Friday, September 30, 2011

Healing Unemployment Through Enterprise Zones... or not

I happened to come across a Wall Street Journal article by Arthur Lafffer titled "How to Fight Black Unemployment," which can be found by clicking on this post's title. Laffer starts by attacking the government and its many demand-stimulus by arguing that such measures do not create any wealth, but rather redistribute it; and that by imposing higher taxes on the rich, politicians are penalizing individuals and businesses for their success. He then proposes a supply-side solution for the incredibly high unemployment rates that affect the African-American population in the U.S: the creation of enterprise zones in cities.
Enterprise zones would be geographically defined areas where there is a high concentration of poverty and unemployment. In Laffer's vision, employees that work and reside within such a zone would not have to pay any payroll taxes, and nor would his or her employer. The minimum wage would be abolished within the zone, as would any other regulations that might impede economic growth within such areas. Lastly, the profit generated by companies operating within enterprise zones would only be taxed at one-third the regular tax rate.
At first glance, Laffer's ideas seem to be arguing for less government interference, but it appears to me that he contradicts himself in the article whenever he proposes that the solution for high poverty areas is the creation, by the government, of enterprise zones. This measure would, at its best, redistribute some wealth, and at its worst, contribute to the perpetuation of inequality between regions. I think that most, if not all the companies that would relocate their activities to enterprise zones would be the ones that do not require qualified employees anyways, and are looking for the cheapest labor they can get. But if successful companies do come to these areas, the value of land within these physical boundaries would increase and rents would go up, driving the people that were supposed to benefit from the program away from it, since they would not be able to afford it anymore. Moreover, if restrictions against the selling and buying of properties within these zones are imposed, then the government will have stablished a regime of segregation, where the individuals that live within such zones will develop separately from the ones living outside of it.

1 comment:

Charmayne Marchuk said...

Is this guy the same guy behind the Laffer curve?