Gentlemen (Dear Commissioners, November 12, 2012) | Eastern North Carolina Now

    The supporters of the EDC have made the argument that the spending on economic development has a multiplier effect on our local economy, whereby each dollar spent locally by the EDC is magnified by some positive fraction.

    This argument was made, like so much of the EDC's reasoning, without any research on our area's economy to support it. There has been a recent study done concerning various categories of national economies which gives a much different result than the one expected by the EDC. Excerpts from the study mention:

    "Last and most important for the U.S. economy, the study sorts the sample into "country-episodes" where the total central government debt to GDP ratio has exceeded 60 percent for more than three consecutive years. This is the case for the U.S. from 2007 to the present. For the high-debt country-episodes the impact fiscal multiplier is close to zero and the long-run multiplier is -2.30. This means that $1.00 of additional government spending has no effect on impact but in the long run destroys $2.30 of total output in the economy."

    It concludes:

    "We have found that the effect of government consumption is very small on impact, with estimates clustered close to zero. This supports the notion that fiscal policy (particularly on the expenditure side) may be rather slow in impacting economic activity, which raises questions as to the usefulness of discretionary fiscal policy for short-run stabilization purposes. . . . Further, fiscal stimulus may be counterproductive in highly-indebted countries; in countries with debt levels as low as 60 percent of GDP, government consumption shocks may have strong negative effects on output. . . . Moreover, fiscal stimuli are likely to become even weaker; and potentially yield even negative multipliers, in the near future, because of the high debt ratios observed in countries, particularly in the industrialized world."

    It is worth pointing out that even if the multiplier effect had the hoped for relevance and validity which local economic development supporters had believed in, the funding flows actually directed out of our county as salary and benefits disbursements to the economic development director and payments to other out of county contractors and suppliers were more than enough to have killed the multiplier's usefulness. Also, the use of county funded matching grants did little more than increase the tax burden on county residents for the express benefit of a very few favored individuals.

    Going forward, it would seem prudent to work find grant opportunities which can recapture taxes paid to Raleigh, but to require that grant recipients supply their own matching funds. This policy will create a flow of cash back into Beaufort County while not creating an additional tax burden on local taxpayers.

    Regards,

    Warren Smith
      Beaufort County