[E]conomic growth doesn’t come from government spending or planning, but from the heart and soul of entrepreneurs –men and women who are willing to take risks, who brave failure to seek success on the frontiers of enterprise.

                                      –Ronald Reagan

The problem with economic incentives lies in the fact they take from one company and give to another. The Oklahoma Department of Commerce hands out tax dollars through various incentive schemes to companies they favor over others. Incentives give the illusion of creating prosperity by the fact that actual people are employed, but this is not actually enhanced prosperity. In reality, it is government created growth that occurs only with a constant infusion of taxpayer funds and that will fall away. Or, one-time economic incentives are a mere redistribution from taxpayers to the politically connected. Regardless, economic incentives from government distort the market and drive investment through government favors instead of through innovation and the preferences of free individuals acting as producers and consumers.

Actual economic growth must come from entrepreneurs. Entrepreneurs are the driving force in economic development, in the creation of ideas, and the direction of resources. Economic incentives interrupt the market, forcing resources that would be used in another capacity to be used for an economic plan. Removing the will of entrepreneurs, and the consumers they must please in order to be successful, distorts market prices and development.

Economic incentives are created to support some arbitrary goal; one must look no further than the film subsidies or the subsidies given to Canoo. While there is investment by these companies in the local economy, it’s rigid. The rigidity of economic planning does not allow for the dynamic nature seen in a free-market. For example, the incentives given to electric car companies are given because that company is thought by a handful of government planners to be the future of the market. This a bet placed by the government in hopes it will pay off. The electric car market could end up being too crowded and the company that received incentives (in this case Canoo) may never find a place in the market.

The money lost funding these incentives and the distortion of the market is not the only cost of these incentives. The land and labor that go into these plans are lost as well. Imagine if an area planned for an economic incentive spaceport was instead used for a factory. The factory would benefit the local economy as it would demand jobs and provide a service, rather than wasting resources on economic development plans to increase non-existent space tourism.

The lack of risk faced by government actors makes them reckless with taxpayer funds. Entrepreneurs bear the consequences of the uncertainties inherent in their risky actions. The failures of economic incentives aren’t judged as harshly as they should be because the cost of these failures, when paid for by all taxpayers, aren’t readily apparent. The unknown drivers in an economy create an opportunity for government planners to choose those they favor in a way that is more akin to a popularity contest. The unknown drives entrepreneurs in all of their actions and makes them create what is truly best for the market and its consumers.

If the economic incentives passed out by the Department of Commerce made sense, they would not have to fund them. After all, if it were profitable for a film company to locate in Oklahoma, an entrepreneur would have already started this business. It is thought that economic incentives help entrepreneurs, but they only make the market less effective in what it does naturally. It also hurts those who don’t receive the incentives. If one car company were given money to build a facility in Oklahoma, this would likely restrict another, as there is now more competition for land, raw materials, and labor. The impact of an economic policy cannot be judged on just what is seen, but also on what is not seen. The unseen is essential for entrepreneurial risk-taking which is the driving force of the market.

Jason Lawter is Fiscal Policy Fellow at 1889 Institute. He can be reached at [email protected].

The opinions expressed in this blog are those of the author, and do not necessarily reflect the official position of 1889 Institute.