|I Was There
In Silicon Valley
D. Dowd Muskas article entitled State-of-the-Art Corporatism and a complementary piece by Ted Forstmann, both in your September/October issue, motivated me to write. These articles should prod each reader to ask a fundamental question that rarely, if ever, seems to occur to the average citizen, namely, What should be the appropriate roles for government?
If we were to return to the principles, focus and boundaries upon which our country was founded, the issues well-documented by Mr. Muska would not even need to be argued.
On the subject of Nevada governments proposed involvement in
high-tech economic development and diversification, lets look briefly at some
historical facts. The high-tech industries that have sprung up in Silicon
Valley California and in the Boston area were not the result of government actions.
Those phenomena were organic in nature and were not manufactured, or even
stimulated, by government involvement. The best thing that any government can do is to
ensure an environment in which freedom, creativity and personal initiative can flourish,
and support that with monetary and social stability. Both of these geographical high-tech
areas primarily developed out of the academic environments existing at Stanford
University, M.I.T. and Harvard University (note that these are private universities) and
supported by the personal lives, energies and fortunes of a few risk takers.
Let me close by saying that to be well-meaning and sincere, as most governmental leaders probably are, is not nearly enough. It has been observed that even Adolph Hitler was sincere. So have been many others in major leadership roles, but, nonethe- less, they have wreaked suffering on their followers, more often than not, because they believed in something they truly did not understand. There is almost always a significant delay between actions taken and results realized. Hence, even the most well-intended programs may have unintended negative consequences, often on the next guys watch. By then, it is too late, and we taxpayers have paid the pricedoubly.
Why Growth Can
Always Pay Its Way
The Nevada Journal article on the Arthur Andersen (AA) tax study of January 1991 (A Very Taxing Study, Sept./Oct. 1999) was a wonderful piece of investigative journalism.
The AA report was nonsense cover to cover but, unfortunately for the people of Nevada, it was exactly the kind of nonsense our political leadership wanted to hear then and still hungers to hear now.
Glen Tenney has done a wonderful job of taking the content of the report, examining it carefully and exposing it for the economic claptrap it is. A great job on whats in the report but, what about whats not in it?
When I read the AA study a few years ago the thing that jumped out at me was the absence of any reference to one of the most important principles of a free market/capitalist economythe velocity of money. The idea is that capital in motion leverages itself over and over again, regenerating itself multiple times beyond the initial economic transaction, thereby creating much more economic activityand tax revenue.
This concept is totally absent from the AA study, which rests on a static assumption (e.g., new and existing households pay X number of dollars in taxes and thats it). By conveniently ignoring the multiplier effect of capital in motion, AA was able to prove that growth cant possibly pay for growth and that higher levels of taxation are necessary. You have to give them credit. They were paid to prove the earth is flat and they did! However, once this glaring omission is understood, the AA report can be seen for the political hucksterism it is.
Of course, a very large question now looms: How much? How much does each dollar, moving through the economy generate over and above its own value? For an official answer to that question I refer to an article in the Las Vegas Review-Journal on 8/11/94: Study details UNLVs economic impact. According to the report on the study done by UNLV, [F]or each $1 paid by Nevadans to support the university, more than $9.50 was generated in the local economy in 1993. Nine-and-a-half for one. Isnt that a lovely ratio?
Of course, this creates a serious problem for statists who cry that growth doesnt pay for growth. If a university dollar (which first had to come out of the private sector) can generate over nine times its value in economic activity, then a private-sector dollar has to do so also. The multiplier effect means that the tax revenues generated (not paid directly) by new and existing households far outstrips the costs imposed and explains why, in a free market/capitalist economy, growth will always pay for growthif it is permitted to do so.
I applaud Glen Tenney and Nevada Journal for a fine expose and I hope our elected officials will take the Journal article with them to Carson City in 2001.