The Eternal “Governmental Transparency” whine distracts the Mackinac Center from Economic Analysis

I wrote the following in response to the post by the Mackinac Center;

http://www.michigancapitolconfidential.com/21012

 Haas · Kentwood, Michigan

I’m on the Kentwood City commission and we also have our EDC, albeit small and unpretentious.
We were confronted at nearly every meeting with “Company x is going to get a new machine and they will create 2 new jobs. They have in the past increased (or decreased) the number of workers after we gave them a tax abatement. Could you approve exempting the new machine from taxes?” And of course, we always granted the tax relief. (The unlamented personal property tax is no longer applicable so at least that aggravation is quiescent.) I’m always in favor of lowering taxes so voted “Yeah.” I’m not sure what role Kentwood had in “creating jobs” but the planners were enthusiastic.

What the “experts” at Mackinac have never copped to is the Cobb (Cobb, copp not related) Douglas production function, one of the very few economic ideas that has actually been tested and verified. It seems that one can substitute capital for labor and vice versa. An example; it took 10,000 Irishmen 10 years to dig the Erie Barge canal using shovels, pickaxes and wheelbarrows. Had they used plows, oxen and scoops, (more capital,) 5,000 men could have done it in 2 years and if one used contemporary earth movers, bulldozers, 500 men one year.
The unappreciated effect when companies came to Kentwood to get tax abatements for machinery and hired 2 guys was that they would not have to hire 20 guys to produce the same increased output. The economic effect of tax abatements for buying machinery was to reduce the simple, knuckle dragging jobs so dear to the hearts of Snyder, Granholm…..
My understanding is that the current substitute is $150k worth of machinery for one job.

I always ask these companies where the machines are made. Many come from Germany, Japan or the USA, the three countries where most robots and machine tools are produced. Making these machines is the real labor requiring bankers in London or NYC, computer guys in Kerela, craftsmen in Stuttgart, process engineers in Detroit, Sales engineers, investors from China and Mexico hiding their money, truckers who move the goods and a few guys from around Michigan who know how to install the robots, do the electrical work and the like.

BTW;
Cobb was the math guy and Douglas the economist working at the Univ of Chicago in the 1930s and 40s. They actually did experiments to demonstrate the validity and relevance of their equation. They won a Nobel Prize for same. These guys were solid thinkers; Douglas served as the Senator from Illinois for 12 years.
The substitution of capital for labor was well know 50 years ago, but is, alas, now sadly forgotten. Even the Mackinac with its libertarian impulses can’t properly analyze the basic dynamic of capital and labor which is oft in play when companies use government money (really capital) to “create” jobs.

With MEDC, there is more than one scam in play. It would be fun to tie the bureaucrats and their friends in the media into knots with the simple math of Cobb Douglas. Too bad that Mackinac isn’t up to the job.

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