Duke’s Michael Munger writes for the American Institute for Economic Research about a legislative folly.
The North Carolina General Assembly is considering taking some of the current budget surplus and creating an “endowment,” a free-standing fund that be empowered to act as a government “angel” investor to encourage innovation in our state. …
… State innovation policies are excellent examples of faith-based spending, a faith arising from a thoughtless application of the worst kind of political opportunism. …
… The premise of the proposed expenditure — $1.5 billion, with a “b,” of taxpayer money is to be reserved as a permanent income-producing endowment the income from which is to be allocated by a 13-member board of special geniuses — is that North Carolina “lags behind” other states in innovation. Since NC does well on measures of research and development, there is a mystery: Where’s the innovation? …
… Government finance is a residual category, since spending the state must, by definition (1) be taken from private hands in the form of taxes, (2) be accepted from private hands from the sale of debt, or (3) be stolen from private wealth in the form of inflation by profligate creation of new currency. That’s it, those are the only three sources of income for government: taxes, debt, and printing new money.
Any government spending of those funds, then, has hidden costs. To bureaucrats, all government spending is a benefit. But that’s just the “Broken Window Fallacy,” which looks only to the people or organizations who receive the “new” money, not to those from whom the wealth was taken. In this case, the budget “surplus” simply means that North Carolina is taking in far more money in taxes than it is spending on programs.
If NC uses the surplus to fund an endowment, the underlying assumptions are:
(a) the money could not be better spent on other state programs, and
(b) the money could not be better spent if it were returned to taxpayers, to be spent on what they want.
