Greg Krehbiel
A dollar spent is … what, exactly?
by Greg Krehbiel on 29 July 2010
It’s old news that states are having budget shortfalls. The latest is that they’ll try to make it up with fees.
I think they could balance their budgets in a year if they enforced the posted speed limits. Not that I think that would be fair, since they’ve basically trained everybody to believe that the “real” speed limit is 10 mph over the one on the sign.
And, of course, I’m not even serious about that, because when you swing at people they duck. IOW, in the face of such enforcement people would change their behavior. Some would slow down. Some would vandalize speed cameras. (I’ve been tempted to do that, and I don’t even speed.)
In any event, it got me wondering about the economic effect of states collecting more money in fines and fees and so forth.
If the state takes $20 out of my pocket, that’s $20 I can’t spend on beer or a ball game or a new shirt. But the state’s going to do something with it. Which use of my $20 is going to do more for the economy?
Some economist somewhere has to have rated different types of spending on their multiplying effect in the economy. For example, spending money on infrastructure has to have a better effect than buying everybody in the state a free sandwich.
So … my question is whether the combined facts of an economic downturn and state budget shortfalls will cause state legislators to start scoring their spending based on its ability to stimulate the economy. IOW, if they were sensible, they’d rank budget priorities (at least in part) by their ability to create jobs or whatever, and they’d rank tax/fine/fee proposals by which sector of the economy they’re pulling money from, and whether that money is better left where it is.
Obviously there’s government spending that does a lot of good and government spending that only does a little good (or none), and obviously the same applies to private spending.
2010-07-29 » Greg Krehbiel
30 July 2010 @ 7:43 am
Fine, let’s prioritize government projects based on their ability to produce jobs. But how is this done?
In the last election, we were promised millions of green jobs. Should we score potential job creating activities in advance, based on our ideologies?
I think a better example is illustrated by the parable of the talents. Investments were made by considering the track record of various managers, but with minimal direction and oversight. Results were measured after the fact. Money was redistributed and reinvested based on proven results.
30 July 2010 @ 8:56 am
I’m not advocating speculative, unproven things like “green jobs.” But surely some economist has figured out how different kinds of spending affect the economy.
30 July 2010 @ 8:52 pm
As to how taking money from people affects the economy, I suspect that that depends a great deal on whom you take it from. If speeding fines, for instance, take money from people of all incomes pretty much evenly, that might have a different effect than if they take it from low income people, who are more likely to spend their money.
But then I don’t know what I’m talking about.