Block Grants or Economic Block Heads

Our local state representative sent out the following tweet the other day and it made me think, “Who is paying for this?”.

The Indiana Office of Community and Rural Affairs (IOCRA) grants funds to “help rural communities improve their quality of of life and ensure the health and safety of their citizens”. Apparently, rural communities are not capable of improving their own lives, using the means available to them, and need the resources of other communities.

In 2017, $37 million in block grants were given to Indiana communities through IOCRA. As Lt. Governor Suzanne Crouch (R – Evansville) stated, “We must continue to provide support for our rural communities if we want to keep Indiana’s economy thriving…..and encourage more growth opportunities.“. The Lieutenant Governor Crouch believes the widespread economic fallacy; market intervention keeps economies thriving and creates growth opportunities. Politicians fail to acknowledge the corollary, block grants do so only by deteriorating another’s economy or growth opportunities.

The state spends on things the state wants; individuals spend on what they want. The state spends on things that will satisfy the state’s needs and desires; individual citizens will spend it on their needs and desires. Immediately, it is seen there is a disconnect between the two groups when the state forces the individual to surrender their wealth to the state, for the state’s purposes.

There are six categories of grants that rural communities can apply for assistance to help with: Blight Clearance Program, Planning Grants, Public Facilities Program, Main Street Revitalization Program, Stormwater Improvement Programs and Wastewater Drinking Water, all of which can be addressed by the local citizens, should they choose to do so.

If a local community is in need of Stormwater Improvement then it is reasonable that they use the mechanisms available to pay for the improvement. Either through bond issuance or rate hikes, the means are available for the community to bear the cost of the improvement themselves. But according to Lt. Governor Crouch, and others, somebody other than the local community should pay. That “other” is you and me.

Voluntary Exchange Keeps Economies Thriving

First, what keeps Indiana’s economy thriving? The same principle that keeps all economies thriving; the free market not government confiscation and redistribution of wealth. Market intervention distorts and inefficiently allocates limited resources to the preferred project of the political body. If individuals, want it, they will pay for it. If government wants it, the individual will still pay for it.

Individuals working each day to produce goods and services and exchanging what they produce with those who produce something different creates a “thriving economy”. As more goods varying in content, use, price etc are produce, more are exchanged. With each exchange, those who serve others best and efficiently, create wealth, which in turn creates more opportunity to produce more goods.

Block grants do not meet a logical economic standard

Can block grants help a local community to “improve their quality of of life and ensure the health and safety of their citizens”? Absolutely, but not without a cost to the receiving community and the rest of the state.

Before the state gives block grants to a local community, it must first take the funds from its citizens. Before the funds return to a community in the form of a block grant, the state pays itself (politicians, administrators) for their labor. They forcibly take it from the individual taxpayer, pay themselves for doing so and then maybe the state will give some back to your community.

Second, some communities are more equal than others. If you live in Vincennes you love it. Why? Because the state sent you $500,000 in 2017 for Downtown Revitalization . If you are in West Lafayette, you are not so happy, you received zero. Taxes are levied across the state, an administration fee is withheld and then some is given back to the communities deemed worthy; to the rest of the state? “Stinks to be you”.

How is it possible for local economies (West Lafayette for example) to experience “more growth opportunities” when the block grant program reduces the wealth of the community available for investing? They don’t. Reality is that block grants only work for the select few who receive more in grants than tax dollars taken.

And it is questionable whether the block grant actually helps the recipient. The creation of a dependency relationship works to the disadvantage of both parties. Individuals within a community cease to take the initiative to solve their problems and the state increases it’s intervention under the “if not us, than who will” logic.

The illogic of intervention

The justification for economic illogical is the grants go to programs necessary for economic growth that the private market will not fund. Market economic logic tells us the projects are funded when private citizens are willing to risk their wealth for the prospect of a positive return. Main Street Revitalization Program demonstrates the economic illogic of the interventionist.

Main Street dies because its businesses fail to give what the consumer wants. Main Street was replaced by a new paradigm (big box retailer/strip mall) and that paradigm is being replaced by the next wave of entrepreneurship (have you used Amazon recently?) and that paradigm will change in the future.

In a free market, Main Street Revitalization will happen when an entrepreneur senses an opportunity and takes a risk. Risking their capital, they offer a new product. If she succeeds, then she is rewarded for taking the risk. If she fails, she loses her capital. But, in the world of block grants, the entrepreneur risks the public’s wealth, not their own, but they still keep the reward. Block grants assign the risk to the taxpayer, but privatize the reward.

In Vincennes, $500,000 will be spent on “facade improvements for nine properties on Main Street”. If I were one of the nine property owners about to benefit, I would be ecstatic. My building is about to get a face lift at the expense of someone else, ostensibly creating a competitive advantage for my property.

If I were property owner who is not getting a face lift, I would be mad. Why should my tax dollars pay for my competitors to get a “free” face lift? If I own property in some other city that did not receive a grant, I would be just as upset. “What is so special about Vincennes?”. As one of the “gang of nine” I have no risk, yet I will receive all the potential gain.

In the long run, this type of block grant actually is a disincentive for property owners to rehabilitate their property. The incentive to improve my property is lessened for two reasons. First, if I rehabilitate my property, but my neighbor receives a grant I have just created a market disadvantage for myself. Second, if I do not improve my property, the prospect exists that someday the state will give me a grant to do it for me. Until then, let the property rot thus agitating for more block grants to “improve Main Street”.

The worse part, is in thirty years, Main Street Revitalization will be joined by “Big Box/Strip Mall” Revitalization as this retailing paradigm becomes obsolete. No doubt, “unsightly” buildings are an irritating, but that is no justification for confiscating another’s wealth for your own self interest.

Economic Growth: Organic of Manufactured

Organic growth is the product of the free market. Individuals pursuing their ends by exchange. Acquiring what they value more, by giving up what they value less; creating wealth and investing in new products and services all under the auspices of government that protects the property they use for exchange. The simplicity is lost in the age when “experts” know best.

All the economic theory and it’s associated mathematical equations and use of statistics will never manufacture economic growth and wealth as efficiently and equitably as the “invisible hand” of the market. The problem is “experts” think they “know how” to live your life better than you do. Worse yet,we let them.

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