Taking Responsibility: Matt Drew for City Council

The Herald-Sun is reporting on the controversy surrounding the city financing of the building that houses the Know Bookstore on Fayetteville Street.

I found this quote to be quite interesting:

“Negotiations between a landlord and a tenant [are] a private matter,” said Larry Hester, Denise Hester’s husband and another backer of McLaughlin’s application. “Although Bruce has asked for more space, it’s a matter of negotiation between the landlord and the tenant, and not a public issue.”

He’s absolutely right, of course. The city has no business being involved in a landlord-tenant negotiation, unless there is a violation of the law.  However, if you believe that, then it should logically follow that the city should not be involved in the financing of a private business either.  Once you accept that it is okay for taxpayers to finance your private business, then you shouldn’t be surprised when the elected agents of those taxpayers start poking around.

Frédéric Bastiat was a classical liberal economist in the early 1800′s. One of his most famous writings was a story that described the Broken Window fallacy. In it, he described how some economic costs are things that are unseen – workers that are never hired, expansions that never occur, trades that are never made because of a previous cost.

There are unseen costs to the city subsidizing private businesses. This money is tax money, like most government funding. If it hadn’t been taxed, it would have been saved or spent by the citizens of Durham – perhaps at the very same bookstore that is the subject of this discussion. When you tax for economic development, you incur these unseen costs. You’re not actually adding anything of value to the economy, because you have to take to give. But because the taking is small, and the giving is large, it provides the illusion that this is “economic development”.

You also incur other costs that are not as obvious. This process of private business subsidies will of course generate contention for that money, and this is a process that is inevitably political – we’re witnessing that right now. The city council has a limited amount of time, and when it is considering a landlord-tenant dispute and the viability of subsidizing a business, it is not working on other things. Whether or not you think we have better things to be working on is your choice. I think we do. And those things are passing us by unseen.