Wednesday, October 15, 2008

More thoughts on the Krugman Nobel

It's not a completely direct link, but one of the outgrowth's of Paul Krugman's economic research is the concept that if indeed economies of scale have something to do with trade patterns and economic prosperity, then why not see if one can "prime the pump" and set up "enterprise zones" to get a "critical mass" of enterprise in one area to get things going?

Well, we've been doing exactly that in many ways--policy-makers didn't wait for Krugman's thesis and following papers to get started--and we've got the results in now.

Stadiums and convention centers in big cities ("they'll jump start downtown!") that not only haven't paid for themselves, but also are surrounded by virtual ghost towns. Acre upon acre of empty lots in New London, CT. Broken promises from Best Buy here in the Twin Cities. A half-empty, money losing Mall of America.

And then you've got the other side of the equation; solvent small businesses taxed heavily to bring these big "helpers" into town. In the 1990s, California saw a huge outflow as tax piglets left communities that would no longer let them suckle--many of those piglets coming to Colorado. Now many of these companies have either failed or moved on as well, leaving devastated downtowns behind.

Moral of the story; yes, Krugman was right in noting that trade patterns owed something to economies of scale, but no, you cannot create these by appointing a bureaucrat and giving him a budget.

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