Busy Bee’s is a popular destination for parents of young children in the Washington, D.C. area. Its two locations are especially packed on cold days thanks to its indoor playgrounds that include balloon pits, swinging chairs and slides. No doubt there are play concepts like Busy Bee’s all over the U.S., just as there are businesses similar to it throughout D.C.
For older kids and parents, Dave & Buster’s locations can be found nationwide. Each has bowling, arcade games, countless televisions showing live sports, plus fairly broad eating options. For those who want a quieter place to work, stage a meeting, or just relax, Starbucks are so ubiquitous that they can increasingly be found across the street from one another in heavily trafficked cities.
After that, the American commercial landscape is endlessly dotted with bars, movie theaters, amusement parks, water parks, gyms, restaurants, along with combinations of many of what was previously mentioned for the fun-seeking, health-conscious and hungry. At the Mall of America in Minneapolis alone, the non-shopping options are multitudinous. Visitors can ride roller coasters, watch concerts, go bowling, play miniature golf, swim, fly a flight simulator, escape to a spa, or from an “escape room.” If tired, there are hotel rooms. What’s frequently referred to as the MegaMall seemingly has everything.
Which brings us to Williston, ND. Largely thanks to a weak dollar subsidy that rendered oil artificially expensive in the early 2000s and beyond, oil that normally would have been unprofitable to extract suddenly became profitable. Needless to say, the money illusion that pushed oil from $27 in 2001 to over a $100 by 2007 sparked an energy extraction boom. Williston prospered amid this repeat of the 1970s whereby a plentiful commodity was made to appear scarce by a greatly shrunken dollar. A once sleepy town that few had heard of was now ground zero for a fracking boom.
Amid the boom, Williston’s population soared over 80 percent to 27,000. So did government revenues soar. Revenues from local sales taxes surged, as did Williston’s share of North Dakota’s oil-tax revenue. As a consequence, Williston’s politicians suddenly found themselves staring at a tax windfall. Their actions were predictable. They went on a spending spree.
That they did speaks to something seemingly missed by left and right in their tax discussions: rising government revenues are a tax increase on everyone whether one pays a little, a lot, or nothing in taxes. When politicians have money to spend, they spend it. In so doing, they distort and shrink economic activity through capital misallocations that increase government control over the economy. We all suffer their prodigality.
So while local government waste is preferable to federal waste for it somewhat containing the inevitable error of precious resources misused, let’s be clear that when entrusted with hundreds of millions of dollars, Williston’s politicians squandered them. In addition to the buildout of a new wastewater-treatment plant, the Wall Street Journal reported in December that the city of Williston “invested hundreds of millions of dollars in a new airport” even though there’s already one fifty miles away.
They also built a $70 million “recreation center” that, among other things, includes four tennis courts along with an indoor water park. Ok, but as we all know, “recreation centers” funded by the profit-motivated are abundant in locales populated by workers with lots of disposable income. Why then would politicians waste tax revenues on that which is regularly brought to market without tax dollars?
Readers doubtless know where this story is going. Williston’s politicians spent with abandon when the economy was booming because they could, and the theoretical bill is coming due. The city now has over $200 million in outstanding debt, and in 2016 Williston’s municipal bonds were downgraded to junk status.
What changed the former boomtown’s fiscal picture? The dollar hit an all-time low in 2011, but began to slowly strengthen after. As a commodity priced in dollars, oil is very sensitive to dollar movements. So while the greenback remains a fraction of its early 2000s’ self, it rose enough from 2012 to 2015 such that the price of oil came down quite a bit. As oil fell below $50/barrel in 2014, Williston’s tax revenues began to plummet.
Important for this piece is what Williston’s story tells us about budgetary economics more broadly. It’s fair to say that what happened in Williston discredits just about every side of the federal budget debate.
For those on the right who regularly thrill at rising federal revenues, they need to rewrite their models. Government spending is a tax. It’s the cruelest tax of all because it empowers politicians to misallocate resources that would otherwise be directed to their highest use by true market signals.
As for the so-called “deficit hawks” on the left and right, they need to rethink their faux morality about tax cuts. The story from the hawks is invariably about how we can’t “afford” lower tax revenues wrought by tax cuts because of the big deficits they allegedly cause. Sorry, but that’s just silly. Williston’s story loudly reminds us that politicians don’t pay down debt when showered with revenues. They find new ways to waste the money. More important, it's the surging tax revenues that enablethe borrowing which so horrifies the confused hawks.
Returning to the revenue worshippers who repeatedly tell us about how tax cuts lead to higher revenues, please find a new argument. Even if empirically true about tax cuts and rising revenues, the viewpoint has become ridiculous. See above. The tax plan that connects politicians with revenues is a tax plan that increases the horrid tax that is spending. The goal should always and everywhere be to reduce tax rates so much that revenues decline. Substantially.
As for the delusional Paul Krugman-ites who presume that government spending drives economic growth, Williston mocks their certitude. Government spending is always and everywhere an unfortunate effect of economic growth. Logically. When Williston was booming, government revenues soared. When Williston’s economy sagged, so did government revenues. Governments can only throw away wealth insofar as the private sector creates wealth for them to throw away. Governments can't create wealth by virtue of them taking it from its creators. Krugman and his followers need to humbly search for common sense.