HICKS: What a third-grader gets about economic policy

October 3, 2009

I recently attended a birthday party with my two sons. This bevy of 9-year-olds looked a bit daunting, so I stuck around to chat with another dad and lend a hand if the hostess needed it. True, this offered me a chance to play laser tag and have a piece of cake, but really, that wasn’t why I stayed.

By chance, the conversation turned to economic policy. Earlier in the month, reports were floating that Michigan was broke and would begin a series of statewide shutdowns. This was bad news, which one dad conveniently used for a teaching moment. The conversation with his son was so elegant, simple and pure, it called for retelling.

“Son, have you heard Michigan will not open its offices for a few days next week because the state is broke?”

“Dad, does that include the Lions? They could use the break.”

“No, son, just the offices that are there to help people and keep the state running.”

“Hmmm, Dad, that’s not good.”

“Son, what do you think the governor will do?”

“Dad, that’s easy. He’ll probably have to raise taxes to get more money to keep the state going.”

“Son, I think you are right. But people in Michigan already pay very high taxes. What do you think businesses will do when their taxes go up?”

“They’ll just move to Indiana. Gotta go, Dad. They’re cutting the cake.”

This brief lesson in economic policy from a third-grader is just the sort of material many city and state leaders need in times like these. Many are about to learn it the hard way.

Faithful readers of this column will recall I am not a deficit hawk, nor a single-minded foe of taxes. Business and people now, and in the future, will choose to locate in places that have the right mix of taxes and public services. Good public services—primarily good schools, recreational amenities and the like—will always draw more taxpayers and folks willing to pay higher rates. Places that do poorly on these scores will have to have very low taxes or drive residents and businesses elsewhere. Communities that enjoy good public services and low taxes will grow.

In my judgment, much of Indiana is poised to learn a happy lesson on the virtuous combination of low taxes and good public services. That is not an accident of nature, but the result of disciplined and sometimes difficult public policy. Sadly, more than a few places in the state continue to endure low-quality schools, ineffective local government and high taxes. They will not prosper in the coming recovery.

This recession has been long. As a result, there is significant pent-up demand for business investment. When it is unleashed, the places that offer that investment the best prospect of profit will benefit. For the first time after the past four or five recessions, Indiana is such a place.•


Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.


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