Predicting how the economy will react to current market conditions is a difficult task. There is any number of factors that economists may assign variables to and throw coefficient in front of before producing their masterpiece equation that is sure to tell us how the economy will turn. With the dynamic nature of economics, it isn’t hard to imagine why these models are just that, models and not the laws of physics.
You would think that after the event growth would be easier, though not trivial, to measure and link to potential causes. Easier that is as long as fatal errors are not committed in the evaluation process.
The director of the Mackinac Center’s Morey Fiscal Policy Initiative Michael LaFaive has just released a paper showing how a government commissioned report has put on the rose colored glasses. Says LaFaive:
A recent Michigan State University report on the Michigan Film Incentive program is of limited use in determining the program’s success because it fails to enter the film subsidy’s costs into the economic model used to calculate the benefits to Michigan’s economy. This is analogous to an accountant leaving the liabilities off a company’s balance sheet and concluding it has a high net worth.
We’re all looking for signs of success in the current economy. Like the farmer checking his field everyday for the first sprouts of a crop we all want to see some green come up. One cannot declare that there is growth however when he has dug up the plants from another man’s field and placed them in his own. Now more than ever, when we are desperately searching for what will instigate and deter growth, policy analysts need to be relentless in accounting for all intervening factors and all costs a certain policy might have.
Adam Rule – MCPP Intern