Abstract
Comments are in response to an article published in the May 2011 (Vol. 25, No. 2) issue of Economic Development Quarterly, titled “The Influence of Targeted Economic Development Tax Incentives on County Economic Growth: Evidence from Michigan’s MEGA Credits,” by Michael J. Hicks and Michael LaFaive.
Hicks and LaFaive (2011), in their reference to central economic “planning” (p. 194) overlook Nobel Laureate Friedrich A. Hayek’s insight: Government central planners lack the knowledge to pick economic winners and losers (http://www.nobelprize.org/nobel_prizes/economics/laureates/). Hayek’s insight, in fact, was cited by Michigan legislative critics of MEGA when the program was created in 1995.
Hayek’s insight was presented in a 1945 article published in the flagship journal, the American Economic Review. Hayek’s essay on knowledge was termed one of the Top 20 articles in American Economic Review’s first century of publication (Arrow et al., 2011).
Hayek contends central planners lack the knowledge to plan a rational economic order because it exists “solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” Michigan officials attempting to create jobs with MEGA tax credits do not possess this knowledge, which according to Hayek’s insight, “is not given to anyone in its totality.”
Hayek maintains the knowledge problem has been obscured rather than illuminated by the increased use of mathematics in economics. Hicks and LaFaive present an econometric argument against MEGA. There is another argument against the program: Hayek’s insight. It should not be overlooked in any academic discussion of targeted economic development tax incentives.