“Reduce the state’s income tax…repeal the state’s capital gains tax.” Arkansas Policy Foundation, 1998
“This week I signed into law the Quick-Action Closing Fund. This legislation will provide our State with an additional tool in our economic-development toolbox.” Arkansas Gov. Mike Beebe, March 29, 20071
(November 30, 2011) Arkansas payroll employment is lower than in July 2007 when the “Economic Development Incentive Quick-Action Closing Fund” championed by Gov. Mike Beebe and state legislators took effect.
Total Arkansas payroll employment was 1,202,000 in July 2007, and 1,170,400 in October 2011, according to the U.S. Bureau of Labor Statistics. The Quick-Action Closing Fund took effect nearly four-and-a-half years ago on July 1, 2007.2
Gov. Beebe, in March 2007, said the Fund “gives Arkansas powerful new ammunition to improve economic development in the short- and long-terms. This will help Arkansas effectively close deals to bring in new jobs and will create a nonpartisan board of our best and brightest individuals to formulate long-term economic-development strategies.” Taxpayer funding comes from $50 million in the General Improvement Fund directed for economic development.
Concept Has Many Economic Critics
The so-called ‘best and brightest’ concept of economic development cited by Gov. Beebe is popular around state capitals, but has many economic critics. The ‘best and brightest’ concept holds that a government blue-ribbon panel or super-committee of experts can pick economic winners and losers better than private markets. Proponents, in essence, argue the ‘best and brightest’ are more important than reducing tax rates or regulatory barriers. The fallacy of this argument, pursued by governments including Arkansas’ was identified two generations ago3 by F.A. Hayek, the 1974 Nobel Laureate in Economics:
“In ordinary language we describe by the word “planning” the complex of interrelated decisions about the allocation of our available resources. All economic activity is in this sense planning…this planning, whoever does it, will in some measure have to be based on knowledge…The various ways in which the knowledge on which people base their plans is communicated to them is the crucial problem…This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. Planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning-direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons.”
The Quick-Action Closing Fund is an example of a central plan by one authority. Ironically, Hayek spent part of 1950 at an American university. It wasn’t an Ivy League school. It was the Univ. of Arkansas in Fayetteville.
Quick-Action Fund Won’t Solve Economic Emergency
The Arkansas legislature, in approving the Fund, adopted an emergency clause that noted “losing business to other states may result in distressed economic conditions to the State of Arkansas…” An Arkansas employment level4 that is lower than mid-2007 is, indeed, an emergency. Unfortunately, this economic emergency won’t be solved by a Quick-Action Fund or Five-Year Plan.
–Greg Kaza
1 Gov. Mike Beebe’s Weekly Radio Address, March 29, 2007
http://governor.arkansas.gov/newsroom/index.php?do:newsDetail=1&news_id=693
2 PA 510 of 2007 (introduced as SB 440)
3 Hayek, F.A. 1945. “The Use Of Knowledge In Society.” American Economic Review (September) 519-30
4 Total Arkansas Government employment (federal, state, local, education) increased in the period.
