I sent the following off in an email to a prof at WCU this morning. I thought I’d cut and paste it here in case anybody out there would care to help me with my “ill-thinking-out”:

I must say I am skeptical of the graphs presented to us every time the commissioners give a presentation on economic development incentives. I am willing to be wrong, but first I need some facts. We could talk on the phone, but I am really interested in learning about the algorithms in IMPLAN. I am assuming they are proprietary, but there are surely texts on economic analysis, or web sites, where I can sit down and look at variables, definitions, and parameterizations.

In order to save time, I could give you a brief summary of some of the things rattling in the vacuum between my ears:

For starters, it appears you define an economy as the sum of all dollars exchanged within a specified region. For example, if a dollar comes in from South Carolina, gets traded three times, and then goes out, we would be four dollars richer. This is based on what we hear about paying a person $30,000 will bring $100,000 into the economy.

That definition does not sit well with me, based on simple notions of trade. That is, if somebody spends a dollar in my shop, unless I am a masseuse or a fortune teller, I end up losing inventory as well as costs for manufacturing and order fulfillment. My instincts say we should only be including markups here.

Does the model address potential losses in investment? That is, conventional wisdom teaches that saving for big things results in a stronger economy than blowing chunk change on trinkets. What little I know about the program leads me to believe it gives all credit to transacted, rather than invested, dollars.

I am assuming the term, “investment in the community,” short of corporate gifting, pertains to purchases from local vendors. Do we subtract the raw materials from the vendors’ inventory or assume dollars are created rather than exchanged in trade?

I could ask the general question of how opportunity costs are calculated. How is the reality that some percentage of wares would be sold to other companies treated?

On job creation, we are not told anything about where the employees originate. I have a vague recollection of reading a study somewhere that said new jobs create vacancies in existing businesses, and it takes about three or four displacements of the currently employed, on average, to get an unemployed person a job. It is likely all three or four jobs will not be filled by local people. Is this considered?

When we speak of indirect and induced jobs, how is this calculated? Particularly when it comes to induced jobs, I am assuming, and this could be a stretch in the absence of any knowledge of IMPLAN’s code, that you would look at the amount of money employees are receiving, assuming an average percentage is spent in the local economy, and assuming another percentage of that goes toward hiring at local businesses, as opposed to investment, taxes, and other business expenditures. What is the formula?

When we talk about the ROI, it seems the city, state, and county all claim the same numerator for their respective denominators. Is this fair? Do the numbers work so miraculously with jobs created by the private sector?

As for taxes, a new company, and its employees should consume an amount of government services. When we calculate tax revenues with IMPLAN, are we subtracting the extra police officers, teachers, infrastructure, copy paper, vehicle miles, and such other expenses government will incur?

As more and more companies rely on government to help fund employees, real estate, and equipment; do we include an iterative function to chop off percentages of the total because government is spending tax dollars on that which it taxes?

Well, that’s a start. Again, if you could email me back some answers, or direct me to some textbooks that address my concerns, I would be grateful. I hope you can understand my skepticism. I see these charts of skyrocketing ROI’s all the time, and frankly, I’m not feeling a thing. Your assistance would be most appreciated.