But, high taxes do not come first. Innovation comes first, once there is innovation and a futuristic economic base established, progressive economic policies become implemented to create aestetic advantages to a location so that the economic base becomes secured and thus built around.
Michigan has nothing to build around. A high tax environment with nothing else is not an incentive for Corporations to relocate to Michigan. Rather, a low tax environment that establishes an economic base and something to build upon which eventually leads to higher taxes and greater government regulation is the more proper path. This also gives Michigan the flexibility to adjust taxation based upon future needs either in growth (lower taxes) or retention and strategic development (high taxes).
Following from above, this is not to saw that high taxes cannot promote growth; they can. However, there first must be a base to build upon. Michigan does not have this base. To counter the argument that low tax states are not successful is explained by recognition that these states neglect the second phase of growth, which is security or high taxes and government intervention. Low tax states promote innovation, but once this innovation occurs these new businesses move to localities that have higher taxes because of the already established base. Its a yo-yo effect. Low taxes and innovation lead to higher taxes, which leads to even greater growth. However, if that growth regresses lower taxes become necessary to facilitate innovation and subsequently higher taxes become necessary for retention and strategic development in that area. This yo-yo also applies to government regulation. As markets change regulation changes also, less to more to positively promote the changes to the market. However, innovation must come first. Therefore, Emmett is correct in arguing that low taxes establish a foundation from to build upon, and Vojnovic is correct in arguing that high taxes promote growth once a base is established. However, in Vojnovic's response to Emmett he puts the cart before the horse and mistakes Emmett's foundation argument for an ideological argument.
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