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    A Bad Example for the New Hoosier Governor

    by Tyler Watts, Ph.D.

    Every scientific field has its annals of ancient, failed ideas. In medicine, there’s blood-letting with leeches. In geology there’s the flat-earth model and astronomy has its geocentric theory. And in economics, there’s mercantilism, which oddly enough had a lot in common with one candidate’s plan for job creation in the recent gubernatorial election.

    The Democrat, John Gregg, unveiled several specific policy proposals to reinvigorate Indiana’s economy, with a particular mind towards boosting the state’s employment numbers. Mr. Gregg kept busy laying out his “Hoosier Handshake” platform, the main features of which include:

    • More finely-tuned subsidies (“incentives” in Mr. Gregg’s wording) for companies that hire Hoosiers.
    • Stronger “buy Indiana” provisions for state government contracts.
    • Various policies designed to “keep more of Indiana’s money in Indiana” by favoring in-state banks and local investment opportunities for state funds.
    • A slew of proposals (read: more subsidies) aimed to boost Indiana’s exports by 50 percent in the next four years.

    Mr. Gregg proved himself an astute politician (as his surprisingly strong showing in the election might attest). He focused intently on jobs in a year when the economy is the number one issue. But he was a lousy economist with a platform that reeked of mercantilism — a stale economic program favored by colonial-era empires but long discredited by economic science.

    The simple logic of mercantilism is seductive for the political class. The main idea was that a state could only prosper by being self-sufficient in all industries. Thus kings of yore strove to encourage exports and limit imports, thereby maximizing production within their own borders. With less outflow of our money financing foreign business, the thinking went, and more of their money flowing in to finance our businesses, the result simply must be more economic activity (i.e. more jobs) here.

    Perhaps the easiest way to see the fatal flaw in such a policy is to take it to its extreme conclusion. If imports are bad (“buy Indiana,” remember, was Mr. Gregg’s mantra), and exports are good (Mr. Gregg’s policy would have increased ours by 50 percent), then the best situation would be zero imports, all exports. In other words: we send all our products to people out of state, and consume nothing from them in return. Does that sound like a good bargain to you? Me neither.

    But what about the jobs? Even if the Greggian policies have been debunked by top economists for centuries, isn’t this just abstract, idle theorizing? Wouldn’t these policies have helped spur job-creation in Indiana?

    Possibly. But hey, if “jobs” are really all you care about, I have a better idea, a sure-fire way to guarantee full employment for every man, woman, and child in the state. Simply shut off the state’s electrical grid, abolish the automobile and lock down the state’s borders so no one can come in or go out. I promise that within days the state’s entire workforce will be busy as bees picking corn, cutting firewood, patching up our houses, all by hand (literally). We’ll struggle mightily just to keep ourselves alive, but we’ll all be employed from sunup to sundown.

    Here’s the thing: Jobs are great so long as people are doing the things at which they are the most productive. But who knows what this is? Not John Gregg, nor any other know-it-all politician with a “plan” to boost, promote, or subsidize every Peter in the state by taxing every Paul. The market economy, with its entrepreneurs, prices, and profit-loss accounting mechanism already does a dandy job of allocating resources (including workers) to their most productive uses.

    Mr. Gregg’s rah-rah approach to economics may have sounded enticing due to its simplicity and boldness. But like the medieval doctor’s leeches, it was a needless show at best, and at worst a foolishly wasteful prescription. It served only as a bad example.

    Let us hope the new governor focuses instead on doing those few things government does best, like maintaining law and order. Do this as efficiently and justly as possible, and the jobs will take care of themselves.

    Tyler Watts, Ph.D., is an adjunct scholar of the Indiana Policy Review Foundation.

    This post was tagged under: Indiana Politics

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