Spillover effect: a secondary
effect that follows from a primary effect, and may be far removed in time or
place from the event that caused the primary effect”. (1)
The politico and spillover
effects
Spillover effects are positive or negative externalities [neighborhood
effects] of a particular action e.g. burning coal for electricity has the
positive externality of power-on-demand while soot is depicted as a negative
externality. Other times political proponents of proposed private sector
investment or proposed public sector spending co-op the concept of “spillover”
to mean some positive external economic activity that arises from a primary
economic activity e.g. a computer maker builds a new assembly plant which then
attracts suppliers to situate nearby or a downtown revitalization plan based on
X causes businesses associated with X to be attracted to the downtown area as
well. The phenomena are many times termed/framed as "spillover into the local
community".
Note: "spillover into the local community", in the
main, is a politico proposition-phrase that frames only the positive aspect of
spill-over effects and purposely leaves out any negative externalities of such
spillover effects such as traffic congestion, the taxpayer cost of additional
social overhead capital, tax relief for the attracted primary event and hence
taxpayer cost for attraction by low or zero tax rates for a specified period,
etc.
Failure to diversify an
economy’s portfolio of primary effects
A potential as well
as real life reoccurring long-term problem with the depicted spillover effect
is the concentration of particular spillover activities associated with the
primary event. That is to say, the first stage spillover effect as described/depicted
is many times a concentrated single end result. For example, a natural gas
find, a valuable coal seam, the opening of a large auto assembly plant, or the
attracting of an entire sub-sector such as textiles becomes associated with a
concentrated first stage spillover effect that lacks diversification within the
economy at hand. For example, the primary effect described above is followed by
a first stage item which is generally the primary event’s direct suppliers. The
primary and the first stage secondary effect create a robust economy that
causes no perceived need to diversify the economy further. That is, the robust
economy is concentrated around the primary first stage and secondary events.
Over time ancillary
items pop-up regarding the primary and first stage secondary events such as
additional housing, auto dealer, grocery stores, retail strip centers, etc. However
these items are not additional primary events. Hence we have an economy based
on one prime event and the prime events suppliers. Occasionally the economy
seems so well situated that the need to diversify and find additional and alternate primary effect and associated
spill over effect items are put aside in favor of additional duplicates of the
initial primary and first stage secondary events e.g. Buffalo as a steel center,
Detroit as an auto assembly center, greater North Carolina as a textile center.
Hence the primary driver and first stage secondary events
create such a robust economy that the mind-set becomes “what goes up continues
to go up”. Over time exogenous events such as aggregate regulation, taxes,
technology, changes in demand preferences, etc. can cause a decline in the
concentrated primary event which causes the reverse process of the primary
first stage secondary events. The economy begins to deteriorate, deterioration
increasing at an increasing rate e.g. Detroit.
In the Background
Spillover effects
and politicos through the mechanism of government
From the discussion above it becomes obvious that
diversification is very important within an economy’s portfolio of primary
effects. However, regardless of the amount of diversification, the politico’s
mantra of “spill over into the local community" comes with a lesser known
phenomena that empowers the politico and simultaneously drives away the very
primary effect, secondary primary suppliers, and ancillary items that the
politico trumpets with the manta "spillover into the local community".
When politicos want to attract a primary effect and sing the
praises of “spill over into the local community" caused by the primary
effect, the politico also sees the entire exercise as potential tax revenue the
politico can use for political constituency building purposes. That is, the
politico rejects the concept that all capital and all human capital is mobile,
and most capital and most human capital migrates to the lowest environment of
tax and regulation. The politico substitutes mobility with “fixed”. That is,
the politico sees the primary effect, primary suppliers, and ancillary items as
tax revenue generators that can fund political constituency building exercises.
The politico, with the mind set of primary effect, primary
suppliers, and ancillary items as tax revenue generators, begins a long march
of raising taxes on the very concept of “spill over into the local
community" and the revenue is used for political constituency building.
The politico thinks they can raise taxes and further raise taxes, and raise tax
even more as the taxed entities are perceived as “fixed”. That the “fixed”
entity will not/cannot move and hence is a constant target of tax. The politico
then takes increased tax revenue and builds politico monuments [public
structures that supposedly benefit the greater public], increases
redistribution to build a dependent constituency base, and increases size and
scope of government to create yet another dependent constituency base of the public
sector dependent on the politico to maintain funding.
The fallacy of “fixed” entities and escalating taxes on such
entities ends by the entities merely following the economic phenomena that: all
capital and all human capital is mobile, and most capital and most human
capital migrates to the lowest environment of tax and regulation. Over time,
most capital and human capital migrate away leaving the locale with no tax base
yet the associated cost of maintaining prior build politico monuments, a redistribution
system with politico build constituency dependent on continue redistribution of
a tax dollar stream and a bloated public sector. That is, the economy begins to
deteriorate, deterioration increasing at an increasing rate. A phenomena that
can be in place of or in concert with the failure to diversify primary effects
as discussed above.
That is, purposely, the politico creates a situation that
causes the primary source to pass like the wind through the trees.
Notes:
(1) http://www.businessdictionary.com/definition/spillover-effect.html
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