Up & Coming Weekly

November 25, 2014

Up and Coming Weekly is a weekly publication in Fayetteville, NC and Fort Bragg, NC area offering local news, views, arts, entertainment and community event and business information.

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NOV. 26 - DEC. 2, 2014 UCW 17 WWW.UPANDCOMINGWEEKLY.COM Although I support the tax cuts and other fiscal policies adopted by the North Carolina General Assembly and Gov. Pat McCrory over the past two years, I have repeatedly urged policymakers and commentators alike to avoid making gran- diose claims about those policies' immediate effects on North Carolina's economy. It's not that I think legislative decisions about state budgets are irrelevant to economic growth. On the contrary, my reading of the past 25 years of academic research on economic growth suggests that state policy has a statistically significant connec- tion to job creation and income gains. All other things being equal, states with smaller governments, lower taxes and less regulation have healthier, faster-growing economies than do other states. There are exceptions. But that's the general ten- dency. However, these effects are most evident over time, as changes in incentive and outlook lead to changes in the behavior of entrepreneurs, investors, professionals, workers and consumers. States lack the tools — and ought to lack the intent — to manipulate the economy in the short run. They can't run operating deficits and have no power to inflate the money supply (thank goodness). How state governments can contribute to economic prosperity is by delivering high- quality, growth-enhancing services. The real state policy debate, in North Carolina and elsewhere, is about the definitions of the terms "high-quality" and "growth-enhancing." For liberals, the modifiers seem to have no real meaning. Virtually all government spending is good for the economy, they suggest, which means that virtually all tax cuts that have the effect of constraining government spending must be bad for the economy. Their position is logically incoherent and empirically flawed. We all know from our own personal experience that some of our expenditures are intentionally frivolous, some are intended to serve our long-term interest but don't turn out that way, and some actually boost our future security, happiness, or earnings. As imperfect human beings, we can try to do our best and still err. The same is true for any institution created and run by human beings, including government. Empirically, the Left's position may have been plausible decades ago. But the past quarter-century of academic research has simply demolished it. Most studies find no positive relationship between state spending and economic growth. In fact, the only category of state spending for which most studies find positive economic effects is public safety — law enforcement, fire protection and the court system. Even for major state functions such as infrastructure and education, the evidence is mixed. While increasing mobility and literacy are obviously valuable goals, states often pursue them ineffectively. They squander money on low-priority projects or initiatives. The economic costs of taxing households and businesses to finance the programs exceed the scant benefits they produce. The real reason, then, to reduce public-sector tax burdens and spending levels is not to engineer some kind of short-term stimulus. It is, rather, to maximize investment in assets that enhance growth in the long run — by which I mean the sum of private investment (the result of taxpayers keeping and deploy- ing more of what they earn) and public investment (the result of governments cutting back on wasteful spending in order to finance high-demand infrastructure or truly effective education reforms, both requiring many years to come to fruition). A study just published in the journal Econometric Reviews by University of Chicago professor Arnold Zellner and University of Pretoria professor Jacques Kibambe Ngoie, provides an excellent case study of how this process works. They found that reductions in personal and corporate tax rates in the U.S. were followed by higher rates of economic growth. Here's how they explained the result: "The private sector is allowed to manage a larger portion of its revenue, while government is forced to cut public spending on social programs with little growth-enhancing effects. This broadens private economic activities overall." North Carolina's economy continues to improve. Indeed, our recent economic per- formance exceeds regional and national averages. These are promising trends, certainly, but it remains too early to declare outright victory (or defeat) for the state's recent changes in fiscal policy. States Should Think Long-Term BY JOHN HOOD "I am mad as hell and I want my state back." Former UNC-Wilmington Chancellor Jim Leutze wanted to use this phrase as the title for his new book about modern North Carolina history and politics. Eventually, he settled on another provocative title, Entering North Carolina: Set Clocks Back 100 Years, which The Charlotte Observer book columnist Dannye Romine Powell has named "best book title of the year." Leutze 's first title idea reflects the views of many North Carolinians who would like to reverse the recent changes in direction brought about by the Republican-controlled govern- ment in Raleigh. On the other hand, as this month's elections indicated, more North Carolinians may approve or accept these changes. What are the changes that concern Leutze so much? In the introduction to his new book, he summarizes the changes that concern him. "For those who were born or came here in the last four decades of the 20th century, North Carolina seemed a relatively forward-looking state, with its emphasis on education, research, environment, good government and good roads. Then in 2010 and again in 2012, North Carolinians got a surprise. After 150 years of sporadic forward movement, North Carolina began a policy of astonishing deconstruction. "A state that had slowly dug itself out of poverty and negative stereotypes began suddenly to go backward in time, with the election of commit- ted conservatives in the governor's office and conservatives as the ruling majority in the state legislature. What are businessmen in North Carolina thinking? What are business interests in the country thinking? Is this a state to which they wish to come? Is this a portent of the future?" Leutze compares recent changes to those in the late 19th century when the so- called "Redeemers" took control of North Carolina government from progressive or populist forces in the post-Reconstruction era after the Civil War. Although his history is admittedly partisan, Leutze's storytelling ability and background as a popular history teacher at UNC-Chapel Hill make his summary of North Carolina history good reading for both Republicans and Democrats. In his history of the 60 years after 1950, Leutze credits governors of both par- ties with moving North Carolina so that it was viewed "as one of the up-and-coming states in the country and surely one of the most progressive in the South." Leutze characterizes the groups that brought about the Republican triumph as new "Redeemers" like those who took control of North Carolina government in the post-Recon- struction era. He summarizes the factors that led to their takeover: "The continuing traditionalist strain; the complacent Democratic Party; the Redeemer's well-oiled, coordinated orga- nization; out-of-state dark money, the Tea Party; the economy; the loss of business support for progressive policies; Obama; scandals and the lack of organization by public education lead- ers; and finally, the concept that it couldn't happen here. When you put them all together, it is easy to understand how the battle was lost." Leutze mourns the transformation of the former Citizens for Business and Industry organization, which had provided strong support for the state's public schools and higher education systems. It changed its name in 2007 into the North Carolina Chamber, which focuses on bottom line business issues. He says that Barack Obama's election turned out to be a "gift from an evil fairy" because it mobilized a racist backlash that contributed to the strength of the Redeemers in the 2010 elections. Although, Leutze's political history is not a substitute for more objective political histories like those of Rob Christensen's The Paradox of Tar Heel Politics and Tom Eamon's The Making of a Southern Democracy, his passion, grounded in a love of North Carolina, make it important reading for those wish to understand our state. Partisan Democrats might want the book just for the cover, a car- toon illustration by Dwane Powell with caricatures of Thom Tillis, Phil Berger, Pat McCrory and Jesse Helms. Jim Leutze Wants His State Back BY D.G. MARTIN JOHN HOOD, President of the John Locke Foundation, Contributing Writer. COMMENTS? Editor@upandcomingweekly. com. 910.484.6200 D.G. MARTIN, Columnist, Host of UNC's Bookwatch, Contributing Writer. COMMENTS? Editor@upand- comingweekly.com. 910.484.6200. The real reason, then, to reduce public-sector tax burdens and spending levels is not to engi- neer some kind of short-term stimulus.

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