Paying You to Steal from Me

You would have to think me an idiot if I gave you money to steal from me. But, how is that any different from states receiving federal aid (read: money from you and me) and then offering tax incentives to companies to re-locate jobs.

But economists are beginning to wonder whether such initiatives create or save jobs at all. Companies taking advantage of lucrative tax incentives are jumping from state to state—and bringing their jobs with them. Sure, some states will see job gains, but they may be only temporary. As a result, the states' efforts likely won't improve the national jobs picture. The tax-break boom "undermines the economic union, and it misallocates resources," says Arthur J. Rolnick, senior vice-president and research director for the Federal Reserve Bank of Minneapolis. "It amounts to economic warfare among states."

One example: Recently Michigan, Tennessee, and Wisconsin all tried to convince GM to locate a new small-car plant in their states. GM picked Michigan, which offered around $44 million in incentives, including a 100% tax break on new equipment for 12 years. I am sure Michigan residents appreciate all the Tennessee and Wisconsin tax payers helping to underwrite their offer. And, it's actually even worse. GM won't be creating any new jobs, it's simply converting an existing plant in Michigan and retaining 1,200 workers, and not hiring any new ones.

Does the practice of states offering these incentives sound familiar to anyone who has studied game theory?