Alturas: Economics 101

[Greg Brown <gregb@alaskapacific.edu>]

Visionaries:

   I wrote this a while back but never posted it.
Perhaps this is relevant given the alleged economic
benefits of Alturas.
---------------------

   The discussion of Alturas has raised a number
of important issues.  Economists posit a number
of reasons to describe why government might
want to intervene in the market system as was the
case with Alturas.  Briefly they are:

1)  To correct for a market failures (internalize costs)
2)  To ensure competitive markets (prevent monopolies)
3)  To provide public goods (private sector under supplies)

Which of the above 3 reasons justifies Moscow
City Council action? Reason number 1 can be ruled out--this did not
involve the regulation of business with externalities.
The business(es) did not even exist when government
intervention was sought.

Reason number 2 is out--there was no
monopoly situation involved.

Reason number 3 is the
only plausible justification--government
intervention was required because some
public good was being undersupplied--presumably
this public good was high tech business.

Was this sufficient reason for government
intervention?  One of the virtues of a market
system is the way it "magically" regulates
investments by providing important
information about the investment.  The
fact that the business park could not attract
private investment money is important
information.  It suggests the potential
return on investment was not worth the
risk associated with the investment.

For government intervention, there
should be compelling evidence of
the public benefit to be gained by
overriding market forces.  In the case
of Alturas, I've yet to see articulated
the compelling list of actual
benefits that would accrue from such
a project.  What information did
the City Council possess that was
better than the information provided
by traditional market forces?

>From my perspective, there is a more
descriptive economic concept that
applies to the Alturas decision.  The
concept is called "rent seeking" and
it occurs when special interests prevail
upon government to provide
certain private benefits that bear clear
public costs and/or risks.

Traditionally, business interests (often,
but not exclusively "conservative" Republicans)
advocate that government not interfere
with the market.  "Leave business alone...
the market knows best..." is the battle cry.
But we are left with a paradox.  In examining
the actual Council vote, why did all the
avowed conservatives on the Council vote
for government intervention?

----
Epilogue:  If you hired an employee, would
you consider his/her wages a cost or a
benefit?  Economic "developers" have managed
to turn simple accounting on its head by
magically transforming jobs (an accounting
cost) into economic "benefits."  This mantrum
is repeated so often it has taken on the
characteristics of a religion.  The truth of
the matter is that jobs represent opportunity
**costs**--Moscow's apparent gain is probably
somebody else's loss.  Only in the case of
large, slack resources may jobs be viewed
as a benefit--and even then, the alleged
benefits need to be offset by the wages paid.

   Growth in the economy is meaningless
without growth in quality of life.  Economic
growth does not equal economic
development.


--
Greg Brown (gregb@alaskapacific.edu)
Associate Professor
Environmental Science Department
Alaska Pacific University
(907) 564-8267
http://polar.alaskapacific.edu/gregb