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Noted economist Steven Horwitz delivers keynote address during Managing Local Government Conference at SUNY Potsdam


POTSDAM - Hundreds of government representatives spanning five counties began filing into a capacity filled Barrington Student Union at SUNY Potsdam shortly before noon on Tuesday, to listen to touted economist and professor Steven G. Horwitz present “The Five Economic Ideas Everyone in Local Government Should Know.”

Mr. Horwitz, who has authored two books and been a frequent contributor on CNBC, Fox Business and Bloomberg, spent his presentation offering advice and ideas on how to manage a successful local government. The keynote address accompanied a lunch that was served during the 22nd annual Managing Local Government Conference at SUNY Potsdam.

Dr. Horwitz is a Charles A. Dana Professor of Economics and department chair at St. Lawrence University.

Dr. Horwitz warned local government officials the presentation would consist of some less than ideal advice for how to run a successful local government.

“I’m going to be something of a downer today. I’m going to talk about lessons in humility. I thought it would be interesting to talk about five economic ideas that everyone in local government should know,”

The leadoff economic idea was entitled, “Prices are Incentives Wrapped in Knowledge.” The economist pointed out that despite people often thinking the contrary, prices are not simply just numbers. He said that prices and the act of buying and selling are forms of communication among one another. He related this concept to the price of gasoline.

“We see that gas prices are $3.69 here is Potsdam and $3.59 in Canton. When we see a price like that, what does that mean? What does that number mean? That number is a product of an ongoing conversation of sorts between buyers and sellers,” Mr. Horwitz said.

“That price has a meaning and communicates with more information. It also provides incentives for people. We know that when the price of gas goes up to $4 a gallon we start thinking twice. ... We start thinking on the margin. We start to adjust our behavior in important ways.”

The next piece of Dr. Horwitz’ presentation, “It’s Always a Comparison to the Alternative,” focused on different situations where one seemingly difficult circumstance is compared with another one that may be worse than the other option.

Dr. Horwitz talked about the economic art of “seeing the unseen” and how economists frequently go through the comparison process.

“Asking that question, asking the ‘compared to what’ question is one of those fundamental insights that economists have. Another application of this is sometimes you hear people say, ‘Well, you know it’s too bad that Hurricane Sandy did so much damage on the east coast and Hurricane Katrina did so much damage on the gulf coast.’ Then they’ll pause for a second and say, ‘But you know, it’s not all bad. After all you are going to have rebuild all of that stuff in New Jersey or New Orleans and that’s going to put people working and that’s going to be demanding construction materials.

“Well that’s a good thing isn’t it?’” he said. “An economist is going to say, ‘Well wait a second, are you suggesting that if this is a good thing we should go around burning down American cities so we could boost the economy by rebuilding it?’”

Dr. Horwitz argues that despite some other beliefs, situations like Hurricane Sandy do not boost the economy. The resources used in the rebuilding effort could instead be used for other kinds of things.

The third piece of advice from the speaker was “Local Isn’t Necessarily Better.” Dr. Horwitz noted that in some cases buying local is better, but the main thing that will help the economy is if consumers buy the best products at the best possible prices.

“One reason for that is if I can find something cheaper on the internet than locally, the money I save there I can actually spend locally on something else. In other words, I’m better off. I’ve got both the thing I want cheaper and something else,” he explained.

“Even with big companies like Walmart, one thing we have to remember is that they’re local too. The 400 people that work in that Walmart on Route 11, that’s our community. The people who manage it are our community as well. So part of buying local often means buying from chains. The best message that you can send to people to improve local economies is that you tell people to buy the best product you can at the best price. That’s what going to help put the pressure on local businesses to be the best that they can.”

“Creating Jobs is not Creating Value” was the penultimate talking point raised by the economist. “It’s easy to create jobs. I could create tons of jobs in St. Lawrence County right now,” Mr. Horwitz said.

He claimed that in a struggling economy, creating value, not creating jobs should be the primary focus.

“It’s not about creating jobs. It’s not about creating work. It’s about creating value. In fact, what good economies do is in some sense destroy jobs, jobs that we don’t need any more. The more we can produce without using human labor, the better off we are,” Dr. Horwitz argued.

“For example, 100 years ago, about 40 percent of Americans were engaged in agriculture in some form or another. Fast forward to today, that number is less than 2 percent. We destroyed tons of agriculture jobs. Yet our farms are more productive than they’ve ever been and we feed more people than we ever have before.”

Before concluding his presentation, Dr. Horwitz talked about his last subject, “Living Wages (and Zoning and Licensing Laws) Prevent People from Making a Living.”

“You can’t make people more productive by forcing people to give them a higher wage. Minimum wage laws are minimum productivity laws. It basically says, ‘You won’t get hired unless you can produce this much.’ But what about the people who can’t produce that much? They would get hired if we didn’t have minimum wage laws,” Dr. Horwitz said.

He concluded that the more hoops that people trying to get a job have to jump through the more difficult it will be for them.

Dr. Horwitz wrapped up his talk by sharing some advice with town and village elected officials.

“The people who elected and appointed you are just like you. They’re smart, they’re creative and they find ways to create value. They can find ways to create jobs, they can find ways to create wealth for the fellow citizens,” he said.

“It’s often the case that what we need to do is just to give them those opportunities to release that and to give them the chance to show what they can do. The north country is full of creative, smart, entrepreneurial people, and I think if you give them the chance they can create a really vibrant regional economy.”

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