The Outstater: Eco-Devo Pyramids

July 16, 2015

“Just weeks away from submitting a proposal for a chance to be awarded $42 million, the Northeast Indiana Regional Development Authority is taking the final steps in completing its Regional Cities plan.” — July 15, 2015, NBC33, Fort Wayne

THERE COMES A TIME, alas, when you think a lot about economics. In fact, most people of a certain age are begrudgingly good at it, which is not to be confused with being wealthy as a result of it.

For years they have sat at kitchen-table board meetings, some of them tense, managing job changes and even unemployment, applying for loans, reworking mortgages, budgeting for education and automobiles, comparing insurance premiums, negotiating hospital bills and so forth.

They are not financial idiots. They know that “investing in the future” means something more than giving a speech promising to use revenue from a tax increase to improve things somehow, some indefinite day. And they know what “jobs” mean — gainful work for themselves, their families and their neighbors, not paydays for politicians or cronies.

Most important, they understand that they will have to be productive — competitively productive — if they expect to maintain or improve their family’s standard of living. That’s why some are having trouble buying into the regional economic-development concept now sweeping Indiana. It is unclear how it is connected to productivity.

If a roomful of local bigwigs can create wealth, say, by setting up a 10-county regional “authority” to attract a federal grant and then funnel it to the exact right people who could put it to the best possible use, then why isn’t everywhere rich?

Tad DeHaven, an adjunct scholar of the Indiana Policy Review Foundation and a former state economic-development official in the Daniels administration, asked a similar question in a report to the Cato Institute.

The Economic Development Administration (EDA) claimed that for every tax dollar it gave to these regional groups, taxpayers got $24 back in value. DeHaven, though, says few independent economists believed it:

“How would it be possible for federal employees to find such high-value investments that the private sector or local governments have missed? If the payoff from projects really was 24-to-1, for example, then surely local entrepreneurs and venture capitalists would be interested in funding such projects without any help.”

The real story is that the broader and more distant the financing for a project, the more likely it is driven by political forces, not local economic ones. Adding to our suspicion is a study that found the timing of EDA project announcements inexplicably coincided with election periods.

Even the best of them seem to be of the build-them-and-they-will-come variety, e.g., high-visibility, low-margin projects such as convention centers, sports venues, tourist attractions, plus the wayward manufacturer or questionable real-estate venture that depends on creative bookkeeping to justify the cost.

As a worst example, DeHaven carries an architectural drawing of the unfortunately named Needmore Pyramid north of Bedford, Indiana. EDA grants were approved in the late 1970s during a sales slump at the big quarries there. The idea, eventually abandoned due to public ridicule, was to build limestone replicas of the Great Wall of China and an Egyptian pyramid.

The lesson here is that if your region needs economic development, it may not be because you lack the Pyramid of Cheops. It may be because your policies are not conducive to growth (high taxes and burdensome regulations).

“With the high mobility of workers and investment capital these days, any jurisdiction that creates an inviting climate for businesses and skilled workers can prosper without outside help,” DeHaven advises.

That’s pretty much what you would hear at a typical kitchen-table board meeting.

— Craig Ladwig

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