It would appear from the pronouncements of public officials that the primacy of the market economy has been established beyond doubt. Even Democrats such as Bill Clinton, who have grimly endured the “tax-and-spend liberal” epithet hurled at them by market-friendly Republicans, have professed dissatisfaction with "big government."
With Republicans and Democrats alike espousing the virtues of free markets, it would be tempting to conclude that the government is no longer a proponent of industrial policy -- i.e., policy designed to favor certain industries. After all, countries around the world have piled up unenviable records of failure in picking winners and losers, and the U.S. government has not been reluctant to excoriate others for mollycoddling various sectors of their economies.
And so it comes as a surprise to learn that industrial policy is alive and kicking in this country. At the federal level, the Internet has become the darling of politicians. First Al Gore claimed to have invented it, now George Bush supports a temporary moratorium on taxes on Internet-related transactions, and John McCain, going one step further, promises to make the moratorium permanent.
Nor have the states been coy about bestowing favors on the chosen few. Witness the breathless ardor with which several state governments attempted to lure the German automakers Mercedes-Benz and BMW to their states. In the end, Alabama and South Carolina offered the best subsidy packages, and the automakers duly rewarded them with the coveted factories.
Closer to home, the Green Bay Packers have urged the Wisconsin state government to help it with its stadium renovation plans. Of the $295 million needed to refurbish Lambeau Field, the Packers are seeking $160 million in public assistance -- an amount to be financed, under their proposal, with a 0.5% sales tax in Brown County .
The Packers claim that the renovation is essential to maintain its competitive standing in the NFL. The alternative appears to be grim: according to television ads brought out by the Packers, without the refurbishment, the team's revenues will plummet in ranking to the bottom of the league -- leading, presumably, to a diminished ability to attract top talent and field a strong team. Others have prognosticated a grimmer (and more questionable) outcome: if the taxpayers vote down the sales tax proposal, the Packers will pack their bags and leave.
How will a refurbished Lambeau field prevent such dire events from coming to pass? Primarily through increased ticket revenues. The renovated stadium will sport more seats, including the expensive club seats, and higher ticket prices. In addition, season-ticket holders will pay a one-time license fee. (Rather perplexingly, the idea of selling naming rights to the stadium, a potentially lucrative move, has been given short shrift.)
In a market economy, a business confronted with the need to carry out investments to remain competitive will obtain a bank loan (or issue bonds) to raise the necessary funds, and pay the resulting interest costs with the increased revenues generated by the new investments. Why, one might wonder, don't the Packers do likewise, i.e. refurbish Lambeau Field with privately borrowed funds that are then repaid over time with the increased revenues?
The Packers, like most sports franchises, are unwilling to operate like a typical business for two reasons. First, professional sports teams do not raise their ticket prices to the level that the “market will bear” for fear that such pricing will confer a sheen of elitism to their sport, thereby alienating their middle-class fan base. This deliberate “under-pricing” explains why most teams, including the Packers, have long waiting lists for their tickets.
Second, and far more important, professional teams have discovered that local governments can be persuaded to part with taxpayer funds to finance stadium projects. In the infrequent cases where cities have balked, the teams have simply closed shop and moved to places with more compliant taxpayers.
The nature of financing in the current proposal raises additional questions. A sales tax is highly regressive: the brunt of the tax falls disproportionately on lower-income folks whose expenditures, as a proportion of income, tend to be much larger than those of more affluent folks.
Furthermore, when a tax is proposed for a certain purpose, it is imperative to consider the associated opportunity cost – viz., could the tax be used for a better purpose? Are there other $160 million projects that might possibly yield greater economic and social benefits for Brown County residents?
In coming weeks, the merits of the Packer proposal will be debated, and alternatives contemplated. All that is to the good. It is possible that Brown County will eventually approve the original Packer proposal in a referendum later this year, but the alacrity with which several public officials have endorsed the idea of a new tax is somewhat surprising. It is even more curious when one considers that ostensibly free-market Republicans have decided that certain private businesses are deserving of government largesse. Come election time, might one hear outraged Democrats castigate their tax-and-spend conservative rivals?