December 12, 2004

A Welfare State No More?

The New Yorker's James Surowiecki notices an intriguing little development: The Sixth Circuit Court of Appeals has found that states do not have the right to offer tax credits and other such subsidies in order to woo businesses (because, according to the Constitution, only Congress has the power to regulate interstate commerce). Surowiecki thinks this is a good thing, since these state subsidies a) distort the market, b) divert funds away from more productive uses, c) often don't succeed in luring business anyways, and d) provide "fertile ground for cronyism and political favoritism."

Okay. Now set aside the legal merits of this case—I haven't a clue what the issues are. But assuming that the Supreme Court declares such subsidies illegal, then the question of whether this will be a good thing or not depends entirely on Congress. If senators and members of the House decide that no, we really did need those subsidies, then they'll take matters into their own hands and usher in a new age of pork like nothing we've seen before. If "location-based incentives" were inefficient when doled out on by state governments, consider how disastrous they'll be in the hands of Congress. On the other hand, if Congress decides that it needs to improve the general economic climate of the country, rather than rely so heavily on subsidies to do the job, then the Sixth Circuit's decision will be a very good thing indeed.
-- Brad Plumer 10:32 PM || ||