MALINVESTMENT

            Every week we hear of another new Michigan program, designed to bring us new prosperity and jobs. So why don't we have any? The answer might be something called  "malinvestment." You've heard of "malpractice?" Same thing. So what's investment got to do with jobs? Look at it this way…:

            If you want to grow stuff, you have to have seed. There are entrepreneurs who work with seed, and we call them "farmers." The farmer sees where he can plant the seed to get the best crop, and decides what crop is best to plant to give him the best profit.

To Grow Crops, You Need Farmers. To Grow Jobs, You Need Capitalists.

            Now if you want to grow business, or "enterprise," you have to have money. That money is called "capital." There are entrepreneurs who work with money, and we call them "capitalists." Without capitalists, be they banks, partnerships, or individuals, enterprises can't get the money they needs to grow and you don't get jobs.

            So let's go back to the farmer. Seed is not unlimited. So to take a limited amount of seed and grow lots of food, you need good farmers looking out for their own profit and planting where they figure they'll get the best yield of crops given the cost of growing.

            But say some hypothetical person--call her "Governor Jennifer Granola," decides that Michigan should grow Mexican Jumping Beans, to harness the environmentally sensitive alternative energy power of the Jumping Bean, and none of us will need yukky coal or gasoline any more. Better yet, Michigan can become the Jumping Bean Capital of the world, and lead the way with new Clean, Green, Jumping Bean technology!

So We Pass Laws...and Live Happily Ever After...?

            So Michigan passes laws giving tax breaks for Jumping Bean growers and processors, as well as government loans or outright gifts. What happens? Well, smart farmers will start growing Jumping Beans, instead of something else. A whole economic world will spring up around Jumping Bean production, from suppliers to workers, to housing. This spending and investment will be artificially directed away from growing other stuff, like wheat and corn, so we have less of those things. Even worse, we'll be producing Jumping Beans that no one wants, so Governor Granola will have to pass a law forcing utilities to generate a certain percentage of power by Jumping Beans.

            This artificial economy is called a "distorted market." Few utilities would use Jumping Beans, and few farmers would grow them, if the government hadn't put its thumb on the scale. Limited resources--maybe even scare ones--are directed away to the distorted economy. Sooner or later the malinvestment catches up to you, the artificial economy collapses, and you have a recession. Even worse, the taxes to pay for the Jumping Bean policy hurt the non-Jumping Bean growers, or anybody else who does business in Michigan, so they move away or don't come here at all--so you lose the natural wealth you might have earned--along with the jobs.

The Preference Regime, and Why It Doesn't Work.

            It works this way for farmers, it works this way for capital, which is lot more scarce than seed. When Michigan decides it wants to favor this industry or that one, it creates a "preference." Currently, Michigan is the Preference State, where we forgive more tax income than we take in. It's a crazy carnival of malinvestment, where some get breaks and others get taxed, based on government brainstorms and political clout. You could sue your broker for egregious malinvestment, or steering your money to cronies or contributors. Where's the accountability for Jennifer Granola?

            So what's the answer? Quit promoting malinvestment. Get government out of the economic planning business. Lower the taxes on everyone.  Lower the burden and state overhead on everyone. Then everybody can compete equally, some will fail and some will succeed, and the winners can be the next GM or Microsoft. Heck, maybe it'll even be the Mexican Jumping Bean Company! You can invest right now with M. J. Bean Inc., and maybe you'll get rich. But you'll do it with your own money, not mine.